Investors

Germany Again Tops in Europe in FDI Confidence Index

The 2021 Foreign Direct Investment Confidence Index published by management consultants AT Kearney sees Germany retain its third-placed ranking after the United States and Canada.

Overall, the managers surveyed were slightly more pessimistic than a year ago –no doubt because of the coronavirus pandemic. But Germany tied with Japan at the top of the rankings in response to the question: “How has your three-year economic outlook for [country] changed compared with a year ago?”

46 percent said they were more optimistic about Germany, compared with only 11 percent who were more pessimistic – yielding a net score of 35.

“Business leaders were most optimistic about Japan, Germany, Canada, and Switzerland, with the UAE and Australia tied for fifth as the countries with the most optimistic economic outlook in net terms,” the authors of the index wrote. “The relative strength of these countries is likely attributable to the fact that all these markets have strengths in technology and are wealthy markets with high consumer purchasing power.” 

Among the big gainers among the criteria managers said they use to decide where to make an FDI were “R&D capabilities” and “efficiency of legal and regulatory processes” – two traditional German strengths.

Ford Puts Billion into German EV Production

The European subsidiary of Ford Motor Company is investing the equivalent of a cool one billion dollars to convert its Cologne factory to produce electric vehicles.

The move comes ahead of plans by US automotive giant to make its first European-built, mass volume all-electric model in early 2023 and is part of a complete shift in focus toward battery-powered vehicles and away from both conventional and plug-in hybrid cars.

“We are charging into an all-electric future in Europe," Ford of Europe President Stuart Rowley told US broadcaster CNN. “Consumers are rapidly moving in that direction.“

Ford aims to be producing only purely electric vehicles in Europe by 2030. The 2023 all-electric Ford model is being developed together with German carmaker Volkswagen, which has just overtaken Tesla as the world’s leading producer of EVs. Tesla is in the process of building its first European gigafactory just outside the German capital Berlin.

Apple Chooses Munich for €1bn European Silicon Design Center

The long-standing love affair between the US computer colossus and the Bavarian capital has reached a new plane, with Apple announcing that it will hire hundreds of new employers and build a new connectivity and wireless technology facility in Munich.

The expansion and accompanying additional R&D investment will come at a cost of roughly EUR one billion. It’s the latest chapter in a long and productive relationship between the company and the city.

“I couldn’t be more excited for everything our Munich engineering teams will discover — from exploring the new frontiers of 5G technology to a new generation of technologies that bring power, speed, and connectivity to the world,” said Tim Cook, Apple’s CEO, in a press release. “Munich has been a home to Apple for four decades, and we’re grateful to this community and to Germany for being a part of our journey.”

The new facility will house Apple’s cellular unit and become Europe’s largest R&D location for mobile wireless semiconductors and software. Apple hopes to move into the new building late next year.

2020 was a Good Year for German Tech Start-Ups

Amidst all the disruptions caused last year by the coronavirus pandemic, Germany’s 100 largest tech start-ups took in an additional USD 3.7 billion in financing – or 37 percent of their total VC investments. That’s according to business consultants Ernst & Young.

Mirroring a trend in the start-up scene in general, there were fewer extremely large investments of EUR 100 million or more, but the sheer number of investments of all sizes increased, and many firms registered  impressive leaps in valuation.

“The high valuations are in part down to the fact that the business models of these companies were digital right from the start,” said Thomas Prüver, Partner Strategy and Transactions at EY, in a statement. “That allowed them to react more flexibly than other companies to digital challenges. The digitalization of the economy is one of the megatrends of the 21st century, and these young companies are showing the way.”

The AUTO1 Group leads the pack with a total USD 1.4 billion taken in since the company’s founding. It’s followed by travel platform GetYourGuide with USD 789 million and neo-bank N-26 with USD 783 million.

All three of those companies are based in Berlin, which is no accident. 64 for E&Y’s top 100 tech start-ups call the German capital home, followed by Munich with 21 and Hamburg with 6.

Germany’s Newest Unicorn is Gorillas

Berlin food delivery start-up Gorillas is the latest fledgling firm to join the coveted club of companies valued at USD 1 billion or more. That was after it raised EUR 245 million. Even more impressively, the company achieved unicorn status although only being launched last May.

Gorillas’ main claim is that it can get groceries to users’ doors in ten minutes or less. It says it aims to service the changing needs of consumers who may live in smaller apartments with less space to store food.

“We believe that the weekly grocery run is outdated because people’s lives are increasingly spontaneous and shopping habits change accordingly,” Gorillas co-founder Kağan Sümer told the online platform Techcrunch. “This pandemic has accelerated the need for grocery deliveries. If we can order clothes and trinkets and have them delivered to our door, the same should be said for our essential needs.”

Customers pay a small free for delivery while the groceries are sold at normal retail prices. Gorillas operates in seven German cities, five Dutch ones and London, and it plans further international expansion, including to New York and Paris.

The massive investment in Gorillas reflects the current popularity of so-called quick-commerce.

“Every single VC is rushing to make a bet in the category,” Yacine Ghalim, partner at investment firm Heartcore, told online magazine Sifted.

Volocopter Takes in 200 Million

Innovative young air taxi developer Volocopter has received a massive influx of capital from investors including German rail company Deutsche Bahn, Intel, Daimler and Geely as well as Continental and Blackrock.

“Thanks to our partnerships, we can avail ourselves of the necessary expertise to open up our first routes in the coming years,” said Volocopter CEO Florian Reuter in a statement.

The company from the southwestern German town of Bruchsal was founded ten years ago and is developing electric “multicopter” taxis for short distances in urban areas. Germany largest automotive club, the ADAC, has already ordered two the firm’s Volocity copters.

“The fact that the ADAC, which runs the largest fleet of helicopters in Europe, decided in our favor is an enormous signal of trust in Volocopter,” Reiter added.

Financing for air taxis made a quantum leap in 2020, reaching more than USD 1.1 billion. Analysts from Morgan Stanley think that the market for electronic air taxis to carry passenger and freight could be worth upwards of USD 1.5 billion by 2040. The European air safety authority EASA thinks that air taxis and drones could be cleared for such uses by the middle of this decade.

Other prominent young air taxi developers in Germany are Lilium and Joby Aviation, both located in Munich.

Infarm Reaps More Huge Financing

Berlin vertical agricultural start-up Infarm has announced the successful conclusion of a USD 100 million round of funding. This impressive cash injection comes on top of the USD 170 million the company raised last September and has catapulted the fledgling company into the European climatetech top ten, according to venture capital firm Speedinvest.

The firm, founded in 2013 by Osnat Michaeli and the brothers Erez and Guy Galonska, has come up with what it calls an “intelligent, modular farming system” for growing food in urban areas, for example, directly in supermarkets and restaurants. It currently operates in ten countries and has deals with retailers like Kroger, Amazon Fresh, Metro and Marks & Spencer.

A record amount USD 520 million was invested around the world in vertical farming last year, according to startup platform Dealroom. Infarm hopes to have 100 “growing centers” covering 500,000 square meters by 2025, business newswire Bloomberg has reported.

Big Deals Galore for German-Based Start-Ups

Due to uncertainty amidst the coronavirus pandemic in 2020, the size of financing deals for start-ups in Germany decreased somewhat. But venture capital investments have come roaring back, with a number of young companies announcing impressive hauls, particularly from foreign investors. Here’s a round-up of seven of the bigger ones:

Staffbase, Chemnitz, business software, USD 145 million: The eastern German city of Chemnitz doesn’t appear on start-up lists that often, but this was a doozy of a financing round. VC General Atlantic alone putting a cool 100 million into Staffbase, which specializes in international communications solutions for businesses.

Spryker, Berlin, e-commerce, USD 130 million: This up-and-comer from German capital produces templates for online retailers. Silicon Valley equity firm TCV was impressed enough to fork over 130 million dollars, which Spryker intends to use in part to fund its expansion in the United States.

Camunda, Berlin, business software, EUR 80 million: Berlin’s Camunda develops solutions that help firms automatize and synchronize processes. Five of the ten largest US banks are already customers. Insight Partners led the 80-million-euro financing round.

Grover, Berlin, technology rentals, EUR 60 million: This young company from the German capital rents out electronic devices such as laptops, smartwatches, video game consoles and mobile phones. Founded six years ago, Grover says that it was in the black last year, with revenue of EZR 37 million and 160 employees.

Bryter, Berlin, software, EUR 55.7: Berlin IT start-up Bryter has only been around for two years, but it’s already valued at EUR 350 million. The no-code service automation company has more than 100 clients world-wide and intends to use the fresh influx of capital to expand its marketing and distribution team.

Flink, Berlin, food, USD 50 million: Grocery delivery service Flink, whose name means quick in German, was even faster than Bryter, landing a major financing round after only six weeks of existence. The firm runs ten so-called dark stores in cities like Berlin, Hamburg, Munich, Nuremberg, Düsseldorf and Cologne and has expanded into France and the Netherlands.

Recogni, San José, USA and Munich, autonomous driving, USD 48.9 million: The latest round of financing for international start-up Recogni marked the first time that automotive supplies Continental and Bosch teamed up for such an investment. A lateral mover from the semiconductor and Internet sector, Recogni develops self-driving technology that has reportedly attracted the interest of heavyweight Tesla.

Sources: Handelsblatt, Business Insider, Gründerszene,  TechCrunch, TrendingTopics, FinanceForward, HamburgNews

US Investment Fund Riverside Expands to Cologne

There’s a new investment player in the largest city on the Rhine River. America’s Riverside has acquired two German venture capital firms and opened offices in Cologne.

Riverside hopes to establish an American-style revenue-based financing mode. It’s initially targeting smaller business software providers for investments between EUR one and five million.

“After twelve years as a venture capital investor, I was tired of turning down start-ups just because they couldn’t present hypergrowth,” Riverside partner Christian Stein told the Internet platform Finance FWD. “There is still a big funding gap for companies that can’t get loans from the bank and don’t want to take on venture capital or can’t get it on good terms.”

The Riverside model foresees companies paying back one-and-a-half to two times the sum invested when they turn a profit – the normal margin in the sector is three to four times the investment sum, according to Finance FWD.

Stein was previously the managing director of Coparion, the EUR 250-million co-investment fund backed by the German Ministry for Economic Affairs and Energy and German state-owned economic development bank KfW.

Finnish Battery Maker Valmet Comes to Germany

Valmet Automotive is expanding – specifically to the town of Kirchardt in the southwestern regional state of Baden-Württemberg. The Finnish maker of batteries for electric vehicles (EVs) is converting an 11,500-square-meter former printing shop into its third production facilities overall and first in Germany.

One impetus for the expansion was the desire to be nearer to German carmakers, which are increasingly shifting their production to EVs.

“The decision to construct our first battery factory in Germany is the next major step toward establishing Valmet Automotive as a tier 1 supplier of battery systems and modules,” said company CEO Olaf Bongwald in a statement. “Kirchardt is an ideal location that allows us operate near several of our important customers, our German development sites and our battery testing center in Bad Friedrichshall.”

Valmet expects its new factory to be up and running by the first quarter of 2022. It is also significantly expanding its engineering capacities in Munich and Bad Friedrichshall.

Venture Capital Optimism Points to Positive Year for Start-ups

Germany’s start-up scene can look forward to a positive year after the quick recovery of Europe’s biggest venture capital market from a coronavirus slump in 2020.

VC sentiment recovery gives confidence to start-ups for 2021

The quick recovery of Germany’s venture capital sector from a confidence slump caused by the coronavirus pandemic is providing cautious mood for optimism among start-ups. According to the results of the KfW German Venture Capital Barometer (GVCB) conducted on behalf of the Handelsblatt business daily with the German Private Equity and Venture Capital Association (BVK), the country’s start up scene is also less affected by coronavirus lockdown restrictions than initially feared.

The sentiment indicator was up 26.7 points to 17.0 balance points, with improvements also being recorded in the business situation assessments (+28.3 to 16.1) and business expectations (+25.2 points to 17.8) indicators. Data for the GVCB is collated from a quarterly survey of the 200 or so members of the BVK.

Business optimism surpasses pre-corona level

The venture capital year ended on a positive note in the country, with end-of-year business sentiment in Q4/20 surpassing the pre-coronavirus level. According to KfW Chief Economist Dr. Fritzi Köhler-Geib, planned fund and legislative changes played no small part in the change in mood. “The progress made towards future funds and with the Fund Location Act were two important mood enhancers in the final quarter which, unimpressed by the new lockdown, provided a good basis for the start of the year.”

The fundraising climate, while still below the level at the end of 2019, is now in the green zone despite the coronavirus downtrend in the first half of 2020. “The rapid sentiment rebound attests to the increased robustness and maturity of the market and makes us optimistic for 2021. The coronavirus has not dented demand for venture capital, quite the reverse is true,” said BVK Managing Director Ulrike Hinrichs.

Record number of financing rounds in 2020

More German start-ups received fresh capital in 2020 than in the previous year, with financing rounds up six percent to 743 – a new record – according to the Ernst & Young Start-up Barometer Germany. Investment volume however fell 15 percent to EUR 5.3 billion – partly as the result of fewer 100 million euro deals compared to 2019.  Germany’s mobility sector secured more than one billion euros in investment capital, followed by the software & analytics sector (which also topped the billion euro mark).

The most financing rounds in 2020 were carried out in the software & analytics sector, being roughly on a par with previous year financing round levels. Healthcare ranked second, with investment in healthcare start-ups up 42 percent to EUR 670 million for the year.

Fund Location Act to make Germany attractive fund location

A draft law to encourage investment fund activity was passed by the German federal government on January 20. The Fund Location Act will see barriers dismantled in the country – in accordance with the implementation of the Directive (EU) 2019/1160 regarding cross-border undertakings for the collective investment in transferable securities – while safeguarding existing protection measures. The deadline to integrate the European rules into domestic law is August 2, 2021.

BVK Managing Director Hinrichs has welcomed the move, saying that “with this fund the German Federal Government has made an important contribution to supporting the German start-up and venture capital ecosystem.” Planned measures include VAT exemption for the management of venture capital funds, tax incentives for employee stock ownership plans and adjustments to the German Investment Code.

Innovative start-ups show way out of crisis

The most recent lockdown measures have failed to dent venture capital provider (VCs) sentiment as much as in spring of last year, with VCs and start-ups having learnt lessons from previous lockdowns to assert themselves in a challenging environment. The noticeable recovery in fundraising and deal flow indicators points to the ingenuity of start-up measures to circumvent the crisis – as well as being a solid basis for future investment for domestic and international investors.