Why Europe’s next $100B company could be German
By any objective measure – capital invested, number of funding rounds or number of $B+ companies – Germany is one of Europe’s tech powerhouses. In light of Brexit, they may be even be making a run at #1, notwithstanding the resurgent French tech scene. However when you look at Europe’s breakout technology companies, while other countries in Europe have produced giants in fintech (Klarna, Adyen, Funding Circle, Transferwise), gaming (King, Supercell, Unity), music (Spotify) and communication (Skype), Germany’s tech successes have been more focused on e-commerce and marketplaces (until very recently Soundcloud would have been an obvious counter-example – here’s hoping a world-class team and product can create the outcome they deserve)
The reason for this is clear if you look at the profile of some of the $B companies out of Germany: Zalando, Delivery Hero, HelloFresh and of course, Rocket Internet itself, all are linked directly or indirectly to the Samwer brothers’ mothership. Whatever your view of Rocket, it casts a shadow over Berlin and the broader German tech scene, which has led to, in my view, an unfair perception of a scene that prioritizes business model innovation over technical innovation, and execution over true technical differentiation (as a side-note; IMHO Rocket made entrepreneurship a viable alternative to consulting and banking for a great many graduates in Germany, has created a large pool of highly-skilled data-driven operators and returned a huge amount of value into the ecosystem through several IPOs – doesn’t seem so bad to me).
$B exits, probably not a bad thing – Delivery Hero IPO: CEO Niklas Östberg ringing the bell
We at Atomico believe that deep-tech is thriving and diversifying in Europe and that the foundations are there to create the next $100B European tech company (fun fact: Germany already has a $100B tech company in SAP). My personal view, despite some external perceptions to the contrary, is that there is a strong case to be made that this next $100B European tech company could come from Germany.
…Why, I hear you ask?
Who will join SAP in the $100B club? (Source: S&P CapitalIQ Platform)
1) It has the talent
Talent is the most fundamental ingredient to any tech ecosystem, and here Germany is as well-positioned as anyone in Europe:
- Germany hosts 3 of the top 10 computer science universities in Europe in Munich, Karlsruhe and Aachen
- Berlin has the third largest cluster of developers in Europe
- Germany is the #2 destination behind the UK for migrants into the tech industry
Overall, it’s clear there is a deep technical pool, further strengthened by the growing investment in research centres such as the DFKI, the German research institute for Artificial Intelligence. With sites in Kaiserslautern, Saarbrücken, Bremen and Berlin, the DFKI is currently the largest research centre worldwide in the field of AI and one of two designated research centres for NVIDIA, alongside shareholders such as Google, Intel and Microsoft
Top 10 European Computer Science Institutions (Source: Atomico; Times Higher Education World University Rankings for Computer Science)
2) Investment from global tech giants and local leaders
These aren’t the only major tech giants backing deep tech in Germany. IBM has spent $200M to build its global Watson IOT HQ in Munich and Amazon’s only European Machine Learning centre is in Berlin. Not be outdone by the global players, SAP support the ecosystem across an entire company’s lifecycle, from incubator to early-stage fund supporting the likes of Celonis and Blippar, to a global growth fund with $2.4B under management and 44 IPOs and M&A exits. Germany’s more traditional industrial players are a further unique asset: in BMW, Audi and Daimler (in addition to world-class talent) there is capital for investment and M&A across the mobility and transport stack, whether in mapping, ride-sharing, or going forward, autonomous vehicles.
Architekturbüro: Murphy/Jahn, Chicago
IBM Watson IoT HQ in Munich
3) Distributed ecosystem beyond Berlin
Already we’ve mentioned talent from numerous cities across Germany, which may be a surprise to those who think the German tech scene doesn’t extend beyond Berlin. The diversification of hubs across Europe is a trend Atomico identified in our State of European tech report, and here again Germany has an advantage vs its Continental neighbours. With cities distributed across the country (vs the centralized nature of UK and France), and world-class sector expertise across these hubs in industries such as financial services, automotive and logistics, Germany has several cities with the potential to create global leaders. This runs somewhat counter to the start-up (specifically Silicon Valley) orthodoxy that focused, centralized hubs create the largest outcomes. However, just as New York and LA are producing some sizeable winners, so too do Germany’s multiple economics centres have the potential to triumph on the global stage
They’re not bad places to live either, which helps: Munich was ranked the highest quality of life of any city in the world by Teleport, with Hamburg and Dusseldorf alongside Berlin in the top 20. The companies are there too, as evidenced by the fact that tier 1 international investors such as Index, Accel, USV, NEA, Insight and Valar – as well as Atomico 🙂 – have all made investments in German cities outside of Berlin in the last couple of years. Coupled with increasingly differentiated conferences – from the steampunk playground of Pirate Summit in Cologne, to the Bavarian lederhosen and dirndls of Bits and Pretzels and the global line-up of thought leaders at DLD’s headline event, both in Munich – if you’re spending time in German tech, and only going to Berlin, you’re probably missing out!
Pirate Summit 2015. 3 September 2015, Cologne, Germany. Image ©Dan Taylor/Heisenberg Media
Walking the plank @ Pirate Summit. Obviously
4) Specialist early-stage investors
Germany already has one of the strongest early-stage funding ecosystems in Europe, with a diverse range of investors including operational experts (Project A), sector specialists (Point Nine), founders-turned-funders (Cherry), product-focused gurus (Atlantic Labs) and too many more to name them all here. But look at some of the newer funds (19 in total raised since 2016 with grand total of €2.4B, according to the sterling work of Yannick Roux), and a clear trend emerges with a focus on deep-tech:
- BlueYard is a genuinely thesis-driven VC, with a clear focus on decentralization of the internet and empowerment of users and their data. When Edward Snowden appears at a VC fund’s first event, you know this team is pretty serious when it comes to thinking about the future of technology
- Fly Ventures are a mix of operators and VCs with a clear thesis on the market, product and teams they are looking for in Machine Learning
- And Fabien at Asgard VC not only invests with a focus on AI, but has played a prominent role in building a community with his event The Rise of AI
5) Emerging companies
In talent, investment and support from industry, several vibrant hubs and a sophisticated early-stage investor base, all the ingredients are there for deep tech companies to be built from Germany. Over the past couple of years there has also been a shift in the type of company away from the e-commerce and marketplaces that previously dominated, declining from 33% of rounds in 2012 to 21% in 2017 according to Dealroom
Minh Ha Duong’s excellent overview of the European AI landscape lists 81 AI-enabled companies from Germany, second only to the UK, including companies such as EyeEm who recently showed results that outperformed Google, IBM, Amazon and Microsoft in image recognition, horizontal applications of AI such as Twenty Billion Neurons, and vertical applications as diverse as fraud reduction (Fraugster), automotive smart assistants (German Auto Labs) and sensors to reduce maintenance costs in industry (Konux)
Two of our own portfolio companies serve as further examples of this trend – GoEuro are trying to solve travel discovery and booking across all modes and countries, and have already built up one of the largest eng teams in Berlin at over 100, and Lilium are building an entirely new mode of clean urban transportation by building the world’s first fully electric vertical take-off and landing (VTOL) jet to usher in a new age of on-demand air transportation
In summary, there’s many reasons to be bullish about why the next $100B deep tech company will come from Germany – and if you’re a founder looking to build that company, you know where to find me 🙂
Alex Spain is a Senior Associate at Atomico – you can find out more about him here. If you’d like more analysis and insight like this, delivered monthly(ish) to your inbox, sign up to The Operator’s Manual (our newsletter) here.