Entrepreneurship: The “Trump Effect” is scaring away startups as Germany beckons
21. July 2017
Fewer and fewer German founders are motivated to move to the USA. Whereas just a year ago 32% wanted to launch their startup there, according to a current Bitkom survey this figure declined by more than one-half to only 15%. By contrast, Germany is becoming increasingly attractive as a startup location.
“Trump Effect” scares away potential founders
Times have changed. According to the Bitkom survey, 68% of founders would choose Germany as the location for their startup. Last year, this figure was only 44%. According to Bitkom Managing Director Niklas Veltkamp, the primary reason is the election of US President Donald Trump last year. Veltkamp calls it the “Trump Effect,” an effect that has dethroned the traditional “promised land” for startups from its place as the top desired location among German founders.
The USA is “out.” Next trend: Startup made in Germany?
Is the USA out and Germany in? It’s not quite that easy. What is happening in these two countries is not merely a short-term trend. Something is going on right here at home. The USA may still be in the running where the top spots on the list of entrepreneurial countries is concerned. But Germany is making up ground. “After many years in which a large number of position statements and agenda were formulated at the political level in particular, we can now see things starting to move – to the satisfaction of founders in Germany,” explains Veltkamp.
The upturn in entrepreneurial activity is also due to circumstance that other countries have become less attractive to German founders. According to the Bitkom survey, a mere two percent of founders view Great Britain or Israel as alternatives. However: “Even if Germany is already an attractive location for the large majority of founders, policymakers have the ability to improve the environment in the areas of funding, regulation and skilled workers,” according to Veltkamp. “The USA has lost a great deal of attractiveness, nevertheless the conditions related to funding opportunities, networks and sales markets remain very good.”
A lack of capital and too much bureaucracy make things hard for founders
Although the trend is positive, there is still significant room for improvement. This was also the conclusion of a study conducted by the German Stock Exchange and EY. The authors of the study lament that both entrepreneurial spirit and the environment for startups show room for improvement and that Germany lags behind from an international standpoint. A lack of capital was likewise seen as an obstacle to business formation in Germany. “Business, policymakers and universities need to act hand-in-hand if we want to make Germany more attractive to startups,” states Eric Leupold, Head of Pre-IPO and Capital Markets at the German Stock Exchange. Unfavorable financing conditions and high bureaucratic hurdles were also listed as key obstacles in the Bitkom survey.
So, why go with Germany?
Despite the obstacles discussed above, Germany is shattering its old records. Berlin in particular remains the absolute startup capital of Germany. The startup scene there is enjoying phenomenal growth. “During the first half of the year, early-stage companies that are less than seven years old created 70% more jobs than before,” noted the Berliner Morgenpost. According to Berlin’s Senator for Economics, Ramona Pop, one reason for the positive trend were the close ties between the sciences, existing companies and innovative startups. These ties are to be expanded in future in order to entice even more founders to come to Germany. According to a survey by the German Stock Exchange, the country fares well in the categories of available skilled workers and low office rents.
Independent of the current startup slump in the United States, the truly decisive factor is that Germany still has great upside potential. According to Bitkom Managing Director Veltkamp, the objective must be to make Germany a magnet for founders on the international level as well.