ICT Start-ups in Germany Georg Licht Center for European Economic Research (ZEW) Mannheim, Germany VUZF University Driving Higher Levels of Innovation October 1, 2013, Sofia

Agenda: Drivers of Startups in ICT Industries in Germany  Market Entry Costs  Importance of Knowledge and Network Infrastructure  Access to Financial Resources

Startups Activity in Germany Source: Mannheim Enterprise Panel 2012

Startups Activity in German ICT Sector Source: Mannheim Enterprise Panel 2012

Learning from Times Series Analyses of Startup Activity in Germany  Ease of Market Entry & Market Exit is crucial  Limited liability of founders: Introduction of opportunity to constraint the risk for founde

Regional Distribution of ICT Startups SOFTWAREICT ServicesHardware Source: Mannheim Enterprise Panel 2012 Startup Intensity = No Startups / Workforce at County Level

What Explains The Regional Distribution?  Knowledge Infrastructure o R&D in the Private Sector o Regional availability of universities and public research facilities o Supply of Highly Qualified Workforce especially with a background in mathemathics, IT, engineering, and other technical degrees  Larger number of potential founders  Larger workforce available for startups  Network Infrastructure (only important for Software and Services o Distribution of product, aquisition of customers o Exchange of people, knowlegde, experience o Communication with customers, market access  Based on analyses of panel of counties in German during the roll out of high speed telecommunication networks

Source of Finance of Start ups - Total funds used in first year (in %) - Source: ZEW Startup Panel 2012

Financing of Startups  Typically: Most Startups need only small amounts of money  External funds is provided by private and/or public banks  VC / BA is used by a small number of ICT startups only, which however are characterised by a significant demand for external funding  Demand of external funding is highly skewed  A sound financial system needs to provide small as well as significant amount of money i.e. banks and VCs are needed  Early stage equity funds are provided by private VC, public VC, or business angels (more or less in equal shares)  Funding gaps are present at startup as well as in expansion stage A sound financial system should comprise bank financing and equity financing providing large as well as small funds for startup; in early stages government funding is also crucial

Thank You For Your Attention Georg Center for European Economic Researchwww.zew.de ZEW, Mannheim, Germany Co: Science Metrix