For a startup scene that wants to encourage diverse talent to come to Germany and found businesses there, the growing significance of the far right party AfD is a cause for concern, says Verena Pausder, chairperson of the German Startup Association.
“The rise of the AfD is definitely not good news for the startup ecosystem — it’s not good news for Germany in general,” Pausder tells Sifted.
We need more migrant founders. We want more female founders and the AfD is stuck in a mindset from the 1950s of what women should be like.
“We urgently need talent from around the world to remain competitive, and AfD xenophobia basically sends out a message of ‘we don’t want you here’,” she says. “We need more migrant founders. We want more female founders and the AfD is stuck in a mindset from the 1950s of what women should be like.”
In a recent survey conducted by the German Startup Association, 60% of startups said that labour shortages are one of the main problems holding back their growth. This is despite the fact that Germany reformed immigration laws for skilled migrants last year, including lowering language ability thresholds for visa applicants and introducing a new kind of work permit for non-EU citizens. The duration and complexity of visa processes are still an issue for 17% of startups, according to the association’s survey.
The federal government has a responsibility to keep startups firmly on the agenda and send a strong message to the world: “We’re here, we are aiming high and we want people to join us to take part in this” — similarly to the way that French President Macron has “set the tone” in wanting France to be a startup nation, says Pausder.
But it’s also the responsibility of startups to speak up and present Germany as a welcoming place to come to — while countering any voices that lend to the AfD’s point of view.
“With startups in need of talented workers from abroad, they are naturally the best ambassadors for saying: ‘Come to Germany’,” says Pausder.
The positives
It may not be the easiest time to start a business in Germany. The collapse of the coalition government on November 6 means there will be early elections in February, and with that a lot of political uncertainty.
The German economy is also forecast to decline in 2024 for the second year running, according to the European Commission.
While Pausder says the country feels like it’s lacking direction, she says German startups are generally feeling optimistic and have proven their resilience this year.
According to a recent survey by the German Startup Association, 736 new startups were founded in the third quarter of 2024 — the highest number since the boom in 2021. More venture capital is flowing into the market again too; in Q3 2024, deal activity in the DACH region came in at €9bn, according to PitchBook data, which puts the full-year deal value on track to increase 6.3% year on year. In the rest of Europe, 2024 deal value is set to end 9.7% lower than 2023.
Other big wins for Germany this year, according to Pausder, include the passing of a law to enable digital employment contracts (previously, employers had to sign full-time contracts in wet ink making it difficult to hire overseas); and the unveiling of the WIN Initiative, which aims to pour €12bn of public and private capital into the German startup scene by 2030 to help companies scale.
On the agenda
There’s still plenty to do, however. For Pausder, one of the top priorities is mobilising Germany’s natural strengths — decades of industrial expertise, high quality R&D and talent — to turn the country into a deeptech powerhouse.
Germany has been too slow, and often risk-averse, to finance deeptech, she says. Another issue is bureaucracy: startups say that filling in endless paperwork and documentation to comply with both national and EU regulation can be burdensome.
The state could also increase procurement from deeptech startups.
“If you look at what makes the US deeptech sector successful, it is that the state becomes a customer of these deeptechs very early. And that’s something we can definitely learn,” says Pausder.
Because why not make orders with a startup like Isar Aerospace early on, instead of shooting European satellites up to space with rockets from SpaceX?
“Because why not make orders with a startup like Isar Aerospace early on, instead of shooting European satellites up to space with rockets from SpaceX?”
Germany could also allow deeptech startups to participate in public tenders; currently, many are ineligible due to requirements around age, number of employees or profitability.
“It doesn’t really make sense, because if you give the same tender to a company that’s been there a long time, it doesn’t necessarily mean they will succeed,” says Pausder.
As part of its ‘2030 Innovation Agenda’ released on August 29, the German Startup Association called for 5% of public contracts to be awarded to startups. An important step towards realising this would be to standardise and simplify procurement law, and make it easier for startups to apply for tenders with one, online application, says Pausder.
European collaboration
There’s only so much Germany can do for startups if it acts alone — which is why Pausder is campaigning for increased collaboration between EU member states.
The Association is “fighting” for a Capital Markets Union — a plan to create a single market for capital that could, for instance, provide businesses with more funding options at a lower cost and create more exit channels.
Pausder is also a fan of the EU Inc initiative which aims to create a new, pan-European legal entity in Europe to help companies operate and scale across 27 EU countries. Having standardised contracts, uniform rules for employee participation and a simplified tax system would all make it much easier for companies to start and grow in Europe — and maybe one day allow the continent to catch up with the US, she says.
“European strength will only unfold if we see it as one, liquid open capital market, if we see it as one place where you can go public, where you can serve millions of customers — obviously with different languages, but not different regulations,” says Pausder.
“Initiatives like this give everyone in this ecosystem an idea of how we can catch up in Europe. Now we all need to pitch in and get it done.”
Read the orginal article: https://sifted.eu/articles/verena-pausder-german-startups/
