Why Germany is losing startups – and how we can change that

Author: Max Huber, Senior Startup & Business Analyst @ 5-HT Chemistry & Health

Introduction

New unicorns, rising investments, and a growing ecosystem: despite all the economic uncertainties, the German startup scene continues to show resilience. But behind the positive headlines lies a structural problem that primarily affects technology-intensive startups in areas such as chemistry, climate, and deep tech: these companies are founded in Germany, they grow here, but they scale elsewhere.

Why is this the case? And what do we finally need to change so that Germany no longer remains an innovation center without a value creation center?

The funding landscape in Germany has nothing to hide: there are funding programs such as EXIST, the High Tech Gründerfonds (HTGF), numerous regional initiatives, and business angels that offer technology-oriented founders good starting conditions.

But this picture changes abruptly as soon as startups no longer need a few hundred thousand euros for prototypes, but tens of millions to build facilities, tap into international markets, or double their teams. This is where the famous “scale-up gap” arises. Germany and large parts of Europe simply cannot handle large financing rounds.

In Germany, for example, venture capital (VC) investment as a percentage of economic output (i.e., VC investment as a percentage of GDP) was around 0.42% in 2021. By comparison, in the US, this figure was around 1.35% of GDP in the same year.¹ Another analysis concludes that Germany invests only one-ninth of the US level in VC in relation to GDP.²

These figures clearly show that Germany is still doing well in the early stages with subsidies – but there is considerable room for improvement when it comes to growth and scaling.

When capital is lacking, startups migrate

The lack of scale-up capital is not without consequences. More and more German startups are thinking aloud about moving abroad. According to current data, the share of large-volume financing rounds in Germany in the second quarter of 2025 was already around 57% of the invested volume – a good indicator that more funds are flowing, but at the same time: around one-third of the funds came from US investors.³

Technology-intensive startups in particular, whose business models are capital-intensive, quickly come under financial and structural pressure: they need large sums of money for pilot plants or production capacities, but often cannot find these funds in Germany – and therefore have to move abroad at an early stage. When investors in Germany hesitate, while US funds wait with open arms, the decision for many founders is almost inevitable: “We're going where growth is possible.”

The real tragedy is that startups that leave Germany are often particularly successful. An analysis shows that European companies that have migrated abroad are significantly more likely to achieve an initial public offering (IPO) or a takeover. In other words, Germany is not losing just any old crowd—it is losing the cream of the crop.

The US comparison: painful but revealing

Looking at the US, it immediately becomes clear why so many young companies are drawn there. Venture capital is not a marginal phenomenon there, but a central component of the economic system. Institutional investors, especially pension funds, invest heavily in startups. In Germany, on the other hand, the volume is smaller, and institutional investors are often held back by regulation.

Here, too, the figures impressively illustrate the difference: in Germany, the VC investment ratio between 2018 and 2022 was around 0.25% of GDP, while in the US, the figures were significantly higher at 0.85% for these periods. In 2021, around $269 billion in venture capital was available in the US, compared to only around $17 billion in Germany. This gap in capital volume inevitably has an impact on competition.

Why DeepTech has the hardest time

The situation is particularly dramatic for startups in the DeepTech sector. They represent precisely those technologies that face the most severe limitations. These companies require a lot of capital and cost-intensive infrastructure, coupled with long development cycles.

There are too many disruptions in the transition from research to commercial scaling. There is a lack of large funds, bold investors, and often simply a lack of locations where the next stage of growth can even be technically realized. Startups are moving to places where pilot plants and well-capitalized funds are already in place: the US or Asia.

Time for change

If Germany continues to conduct cutting-edge research but the value added from this research systematically flows abroad, this will have long-term consequences: economically, technologically, and geopolitically.

Larger funds are needed to finance the growth of deep tech companies. Institutional investors must finally be given the opportunity to invest significant sums in venture capital without being slowed down by excessive regulation. Europe must harmonize capital markets so that startups do not have to navigate 27 different corporate law and tax systems. And last but not least, we need a new start-up culture that sees risk-taking not as naivety but as strength.

The future will not be decided in the laboratory, but in scale-ups and rapid global growth. The talent is there. The research is there. The ideas are there. What is missing is capital, speed, and the will to finally change the framework conditions.

References

¹ https://www.schalast.com/en/pdf/22_2146_COP_IEF_BVK_2023_EN_06_ES.pdf

²https://www.iwconsult.de/fileadmin/user_upload/pdfs/2024/240827_meta_studie_layout_engl.pdf

³ https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-Dashboard/KfW-VC-Dashboard-Q2-2025_EN.pdf

⁴ https://www.ifo.de/sites/default/files/docbase/docs/econpol-forum-2024-4-audretsch-entrepreneurship-us-germany.pdf

⁵ https://www.schalast.com/en/pdf/22_2146_COP_IEF_BVK_2023_EN_06_ES.pdf