EXPLAINED: The German regions attracting startups

The number of new startups in Germany has risen again after stalling in the pandemic - and one southern region in particular is giving startup capital Berlin some competition.

Two people enjoy the view at the Starnberger See in Bavaria.
Two people enjoy the view at the Starnberger See in Bavaria. The Starnberg district is seeing a lot of startup growth. Photo: picture alliance/dpa/Katrin Requadt | Katrin Requadt

A total of 3,348 new startups were founded in Germany in 2021, according to an evaluation by Startupdetector – an increase of 11 percent compared to 2020.

After the first Covid-19 Lockdown in March 2020 caused the number of startups to plummet, the situation has now eased again.

“At a strong level of just over 800 startups per quarter, the numbers seem to be stabilising,” researchers at Startupdetector said.

Industry leaders are pleased with the development.

“Startups are the economic power of the future,” said Christoph J. Stresing, Managing Director at the German Startups Association.

However, he said a lot of potential still remains untapped. “This applies, for example, to the area of spin-offs from universities or research institutes,” said Stresing. “Despite an outstanding research landscape, we too often find it too difficult to transfer research results to marketable products and thus stand in our own way.”

READ ALSO: The surprising parts of Germany where new businesses are blooming

As well as new startups, the number of companies that were able to attract external investors such as venture capitalists rose by 27 percent to 2,087 last year.

However, Stresing points out that this still does not come close to the financing amounts in other countries: “Despite the positive development of investment figures in recent years, we in Germany are still very clearly behind not only the USA, but also countries like Sweden or the United Kingdom in terms of investment per capita,” he said. 

Berlin remains startup capital – but growth elsewhere

As in previous years, most startups were founded in Berlin in 2021: with 747 companies, around 22 percent of all new German startups were created there.

“In Berlin in particular, we see a startup ecosystem that has matured in many parts,” said Stresing. It consists not only of founders and investors, but also of highly qualified employees, universities and colleges, and is now able to “fuel itself from its own momentum”.

People in Berlin's Mauerpark.

People in Berlin’s Mauerpark. Photo: picture alliance/dpa | Jörg Carstensen

But other states were able to grow stronger too, as the number of startups increased in most of them. According to the analysis, Baden-Württemberg (with an increase of 21 percent), Lower Saxony (plus 30 percent), Saxony (plus 54 percent) and Saxony-Anhalt (plus 166 percent) recorded particularly high growth.

With 108 newly founded startups in 2021, Saxony is the front-runner among the eastern German states, where the start-up rate is comparatively low.

The evaluation of startups at the district level also shows something surprising: the district of Starnberg in Bavaria tops the list ahead of Berlin with a density of 20.5 new startups per 100,000 inhabitants.

“The companies from the Starnberg district are diverse: from the regional fresh food courier Regioluzzer to Servail, whose robots maintain railway tracks, to The Exploration Company, whose founder Hélène Huby wants to build a spaceship,” the analysts at Startupdector said.

The district southeast of Munich, which is home to stunning views of the lake and mountains, is one of Germany’s wealthiest. 

READ ALSO: Booming startups draw expats to Germany

What are some of the trends for German startups?

When it comes to sectors, software, medicine and e-commerce continue to dominate the startup scene, but things are changing. 

“The presumably pandemic-driven e-commerce boom of 2020 seems to be slowly subsiding, however, as a slight decline can be seen in this industry,” the report says.

In contrast, the number of startups increased particularly in gaming, media and environmental technology. New methods to combat the climate crisis seem to be becoming a big trend in startups and investments – this area was able to record an increase of 144 percent.

Startups are still mainly founded by men. However, the share of companies with at least one woman on the management board has been increasing for years and could exceed the 20 percent mark for the first time in 2021.

“This means that the share of female (co-)managed startups is still shockingly low, but 84 new female startups still correspond to an absolute increase of 14 percent compared to 2020,” said the analysts.

The proportion of people with an academic degree involved in a startup is strikingly high. About 14 percent of the teams have doctors or professors on board, while people with these titles make up just 1.2 percent of the total population.

Those who are thinking of launching their own innovative business idea quickly should pay close attention to the state they’re doing it in.

The analysis showed that startups in Bavaria and Baden-Württemberg were registered after 28 days on average. In Hesse and Saarland, however, registration takes almost four more weeks. The fastest route is in the Bavarian city of Landshut, where registration takes only eight days.

What’s a startup?

Startups are innovative, mostly digital companies that develop new business models in mostly young markets. So not every newly founded company is a startup. Self-employed craftspeople or freelancers such as architects and lawyers, for example, are considered business founders – and not start-up entrepreneurs. A startup company – in addition to an innovative business idea – has the primary goal of growing quickly.

Although startups can be companies from all industries, in practice they are often active in the technology and internet sector. Typical sectors are e-commerce, application software, financial technology, biotechnology, nanotechnology, new manufacturing processes or aerospace technology.

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Reader question: Is it ever too hot to work from home in Germany?

Germany has regulations on working during a heatwave - but does that also apply to people who work remotely? We take a look.

Reader question: Is it ever too hot to work from home in Germany?

The number of people working from home shot up during the Covid pandemic, and though employees no longer have the right to work remotely by law, many have chosen to stick with more flexible arrangements and set up a home office at least part of the week.

This is great news for people who enjoy a lie-in more than a long commute, but there are some downsides. One major issue is that it’s not always clear how Germany’s strict employee protection rules actually apply in a home setting. The rules for working during a heatwave are a good example of this.

How does Germany regulate working in extreme heat? 

By law in Germany, employers are responsible for creating a safe environment for their workers. This means that they should try and keep the temperature below 26C at all times and are legally obliged to take action if the temperature goes above 30C. 

That could include putting blinds on the windows to prevent the glare of the sun, installing air conditioning systems or purchasing fans. In some cases – such as outdoor manual labour – it could also involve starting and finishing earlier in the day. 

And in really high temperatures, employers may simply decide to call the whole thing off and give their employees a ‘hitzefrei’ day – basically a heat-induced day off – to go and cool down in a lake. However, business owners are generally given free rein to decide how hot is too hot in this instance (except in the case of vulnerable workers). 

READ ALSO: Hitzefrei: Is it ever legally too hot to go to work or school in Germany?

Do the heat rules apply to ‘home office?’

Unfortunately not. In most cases in Germany, the company isn’t directly involved in setting up the workspace for an employee that works from home, aside from possibly providing a laptop or phone for remote use. 

“The occupational health and safety regulations regarding room temperature do not apply in this case,” labour law expert Meike Brecklinghaus told German business publication T3N. “This is because the employer does not have direct access to the employee’s workplace and in this respect cannot take remedial action.”

That means that on hot days, it’s the employee’s own responsibility to make sure the environment is suitable for working in. 

woman works from home in Germany

A woman works in her living room at home. Photo: picture alliance/dpa | Daniel Naupold

One duty employers do have, however, is to instruct their workers about the best way to set up a healthy work environment at home, for example by giving guidance on how to regulate the temperature. 

“In the end, it is the employee’s responsibility to maintain his or her workplace in a condition in which he or she can perform his or her work without the threat of health impairments,” Brecklinghaus explained.

What can home office workers do in hot weather?

There are plenty of ways to keep flats cooler in the summer months, including purchasing your own fan, keeping curtains or blinds drawn and ventilating the rooms in the evening or early morning when the weather is cooler.

However, if heat is really becoming a problem, it’s a good idea to communicate this to your employer. This is especially important if you have a health condition that makes it more dangerous to work in hot weather. 

In some cases, you might be able to negotiate for the employer to pay for the purchase of a fan or mobile air conditioner as goodwill gesture. If possible, you could also arrange to travel to the office where the temperature should be better regulated.

Another option for early birds or night owls is to arrange more flexible working hours so you can avoid sweltering at your desk in the midday sun, although this of course depends on operational factors. 

READ ASO: Jobs in Germany: Should foreign workers join a union?