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Investment in Berlin startups jumped by €1 billion this year, study shows

Venture capital investments in German startups hit a record level in the first half of 2017, with Berlin seeing a huge rise in funding for its startup scene, a new report shows.

Investment in Berlin startups jumped by €1 billion this year, study shows
Berlin at night. Photo: DPA

Funding rounds for startups in Germany and the overall value of funding hit record levels in the first six months of this year, a report released this month by professional services firm EY reveals.

The total number of investments in German startups rose by 6 percent in comparison with the same period in 2016, to 264.

But the really explosive growth was seen in the overall size of investment. In the first half of this year, €2.163 billion of investors' money went into startups, an increase of roughly €1.2 billion in comparison with the first half of 2016.

That growth was mainly driven by the e-commerce sector. At €939 million, over 40 percent of overall funding went into e-commerce. But health, FinTech and software startups all saw significant investment growth.

The report also confirmed that Berlin is the unrivalled startup capital of Germany. Forty-four percent of all investment deals happened in the capital – the size of Bavaria, Hamburg, North Rhine-Westphalia, Baden-Württemberg and Hesse combined.

And while the number of investment rounds in Berlin stayed stable, the size of the investments increased massively. Whereas in the first half of 2016 Berlin startups raised €531 million in investment funds, so far this year they have pulled in €1.48 billion – a 178 percent increase.

Two deals in particular contributed to the eye-watering growth in Berlin. Food delivery firm Delivery Hero, which made its stock market debut in June, took in a €387 million investment round. Meanwhile Auto1, an online used car marketplace, banked a €360 million investment earlier this year.

There was good news outside the capital too, though.

Hamburg was actually the city that saw the largest growth in investment relative to the first half of 2016. While in the first half of last year startups in the harbour city raised €53 million, this year they pulled in €178 million – a 236 percent increase in funding.

This was just the latest good news for Germany's second-largest city. A study published in June by German government-owned bank KfW showed Hamburg beat out Berlin for the first time in terms of the number of people who started a business per capita. Between 2014 and 2016, Hamburg had 253 new founders annually per 10,000 working people. In Berlin, this figure was 238 business starters.

SEE ALSO: The Hamburg 'coliving' and 'coworking' space you never have to leave

FIND A JOB: Browse thousands of English-language vacancies in Germany

 

 

 

WORK

EXPLAINED: Could people in Germany soon be working until the age of 68?

A dramatic warning issued by an expert commission to the government has said that Germany faces a “financial shock” if it doesn’t raise its retirement age soon. So will we all have to work for longer in the near future?

EXPLAINED: Could people in Germany soon be working until the age of 68?
An elderly man uses a computer. Photo: dpa | Andreas Gebert

A report issued this week by the Economy Ministry’s advisory council warned that Germany will have to deal with “shocking increases in financing issues for the statutory pension system from 2025 onwards”.

The council said that the only solution was the unpopular step of raising the age of retirement to 68. But the proposal has been met with fierce criticism from left-wing parties.

What is the current retirement age in Germany?

The age of retirement in Germany has been slowly increasing since the year 2012, when a government reform raised it from 65 to an eventual age of 67.

Currently, the age of retirement is being raised by a month each year. People who were born in the year 1956 and are celebrating their 65th birthday this year will have to wait until they are 10 months past their 65th birthday before they can celebrate their retirement.

READ MORE: How does Germany’s pension system measure up worldwide?

Then, starting in the year 2024, the age of retirement will be raised by two months every year until it hits a ceiling of 67. That means that people born in the year 1964 will have to wait until their 67th birthday before they can start to enjoy the third phase of their life.

Why are government advisors calling for it to be raised even further?

As Germans live longer while also having less children, the demographic makeup of society is changing dramatically. While the proportion of working age people to retirees is currently three to one, it is expected to increase to three to two by the year 2060.

That means that there are ever fewer working age people paying into the state pension system to support a pay-outs for an ever larger population of pensioners.

The expert commission’s report predicted that, should current demographic trends continue, the proportion of the state budget that would flow into the pension system would rise from the current size of 26 percent to 44 percent by 2040.

“That would break the federal budget and would not be financeable even with massive tax increases,” warned Klaus Schmidt, who led the commission.

He further warned that increases in state financing of pensions would come at the cost of investment in digital infrastructure and education.

How has the report been received?

It has been met with stinging criticism from left-wing parties.

The left-wing Linke party described it as “an anti-social act of cheek” and promised to “defend the rights of pensioners with tooth and claw.”

They point out that one in five Germans still don’t live to their 69th birthday.

“The numbers speak for themselves: the higher the retirement age, the fewer people who will ever be able to enjoy their pensions,” the party’s social affairs expert Sabine Zimmermann said.

SEE ALSO: Germany plans reforms to avoid double taxation on pensions

The party say that, because life expectancy is higher the more one earns, raising the retirement age effectively means redistributing wealth from the poor to the rich. They want the retirement age to be brought back down to 65.

Praise for the report came from the Federal Employers’ Association, who said that “this conversation needs to be had, and it needs to be had honestly”.

The association warned that if action wasn’t taken on pensions, then Germany would soon have more people receiving benefits than paying into the system.

Are the report’s findings likely to be implemented?

There is almost no chance that the reports finding will be implemented by the current government.

With a national election just over three months away, the coalition won’t want to back a policy proposal likely to unpopular on the doorstep.

The Social Democrats have out and out rejected the report. SPD Chancellor candidate Olaf Scholz accused the expert commission of getting its maths wrong.

Describing the report as a “horror scenario” that was intended to create fear, Scholz said that “I won’t discuss any further increase in the retirement age.”

READ ALSO: Old age poverty in Germany set to rise significantly

The CDU also distanced themselves from the findings.

Economy Minister Peter Altmaier (CDU) said that the retirement age should remain at 67, adding that ‘“that has been my opinion for years”.

After the election, the tone from the CDU could change though, as warnings about the financial viability of the current system have come from various quarters in recent months.

Similar proposals to increase the age of retirement have come from economic institutes and the Federal Bank, all of which predict that the current arrangement is not sustainable in the long term.

The Federal Bank’s proposal goes even further, encouraging the government to push the retirement age up to over 69.

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