2022 wasn’t exactly the best time to build a business, amid rising inflation and interest rates as well as supply chain madness.
The German startup scene clearly wasn't immune to market shakes. In 2022, the number of startups founded in Germany dropped 18% compared to the previous year, falling from 3,196 incorporations to 2,618, according to a recent report by the German Startups Association and Startup Detector.
Even the country’s two largest entrepreneurial hubs, Berlin and Munich, saw a significant drop in the number of startups being founded — 29% and 9%, respectively. Hamburg — where startup formation dropped 31% — was hit the hardest of any region.
Despite the dismal figures, Yoram Wijngaarde, CEO and founder at data platform Dealroom, says that founders looking to start a business and get investor backing shouldn’t be deterred.
“2022 was a tough year for startups. After a buoyant 18 months, startup funding globally came down by about a third in 2022. But the good news for newly founded startups is that early-stage funding is not slowing down,” says Wijngaarde.
“If anything the early-stage market is becoming even more active as some investors look to invest earlier, with smaller cheque sizes and longer horizons.”
Berlin bred the highest number of startups in 2022
The startup capital of Berlin had the highest number of newly founded startups per city in 2022. Its total number of incorporations, 501, was more than twice that of the country’s second-largest startup hub, Munich.
The reason Berlin and Munich remain the strongest cities for startup creation is “success breeds success and startups breed startups”, according to Wijngaarde.
Munich, however, surpassed Berlin in number of startups created per 100k inhabitants: 14.5 compared to 13.6. Wijngaarde says this measure is useful to see entrepreneurial density regardless of size, and “see beyond the big cities that, in absolute terms, will always come out on top”.
Smaller university towns such as Aachen, Heidelberg, Karlsruhe and Freiburg featured in the top 10 for startups founded per 100k inhabitants last year.
Software remains the strongest industry in Germany
Although the number of newly born software companies dropped by 26% in 2022, the sector remains the strongest nationwide.
The biggest drop in startup creation was seen by ecommerce: the number of incorporations dropped 39% between 2021 and 2022.
Meanwhile, the number of climate tech companies founded grew 14% in 2022, in line with increased investment in the sector.
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