Number of High-Tech Start-Ups Stabilising – Economic Upswing Positively Affects German Start-Up Scene / Overall Level Remains Low

In the course of the previous year, the number of high-tech start-ups in Germany stabilised. These are the findings of a study conducted by the Centre for European Economic Research, Mannheim, in cooperation with Microsoft Germany. The study was published today in Berlin. The results suggest that the total of high-tech start-ups in 2006 has remained constant compared to the previous year. Still the overall level remains low. The high-tech sector has thus developed against the general trend as the numbers of new businesses in all economic sectors keeps declining. However, the study also shows that the shortage of skilled workers and financial problems remain serious hindrances to high-tech founders and negatively influence foundation numbers.

In 2006, the total of new businesses decreased by 4 per cent compared to the previous year. In the high-tech sector though, the number of start-ups stabilised at a low level during the last year (2006: 17,700 foundations; 2005: 17,600 foundations). According to ZEW, this consolidation results from the recovering German economy.

In spite of the careful optimism there is still no reason to give the all-clear, warned Prof. Dr. Dr. h.c. mult. Wolfgang Franz, ZEW president. “Even if the quantity of new high-tech businesses has stabilised for the time being – qualitative aspects still need to be improved.” The total of high-tech start-ups remains on its lowest level since 1995. “The decreasing number of highly innovative start-ups will not just have an adverse impact on the development in the high-tech sector but hinder important impulses for the overall economy,” said Franz.

In this context, it is particularly noticeable that the foundation numbers of academic spin-offs declined. The share of university spin-offs of the overall start-up number has been constantly falling since 2004: from 2005 to 2006, its average proportion in the research-intensive sectors made up only 12 per cent against 18 per cent in 2003 and 14 per cent in 2004. A possible reason for that may be the lack of scientist and engineers. The economic upswing entailed a greater need for young skilled workers. Against this background, many potential founders prefer the job security within a company to the risk of founding a new business. “This development will also have an impact on the overall economy,” commented Hartmut Schauerte, Parliamentary State Secretary in the GermanFederal Ministry of Economics and Technology, on the results. “We need more entrepreneurial spirit at German universities. They have the duty to consequently transfer knowledge and technology skills. Apart from talking about the risks of self-employment they need to show young academics the chances and opportunities it involves.

The numbers in this study clearly demonstrate that 62 per cent of university spin-offs (against 49 per cent of other start-ups) effect research and development and use their own patents (25 per cent against eleven per cent). The share of employees holding a university degree lies at 60 per cent and is thus 20 per cent higher than in other high-tech companies. Schauerte continued: “The results confirm that our decision, made last year, to redirect and strengthen the funding through the “University-based Start-ups” programme (EXIST) was right. We enhance the start-up culture at German universities and research institutes and we support founding teams on their way to self-employment.

“Although German universities do excellent research, too many of the results remain economically unused nowadays. This dramatic decline in university spin-offs jeopardises the business location Germany. The innovations of today build the prosperity of tomorrow,” warned Achim Berg, management board chairman at Microsoft Germany. “The way from technical idea to innovation must be accompanied more thoroughly by both government and business. This is where our entrepreneurship-Initiative "Unternimm was" (Start something) comes in. Nine of 16 intensively supported high-tech start-ups are university spin-offs.

Young start-up businesses still have to face financing problems. Since 2005 just about five per cent of all high-tech start-ups have received equity capital from outside sources (private investors, Business Angels and venture capital providers). Venture capital companies for example often join a company relatively late. In the case of one to two year-old companies, the share makes up about eleven per cent (25 per cent when the company is between five and six years old). The most important source of financing for young entrepreneurs in Germany remains their own money. Approximately 58 per cent of the interviewed entrepreneurs fall back on their savings. Apart from the own resources, more and more cash flow is used for financing with increasing age of the company. The study shows: start-ups receiving third party funds mainly differ from all others. They are larger, more innovative; they grow faster and outsource R&D activities more frequently. A major share of these companies is made up by university spin-offs (42 per cent).

“Unfortunately, the German Business Angel culture is not as pronounced as for example in the USA. Business Angels though are of vital importance for a dynamic start-up scene. We repeatedly noticed that when talking to young founders,” stressed Berg. “If we want Germany to remain a number one innovations site we need a new private equity law to support private investments instead of hindering them. A dynamic and innovative economic landscape is very important for the people in Germany. In this context, the high tech sector holds a key position.”

Contact

Gunter Grittmann (ZEW), Phone: +49/621/1235-132, E-mail: grittmann@zew.de

Dr. Astrid Kasper (Microsoft), Phone: +49/89/3176-5000, E-mail: prserv@microsoft.com