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Founders, investors and policymakers in Germany have all told me recently that they’re grappling with one big challenge: how to create more companies from academic research.
Germany tops the European Patent Office’s annual index for the most applications filed in each of the last three years. Yet, data shows it’s not as good at commercialising those inventions.
The country spends the same on R&D as a percentage of GDP and publishes nearly the same number of scientific publications per 1,000 people as the US, according to a 2021 report by Lakestar VC. Some of its better known tech companies like process mining unicorn Celonis, rocketmaker Isar Aerospace and mobility giant Flix have roots in German universities — but at the growth stage per capita investment is a tenth of America’s.
It’s something governments across Europe are thinking about a lot. Universities are seen as the place where we’re going to find the next big companies in areas like quantum, AI and energy. But there are many things holding them back.
One is actually getting more academics to start businesses, says Helmut Schönenberger, cofounder and CEO of UnternehmerTUM, the startup lab of The Technical University of Munich (TUM) founded in 2002.
Schönenberger says entrepreneurship at universities is widely seen as less of a priority than education and research; it’s often described as the “third mission”. To change this, entrepreneurship classes, seminars and guest lectures need to be offered early in a student’s education, not after they’ve done their PhD, when commercialising research typically happens, adds Bastian Halecker, a deeptech entrepreneurship professor at XU Exponential University of Applied Sciences in Potsdam.
The appetite to found companies is there. Halecker’s research shows that 28% of scientists in Germany want to create spinouts, but only 3% do. That could all change if universities allocated more resources to entrepreneurship, another bottleneck. “I know a few universities in Germany, big ones, without any entrepreneurial professorship. There’s nobody in charge of that stuff,” he says.
Schönenberger says universities need to build dedicated startup labs and “professionalise the entrepreneurial process” to guide students to found businesses. TUM, for example, dedicates 3-4% of its annual budget to entrepreneurship, he says.
UnternehmerTUM is often given as an example of how to operate a university model of entrepreneurship at scale. It offers 20 programmes to help founders with the basics of building a business, has a team of 400 people that focuses solely on supporting entrepreneurs and creates 50 new businesses per year. In 2023, startups from TUM and UnternehmerTUM raised $2bn across 100 financing rounds, a record for the pair.
Another challenge for a lot of academics-turned-founders is accessing capital. Halecker says that it is often difficult for technical founders (without a background in business) to know how to raise money from VCs. Some founders tell Sifted that finding VCs who truly understand how to finance business models based on deep science can be hard, while others tell me that it can also be tricky to access grants.
The German government’s EXIST programme, which provides funding for students, graduates or scientists to turn their research into a company, appears successful — 80% of startups that receive research grants are active on the market after five years, according to 2022 statistics.
But some founders say the grants are often too small to finance capital intensive companies, and that the process of applying for the money can be lengthy because the university needs to apply for the grant on the startup’s behalf.
Grants are also often distributed on a federal state level, which can make it hard for founders to understand and access all of the different programmes, says Annika von Mutius, cofounder of automated headhunting system Empion, whose research into mathematical models at WHU — Otto Beisheim School of Management formed the basis of her company. She adds that distributing the money on a national level, rather than a fragmented state level, would make the process easier and more transparent.
A lack of growth capital in Europe is also a huge problem. Germany is attempting to partly remedy this; last year it announced the close of a €1bn fund of funds to invest in German and European VCs. Without more capital though, there’s a risk that the best startup ideas will leave Europe to scale.
There are some positive signs of progress. Schönenberger says that the German government’s Startup Factories competition, announced last year, could be a “game changer.” The idea is to create five to ten regional “startup factories” (modelled on UnternehmerTUM) that have links to universities with a strong spinout culture, are financed at least 50% by private funds and are embedded in the regional startup ecosystem.
“The government is super important because they have to set the boundary conditions, the incentives and also give money to kick off such ecosystems,” says Schönenberger. “So that’s why the startup factory competition is important because you need that spark that says, 'Ok, now we have a competition, apply and go for it'.”
Something that could make the spinout ecosystem better in Europe, adds Halecker, is to have governments not only provide grants, but contracts. “The government would not be a good investor,” he says, “but should act as a first risk taker and as a customer [to startups].”
Readers, I want to hear from you. What’s happening in countries other than Germany to improve Europe’s spinout ecosystem? What are the other challenges? What’s one thing you want to see the government in your country doing to encourage research commercialisation? I’m all ears.
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