What do Helsing, Isar Aerospace, DeepL and Black Semiconductor have in common? They’re all buzzy deeptech startups that have raised millions of euros — and they’re based in Germany.
In recent years, Germany — and, in particular, the Bavarian capital Munich — has emerged as a top hub for deeptech startups and talent, boasting major universities like the Technical University of Munich (TUM) and local industrial titans like Siemens and BMW as ready customers for young upstarts.
So far this year, German deeptech companies — a catch-all term for everything from robotics to new materials and spacetech — have raised €1.7bn across 78 deals, according to Sifted data. That’s a bit higher than last year’s $1.6bn (€1.43bn) invested, according to comparable Dealroom data. And notably, some of the largest deals in Europe in 2024 have been German deeptechs: Munich-based AI battlefield software startup Helsing raised a whopping €450m in July; AI language startup DeepL raised €277m in May; and rocket launcher Isar Aerospace received €65m in June.
Generalist investors have increasingly dipped their toes into deeptech companies in the region, including big American players Accel, General Catalyst and Lightspeed Venture Partners.
One driver of this activity is that deeptech has become an increasingly attractive sector for LPs, says Herbert Mangesius, founding partner of Munich-based deeptech VC fund Vsquared which recently raised €214m for its second fund. He adds that the big financings of startups like Isar Aerospace and electric air vehicle company Lilium, which is publicly listed and raised $114m in May, have helped boost the ecosystem.
That interest wasn’t the same about four years ago when VCs were more wary of investing in hardware businesses, says Roman Hölzl, founder of Munich-based robotics startup RobCo. “That has changed 180 degrees,” he tells Sifted. RobCo raised $42.5m in February from investors including Sequoia and Lightspeed Venture Partners.
It’s not surprising that Germany has emerged as a deeptech powerhouse considering its strong industrial and research heritage in areas like robotics, quantum computing and autos. But VCs and founders say the region still faces some cultural and bureaucratic hurdles that could stymie growth.
Germany’s ‘unfair advantage’
VCs and founders say there are a few unique advantages that have helped make Germany — and, specifically, Bavaria — a deeptech centre.
Thanks to local universities and big industrial and auto giants, there’s a wealth of talent and expertise to draw from in the region, investors say. Vsquared’s Mangesius argues that the technical quality of startups in Munich is “enormous” and “much better than what we see in other parts of the world”. Investors call out areas like aerospace, lasers and robotics as particular strong points for Munich.
With local companies like Siemens and BMW, Munich is known for its hardware. Benjamin Erhart, general partner at UVC Partners (which was founded by TUM’s startup lab and now operates independently, and recently raised a €250m fund), highlights industrial 3D printing company EOS as one of the reasons why Bavaria has developed rocket expertise, for example. “[EOS] build[s] the additive manufacturing machines that are actually used to print the SpaceX rocket engines, so the innovation that happens in the US is also partially, to a very important degree, rooted in that region,” he says.
RobCo’s Hölzl points out that big universities like TUM are churning out lots of talent in areas like robotics. There’s also a wealth of potential customers for companies like RobCo, which makes automated robots for small and mid-sized manufacturers. And, he adds, there’s good access to suppliers: “we’re looking at purchasing high precision components” like robotic motors, and “you just need a very stable and robust supply chain, which really is present here”.
In Munich in particular, “there’s like an almost negative bias towards business degrees,” adds Hölzl, who studied at TUM. “There’s a really strong push for engineering and tough problems to solve.”
Deeptech is becoming the “most popular thing at our university,” UnternehmerTUM founder and CEO Helmut Schönenberger tells Sifted. The startup lab churns out over 50 scalable startups a year, according to its website. Schönenberger says that the lab is closely collaborating with the Bavarian and federal governments on things like the nationwide Startup Factories competition to boost other startup centres across the country. BMW heiress Susanne Klatten also set up UnternehmerTUM and has been a big booster of the startup ecosystem.
Schönenberger adds that Germany’s “unfair advantage” is its combination of young talent and older talent at the big companies, as well as its strong supply chain for things like aircraft components.
Older institutions are also helping to stir up the tech scene. German life sciences research organisation the Max Planck Institute spun out Proxima Fusion, a fusion power plant startup which raised €20m in April. “Everybody speaks about tech transfer,” Mangesius says, and institutions like the Max Planck Institute “start fostering this more”.
Others, like Ekaterina Almasque, general partner at Finnish VC OpenOcean, believe Germany’s $1bn deep tech climate fund, which will invest in growth-stage companies, may prompt more funds in the region.
One area getting a lot of recent hype is defence, spurred on by the huge fundraise of Munich-based defence tech Helsing: “it’s booming right now,” says Schönenberger. Elsewhere, VCs like UVC’s managing partner Johannes von Borries and Erhart are currently seeing quantum, AI and robotics startups in the market. Mangesius highlights semiconductors and photonics as well as aerospace as strong sectors in Munich.
The scene is gaining momentum. But Germany still isn’t necessarily the European deeptech capital; VCs and founders point to other strong ecosystems like France, which has a robust spacetech scene, or Denmark for quantum and biomanufacturing.
And Germany’s industrial prowess may even be a hindrance to VCs. “Germany’s deeptech ecosystem is ripe with asset-heavy technologies — the most demanding area financially — which puts it at a further funding disadvantage compared to the French market which leads in the less capital-intensive fields of AI and biotech,” OpenOcean’s Almasque says. But she adds that a number of successful scaleups in Germany, like DeepL and IQM, are leading to “more positive conversations about investments in Germany.”
“The pity is that Germany and France are probably building competing, more or less, equally strong ecosystems,” says UVC’s Erhart; “[from a] global perspective, we don’t have the capability yet of joining forces.” Rival startups like Pascal (in France) and Planqc (in Germany) in quantum, or Mistral and Aleph Alpha in AI are splitting the financing and talent pool in half, he argues: that’s still a “structural weakness of the European ecosystem”.
“We need to talk more with our French colleagues.”
Deeptech hurdles
Like much of Europe, German deeptech startups face a lack of growth funding at the later stages. Most companies that reach the scaling phase end up getting cheques from US investors — startups like Helsing and RobCo, for example, have raised from big US VCs.
“It feels like there’s a lot of catch up work that has to be done,” says Hölzl.
There is a general openness from the government to help startups, argues von Borries, but Germany still lacks effective ways to support them: “It doesn’t mean that they need to give us money always, right?”
He believes the US and France are better at enabling the state to become startups’ first customer with contracts. That’s important for companies to get off the ground, but “as always, Germany as an administration is a little bit slower than maybe other [countries],” he says. (Germany has awarded some contracts for developing quantum capabilities.)
Founders face Germany-specific challenges, too. Founders and VCs point out the country’s exhausting bureaucracy — with things like requiring notaries for deals and, until recently, poor employee stock options programmes that make it hard to attract talent. “It’s just really complex to get international talent to come and work for a German company,” says Hölzl, pointing to things like visa issues. “That could be massively simplified.”
“It’s slow, it’s expensive, it takes time,” adds Mangesius.
But the Bavarian minister president Markus Söder wants Munich to be the “California of Europe”, comparing it to the US tech scene. At a conference earlier in 2024, Söder said Bavaria was investing €5.5bn in areas like AI, quantum and space through its startup initiative Gründerland Bayern.
Some are sceptical of the government’s impact on boosting the ecosystem. “I think it’s nice to take pictures” with chancellors and ministers, Mangesius says of local companies — but the ecosystem isn’t competitive “in the sense of what you see in the US or China. […] There’s no strategic view and framework [for] how we kind of foster the new industries versus how we try to sustain the old industries,” like coal, he argues.
There are also cultural boundaries in Germany that make the country more conservative and less willing to adopt new tech, some say.
“With many deeptech solutions, there’s just no quasi-works solution, right? It has to be at 99.9% in terms of the way a solution works, which I think is quite contrary to the ‘move fast and break things’ type of approach in software over the last couple of years,” argues Hölzl. He says RobCo’s customers, many of which are in Germany, are “relatively conservative when it comes to new technology”; “[you] have to be really, really clear in terms of what you’re offering. There’s very little room for ‘Let’s just try this out’.”
That conservatism can also be a problem on the founder side: “Where we are lacking is storytelling,” argues Mangesius. “Especially in Germany, we very often have a hard time […] thinking in these terms, being very inspirational. We try to think very pragmatically.”
Another major thing Germany — and Europe — is missing: big deeptech exits. VCs say Germany and Europe generally need to do a better job of enticing companies to IPO on the continent and not in the US.
Naturally, some founders are optimistic. “It’s still early innings for grown up companies in the deeptech space,“ says Hölzl, but “we have all the ingredients”.
“We’ve managed to do it with [software giant] SAP, like, 50 years ago,” he adds. “It’s about time to do it again.”
This article also appears in Sifted’s Germany Leaderboard report. You can download it here.
Read the orginal article: https://sifted.eu/articles/germany-deeptech-capital-europe/
