ICT Start-ups in Germany

Georg LichtCenter for European Economic Research (ZEW)

Mannheim, Germany

VUZF UniversityDriving Higher Levels of Innovation

October 1, 2013, Sofia

Agenda: Drivers of Startups in

ICT Industries in Germany

Market Entry Costs

Importance of Knowledge and Network Infrastructure

Access to Financial Resources

Startups Activity in Germany1995-2011

50%60%70%80%90%

100%110%120%130%140%150%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Inde

x 19

95=1

00

ICT-Sector High excl. ICT All industries

Source: Mannheim Enterprise Panel 2012

Startups Activity in German ICT Sector1995-2011

Source: Mannheim Enterprise Panel 2012

40%

60%

80%

100%

120%

140%

160%

180%

200%

220%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Inde

x 19

95=1

00

Total ICT ICT Services Hardware Software

Learning from Times Series Analysesof Startup Activity in Germany

Ease of Market Entry & Market Exit is crucial

Limited liability of founders: Introduction of opportunity to constraint the risk for founde

Regional Distribution of ICT Startups 2006-2011

SOFTWARE ICT Services Hardware

Source: Mannheim Enterprise Panel 2012

Startup Intensity = No Startups / Workforce at County Level

What Explains The Regional Distribution? Knowledge Infrastructure

o R&D in the Private Sectoro Regional availability of universities and public research facilitieso Supply of Highly Qualified Workforce especially with a

background in mathemathics, IT, engineering, and other technical degrees Larger number of potential founders Larger workforce available for startups

Network Infrastructure (only important for Software and Serviceso Distribution of product, aquisition of customerso Exchange of people, knowlegde, experienceo Communication with customers, market access

Based on analyses of panel of counties in German during the roll out of high speed telecommunication networks 2000-2006

Source of Finance of Start ups- Total funds used in first year (in %) -

Source: ZEW Startup Panel 2012

48

35

6

3

1

5

2

47

31

11

5

1

5

0

46

30

13

5

3

2

1

0 20 40 60 80 100

Cashflow

Founder

Private Banks

Public Banks / Subsidies

Family & Friends

Equity capital (VC, BA)

Others

Volumenanteile

ICT Sector Hightech excl. ICTr All industries

Financing of Startups Typically: Most Startups need only small amounts of money External funds is provided by private and/or public banks VC / BA is used by a small number of ICT startups only, which

however are characterised by a significant demand for external funding

Demand of external funding is highly skewed A sound financial system needs to provide small as well as significant

amount of money i.e. banks and VCs are needed Early stage equity funds are provided by private VC, public VC, or

business angels (more or less in equal shares) Funding gaps are present at startup as well as in expansion stage

A sound financial system should comprise bank financing and equity financing providing large as well as small funds for startup; in early stages government funding is also crucial

Thank You For Your Attention

Georg Licht licht@zew.deCenter for European Economic Research www.zew.deZEW, Mannheim, Germany

Co: Science Metrix