France Digitale, France’s main association for tech companies, organized a Franco-German evening in November 2022 which I attended. The event’s idea was to present a toolkit and testimonials from German and French founders, and investors to entrepreneurs aiming to do business in Germany. These tools were valuable, as entry into the DACH market can be challenging.
Before working for Scaleway, I spent more than 6 years living and working in Switzerland and Germany. In Düsseldorf, as head of the Tech department of Business France, I spent 4 years supporting French digital companies looking for partners and end-customers in the DACH region. I love working with this region and with my personal experience, I would like to share with you the particularities of the DACH startup ecosystem and explain how you can make the most of it.
More than 70,000 startups are to be found in Europe’s second most financed tech market
DACH is an acronym that englobes Germany, Austria and Switzerland. With around 100 million inhabitants and cities such as Vienna, Salzburg, Zurich, Geneva, Munich, Cologne or Berlin, it can be described as one of Europe’s economic powerhouses. As an illustration: the zone generated a global GDP of 5,300 billion euros in 2021.
Depending on the sources and the calculations, there are 7 times more startups in the DACH region than in France. However, this is still much lower than the United Kingdom, where, in 2021 alone, more than 38,000 tech companies were incorporated.
2021 was an exceptional year for DACH startups looking for investments. According to Statista and the various Startup Barometers produced by EY, more than 21 billion euros of funding went to Swiss, German and Austrian startups that year.
To put things in perspective, this figure is twice as large as the amount of money raised by French-based startups that same year. This amount is even more exceptional when you consider that an average of 2.66 billion EUR has been invested between 2017 and 2020 in DACH startups, versus respectively 4 and 10.3 bilion euros for that same period, for France and the United Kingdom. As illustrated by the following chart, if the UK remains the European powerhouse when it comes to startup funding, the DACH region truly sits at the top of the class.
Germany alone is ranked #2 for cumulative capital invested in startups since 2016. The gap with France is even more blatant when adding figures regarding Switzerland.
As recently reported by the Handelsblatt or T3n, the perspectives in the DACH region could seem bleak: between July and September 2022, the number of startup creations in Germany decreased by 30% in comparison to the same period in 2021. However, as pointed out by Verena Finkenzeller from the BMW Foundation, Respond Accelerator, “There is a lot of money out there, ready to be spent. Especially towards businesses that are developing climate tech solutions.”
So, as a founder, where can I start looking for investment opportunities in the DACH region?
Gründerstipendien, accelerators and investors: different opportunities for different development stages
There’s a positive side to the story brought by T3n: 5 billion euros have been invested in DACH-based startups in the first half of 2022. This figure is twice as large as the average amount of money invested in German, Swiss and Austrian startups between 2017 and 2020. Whether I want to launch my business or scale it to the next level, where do I look to identify opportunities?
1. Search for Gründerstipendium
As a founder, pay attention to the packages generally offered by incubators, accelerators, and trade agencies but also local and federal governments. If you are not a native German speaker, search for the term Gründerstipendium. Briefly explained, those are grants that public or private organizations give founders in order to assist them launching their startup. To give you an example, Vienna’s economic agency provides 25,000 euros of financial support and additional services (coaching, networking opportunities for instance) over 6 months. In Germany, similar grants exist on a regional and on a national level. In North Rhine-Westphalia, as highlighted by Johannes Gräf from STARTPLATZ, the NRW Gründerstipendium encourages students, graduates, potential founders and scientists to turn their idea into a business model and supports part of the financial risk (1,000 EUR per month for 1 year) associated with creating a startup. At the national level, a similar initiative is called the EXIST-Gründerstipendium and is run by the German Federal Ministry for Economic Affairs and Climate Action.
2. Look beyond one single region
When managing a pre-seed or seed business, the decentralization of the countries (more on that later) is key. In other words, the opportunities of funding are numerous and are not limited to one hub or region. As illustrated by Dr Johannes Veiling (Ministry of Economy, Industry, Climate Protection and Energy of North Rhine-Westphalia), startups founded in North Rhine-Westphalia have plenty of choices, as more than 20 different funds based in that region were created over the last 10 years. Without considering funds from other regions, there are thus plenty of fish in the sea!
3. Invest in physical events
For Seed and above startups, despite the gloomy business environment, I can assure you that plenty of potential investors (not only VCs but also corporate ventures) are to be found at events. Almost 180 investors coming from the DACH region were, for instance, registered on the Slush matchmaking platform!
Besides these general observations, be aware that there are some local specificities. Let’s stop for a moment and look at what makes the Swiss investment environment unique. Compared to other ecosystems, the Swiss investment market is still characterized by the presence of “old money” (e.g., corporate ventures or traditional players like banks and insurances) investing money in startups. According to Thuy-Linh Uong, Investment Associate at Lightbird, “that is slowly but surely evolving and we see now for instance more often than not Swiss founders reinvesting their money after a successful exit in emerging startups”.
Some remarks can, however, be valid for the whole DACH region. Claudia Heim from DigiWhat rightly says: “as decisions are usually taken on facts [in the DACH region], you’ll have to [speak to VCs] and prove the scalability of your business model by pointing out 9 to 10 key economic indicators”. Also, do not worry if you do not find an Austrian or a German investor for your local expansion. As Vidar Andersen reminds us, “global players such as Sequoia Capital, Khosla Ventures or Union Square Ventures are to be found in the region” to fuel your business.
So, now that you have got your scalable business model and received some fuel, you are ready to build a local team and reach out to potential customers. Be careful however: due to the specificity of the DACH market, you absolutely need to integrate decentralization into the DNA of your startup in order to succeed there.
Decentralization and its effects on your business
In opposition to markets such as France, the United Kingdom or Italy, where the majority of tech startups, capital and ideas tend to be concentrated in one major city, the following map clearly shows that this is not the case in Germany, Switzerland and Austria. As shown by Dealroom, 11 DACH cities are home to unicorns versus 5 cities in the UK and 2 cities, respectively in France and Italy.
To successfully launch and scale a business there, you need to understand that the market is decentralized. That has to do with how History shaped this region. For centuries, it has been characterized by the existence of strong and financially independent cities that were used to trade with each other, without the full control of a central city or source of power. There was of course the Holy Roman Empire but its authority was from time to time contested (just ask a Swiss person about the battle of Morgarten ;)). This paved the way for networks, such as the Hanseatic League, which existed between the XIIth and the XVIIth centuries. This “decentralized DNA” has an impact on how to build your team, where to look for your customer base and find events or meet-ups related to your branch.
With engineering schools such as ETH Zurich, EPFL Lausanne or the business school of the University of St. Gallen, the Swiss talent pool is immense but fragmented. With post-graduate students or researchers beginning their careers with big names (Meta or Google for example run research centers in Zurich), investigating these ecosystems is a good idea to find potential co-founders and talents. As Johannes Gräf from STARTPLATZ reminds us, the DACH region is also characterized by the strong presence of industrial powerhouses and SMEs. Just around cities like Cologne and Düsseldorf, the headquarters of groups like Henkel, Bayer or REWE are to be found. This means that you can potentially reach out to talents heavily qualified and trained for industrial or retail applications.
When it comes to Germany, with schools such as the Technical University of Munich (TUM) or the RWTH in Aachen, a similar fragmentation can be observed. As highlighted by Franziska Hauck, 177,930 developers - 63% of all developers in Germany - are spread over 15 different hubs, with Berlin/Potsdam, Munich/Augsburg and the Frankfurt am Main conurbation leading the way.
When it comes to building a team with DACH members, whether they are Swiss, Austrian or German, engineers or software developers, keep two things in mind. In the DACH region, discussions are fact-based rather than emotion-driven and people are more likely to work for you if they’ve already heard about your company. During my previous position at Business France in Düsseldorf, I met numerous French startups that struggled to hire local staff because German talents simply didn’t know their company. Also, salaries are overall higher in the DACH region than in France and some perks (like discount cards for train transportation) are much appreciated. As explained by Vidar Andersen, “well-educated graduates are more likely to look for the security and stability offered by traditional companies than launching their startup. That means that they are used to earning salaries ranging from 50 to 60,000 euros when starting their career”.
I told you earlier that decentralization has an impact on where to localize your business or where to look out for partners and end customers. When advising French tech companies eager to enter the German market, nothing grinded my gears as much as always hearing: “there’s only one city where I want to open my German office: Berlin”. Despite Berlin's reputation as a vibrant tech scene, where startups can find many investors and a large B2C customer base, (Qonto for instance successfully operates from there), it would be a bad idea to settle there if you sell a SaaS solution for industrial companies for instance. In this case, I would encourage you to target regions such as Bavaria or Baden-Württemberg. A precious source to consult is the website and map designed by the DE:Hub initiative, which can be compared to the numerous French Tech hubs. These elements will definitely help you visualize the specialization of each Bundesland.
Network and proximity are what matter
Let’s rewind a little bit. As highlighted by Verena Finkenzeller from the Respond Accelerator, “in addition to building a resilient team and becoming part of local communities, it’s key to strengthen your network. This will help you address the right investors, also in critical times”. Those are not only to be found on large and international events such as Slush, but also at more local and specialized ones, like the NOAH Conference which I attended in December 2022. In other words, proximity and network allow you to not only meet but also gain trust among potential investors. I believe that it is even more important to show that you are active on the ground in the DACH region in comparison to other markets.
This is also true for intermediates such as incubators and accelerators that can facilitate connections to investors. To give you an example of a region that I know well: just in the North Rhine-Westphalia region, there are 15 incubators, accelerators and hubs that can potentially connect you with VCs through local events. Pass on this opportunity, and you might lose a precious tool to gain access to investors and, in the end, your next financing round.
And don’t forget that every single German region, as well as Switzerland and Austria as a whole (each possessing around 8.6 M inhabitants), are markets where incubators, accelerators and investors are closely intertwined. On the positive side of things, that means that you can meet a lot of key contact persons by attending local events such as the Digital Demo Day in Düsseldorf, for instance. However, that also means that “everyone knows everyone”, so be sure to be trustworthy in order to build and preserve that trust capital that is so important in the DACH region.
5 key ideas to remember to launch or expand in the DACH region
- When starting a startup there, look for Gründerstipendien to financially mitigate part of the risk
- There are plenty of incubators and accelerator programs out there to help you connect with people and gain expertise. This site is particularly helpful for Germany
- The DACH region is a decentralized area, which has an impact on where to look out for customers or talents
- When looking for talents, you’re competing against large, traditional companies that inspire stability for candidates. Work on your brand awareness and on your arguments to convince them to work for you
- Build and maintain your trust capital by not only attending international but also local meet-ups
The DACH region is considered the world’s second-largest market for SaaS solutions. 5 billion euros have already been invested in the first half of 2022 in DACH-based startups, proving the dynamism of the market. There are many public structures and private investors still willing to finance new or scaling businesses. However, whether it is in business operations or while looking for investors, remember to have a fact-based approach and to protect your trust capital at all costs. These tips will certainly help you attract and build an educated talent pool of engineers or software developers, who graduated from schools such as ETH Zurich, TUM Munich or RWTH Aachen. Don’t forget that other education centers like Ecole 42 Lausanne are places to discover talents as well. To convince them to join your team, be ready to work on your company branding but also to compete with traditional companies, where graduates can start with salaries ranging from 50 to 60,000 euros.
What struck me the most while recently visiting Slush in Helsinki and the NOAH Conference in Zurich is the growing presence of sustainability-conscious startups that are increasingly backed by corporate ventures or VC funds. As highlighted by representatives from the Greentech Alliance at the NOAH Conference, 33% of the startups that belong to the network are based in Germany. Alongside the Nordics, could the DACH region pave the way for sustainable and responsible leadership?
Having lived and worked with startups for 6 years in the DACH region, don’t hesitate to drop me your questions on LinkedIn. I’m here to help. My actual position at Scaleway allows me to keep doing what I like and be in touch with this exciting and yet not that well-known tech ecosystem. Also, should you be a startup with the objective of scaling your business using a sustainable and sovereign cloud infrastructure, why not consider applying to our startup program?
I interviewed multiple key personalities of that region to make that article and would like to thank them for their help:
Verena Finkenzeller is Program Manager at the RESPOND Accelerator, a program created by the BMW Foundation Herbert Quandt. It’s the first accelerator, that pushes for the transformation towards a regenerative economy and promotes responsible leadership. Applications for their new batch opened on 9th January 2023.
Thuy-Linh Uong is an Investment Associate at Lightbird, a Swiss-based VC investing in early-stage B2B SaaS startups with innovative go-to-market approaches. Lightbird invests across Europe with a special interest for the DACH region, where it recently contributed to the latest funding round (valued at 4 million euros) of Saporo, a Swiss cybersecurity startup.
Vidar Andersen is a serial entrepreneur that currently advises both startups and large companies that want to integrate innovation into their day-to-day business. He co-founded the Rheinland-Pitch, a monthly startup pitch battle taking place since 2013.
Johannes Gräf is the CEO of STARTPLATZ, a leading startup hub and accelerator (800+ startups) based between Cologne and Düsseldorf. STARTPLATZ recently celebrated its 10th anniversary and launched an accelerator which focuses on Web3 startups.