German AI Start-Ups Thrive, but Labour Shortage Hinders Growth
ResearchZEW Study for the German Ministry of Economic Affairs
In 2021, there were more AI start-ups in Germany than ever before. On average, they achieved their first revenue just eleven months after their inception. However, one major obstacle hinders their growth – the shortage of skilled workers. This is the result of a ZEW study conducted for the Federal Ministry for Economic Affairs and Climate Action, which analysed the start-up conditions of AI companies in Germany and involved active participation from over 200 start-ups.
“Germany boasts a vibrant AI start-up culture. However, the industry’s growth would be much higher if these companies could fill their open positions,” emphasises Dr. Christian Rammer, an economist in ZEW’s “Economics of Innovation and Industrial Dynamics” Unit and co-author of the study.
The most pressing challenge: labour shortage
In 2022/23, more than a third of start-ups were unable to fill open positions. This labour shortage affected vacancies across all fields, not limited to specialised AI and IT roles but extending to other areas as well.
Dr. Sandra Gottschalk, co-author and head of the ZEW Research Data Centre, adds: “Growing AI start-ups often have several job openings. The scarcity of skilled workers poses significant challenges for them. This underscores how the labour shortage particularly hampers high-growth AI start-ups in their expansion efforts.”
Ideals more important than profit
With over 3,000 young companies in 2021, Germany possesses a thriving start-up scene in the field of artificial intelligence. This scene is well-connected, with more than three-quarters of these companies counting other AI start-ups as their customers.
“Our findings reveal that AI start-ups are dedicated to tackling real-world economic and societal problems. Contributions towards solving social issues hold more significance than rapid growth or generating high incomes,” explains Rammer.
Revenue achieved in just eleven months
AI start-ups quickly generate revenue, with an average of eleven months from their founding to their first profits.
Apart from labour shortage, the most significant challenges for AI start-ups lie in securing funding for new projects and navigating the legal regulations concerning data protection. Conversely, Germany’s IT infrastructure, in terms of broadband access and access to high-performance computers, plays a comparatively minor role.
About the study
The study analyses the business activities of AI start-ups in Germany and the economic conditions under which they operate. It is based on a representative survey of AI-focused start-ups founded between 2011 and 2021, actively operating in the economy by early 2023.
Start-ups are young companies with a maximum age of twelve years. AI start-ups, specifically, are engaged in the development of AI technologies and applications as a central part of their business model. AI stands for artificial intelligence, encompassing all efforts aimed at making machines intelligent enough to perform tasks that would typically require human cognitive abilities.
