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White Star Capital - German Venture Capital Landscape 2018

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White Star Capital - German Venture Capital Landscape 2018

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In this report, we aim to share our enthusiasm on the German tech and Venture Capital ecosystem from the perspective of an international VC fund.
We aim to share our excitement about Germany and express our belief that the ecosystem is gaining momentum. We also look at a few particularities that make the German market unique such as its decentralization, the impact of Rocket Internet on talent, differences in deal terms and media for equity. Finally, we end with a deep dive on VC’s and other investors making up the ecosystem.

At White Star Capital, we made our first major investment in Germany by co-leading Clark’s Series B round earlier this year. We are proud of the progress of the company so far and are looking forward backing many more.

We hope you enjoy reading this report!

In this report, we aim to share our enthusiasm on the German tech and Venture Capital ecosystem from the perspective of an international VC fund.
We aim to share our excitement about Germany and express our belief that the ecosystem is gaining momentum. We also look at a few particularities that make the German market unique such as its decentralization, the impact of Rocket Internet on talent, differences in deal terms and media for equity. Finally, we end with a deep dive on VC’s and other investors making up the ecosystem.

At White Star Capital, we made our first major investment in Germany by co-leading Clark’s Series B round earlier this year. We are proud of the progress of the company so far and are looking forward backing many more.

We hope you enjoy reading this report!

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White Star Capital - German Venture Capital Landscape 2018

  1. 1. GERMAN VENTURE CAPITAL LANDSCAPE
  2. 2. 2 A WORD FROM OUR GERMAN COVERAGE TEAM NICK STOCKS Partner Authors/ Contributors In this report, we aim to share our enthusiasm on the German tech and Venture Capital ecosystem from the perspective of an international VC fund. We aim to share our excitement about Germany and express our belief that the ecosystem is gaining momentum. We also look at a few particularities that make the German market unique such as its decentralization, the impact of Rocket Internet on talent, differences in deal terms and media for equity. Finally, we end with a deep dive on VC’s and other investors making up the ecosystem. At White Star Capital, we made our first major investment in Germany by co-leading Clark’s Series B round earlier this year. We are proud of the progress of the company so far and are looking forward backing many more. We hope you enjoy reading this report! External Data Sources Allen Duoji Analyst “ Germany is a magnet for founders and investors, and the ecosystem has reached a high degree of visibility.’’ Sanjay Zimmermann Associate “Germany’s unique and mature ecosystem is froth with opportunities for those willing to take the time to understand it ” Karolina Mrozkova Analyst “Undisputedly a nation with the largest economy in Europe, Germany is also one of the World leaders in machinery, automotive, energy, aviation, and healthcare." MATTHIEU LATTES Partner
  3. 3. TABLE OF CONTENTS 3 1. Overview: Why We Are Excited About Germany Page 4 2. The Germany ecosystem is gaining momentum Page 13 3. Particularities of the German ecosystem Page 18 4. Deep Dive on Germany VCs Page 23 5. Glossary of German VC funds Page 27
  4. 4. OVERVIEW: WHY WE ARE EXCITED ABOUT GERMANY
  5. 5. GERMAN MARKET IN EUROPE Germany is the second largest market in terms of capital invested & number of exits Source: Dealroom.co Source: CBInsights 3.2 5.5 9.1 11.8 22.0 1.1 0.8 2.8 3.1 5.1 Capital invested in ($B) from the past five years 2014-2017 2018 YTD 22 31 53 62 98 Number of IPOs and M&A since 2014 Over the past five years, Germany had a total of $14.9B invested into its startup ecosystem, making it the second largest in Europe in terms of capital invested. Germany also has the second highest number for IPOs, and M&A exits from VC-backed and non-VC-backed companies in the EU. 5
  6. 6. VC FUNDING GROWTH IN GERMANY Steadily growing in deal volume and Number In total over the past five years, c.2000 deals have been closed by VCs in Germany. Top financed industries include enterprise software, media, fintech, and marketing. Since 2013, Berlin remains the central hub in terms of total VC-backed funding with 63% of the share, followed by Munich, Hamburg, and Frankfurt respectively. 6 63% 14% 8% 3% 12% % of deals per city since 2013 Berlin Munich Hamburg Frankfurt Other Source: Dealroom.co Source: CBInsights 2.0 3.3 2.2 3.4 3.6 270 303 451 597 371 -600 -100 400 0.0 0.6 1.2 1.8 2.4 3.0 3.6 4.2 4.8 2014 2015 2016 2017 2018 YTD Funding amount in ($)Bn Number of deals German VC-Backed deals
  7. 7. The number of German exits has been steadily rising year-over-year since 2009 Source: CBInsights 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 % of German deal volume per stage, per year Seed Series A Series B Series C Series D+ In 2018, a record of 16 companies entered the public market. While over the last decade, broader M&A activity has also risen to record high levels for VC-backed and non VC-backed companies The stable split amongst startups represents the relative maturity of the German VC ecosystem at various stages over the last decade. DEAL ACTIVITY PER STAGE Maturing ecosystem with steady rise in exits 7 30 40 118 145 160 239 271 360 540 517 0 1 1 0 2 4 6 7 5 16 0 2 4 6 8 10 12 14 16 0 100 200 300 400 500 600 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD M&A IPO
  8. 8. U.K. Canada Germany France Israel $3.4B $1.8B $2.0B $1.1B 145 262 175 97 Region Total Deal Amount (H1 18) Total Deal Volume (H1 18) Source: CBInsights Source: Western Hemisphere only, VC deals Angel round through Series E+ CAGR Deal Volume (H1 16 – H1 18) +27.1% +23.7% +75.4% +20.7% U.S $52.1B 2,224 +9.8% 8 $1.7B 125 +35.9% SIZING UP GERMANY IN A GLOBAL CONTEXT Undoubtedly one of the largest ecosystems in Europe
  9. 9. Series B share of deals Series C share of deals Series E share of deals Seed/Angel share of deals Series A share of deals Series D share of deals Source: CBInsights 49% A lower % of investments in the seed stages compared to other countries indicates Germany as having one of the more mature ecosystems. While the UK and France see quite a lot of activity at the seed stage, Germany has a disproportionate share of deals at the Series A and B stage. 24% 13% 7% 3% 3% 49% 24% 13% 7% 3% 3% 49% 28% 11% 6% 3% 2% 62% 22% 10% 4% 1% 1% 69% 18% 8% 3% 1% 1% 71% 19% 6% 2% 1% 1% DEAL SHARE BY INVESTMENT STAGE; PAST 3 YEARS Relatively mature ecosystem, with disproportionate share of Series A and B rounds 9
  10. 10. Stage: Sector: Stage: Sector: Stage: Sector: Stage: Sector: Stage: Sector: Stage: Sector: $350M $1000M $336M Stage: Sector: $180M$545M $174M Legend Stage Sector Seed Fintech AI Series A Software Ecommerce Series B Automotive Series C Growth Fund $180M LATEST GERMAN VC FUND CLOSINGS* White Star Capital plans on playing an active role in investing in German Series A and B rounds 10 *Based on German domiciled funds (with the exception of White Star Capital) Stage: Sector: $261M
  11. 11. Deep and Frontier Tech Disruptive Commerce Digitalization of Finance Examples Examples Examples • Cybersecurity • Autonomous Vehicles • Robotics • Genomics • VR & AR • Quantum Computing • Peer to peer lending • Credit and consumer focused business • Consumer finance • Insurance • Loyalty • Fashion • E-commerce • Foodtech • Travel • Mobility CLOSER LOOK AT THRIVING SECTORS IN GERMANY Strong alignment with White Star Capital’s investment areas of focus 11
  12. 12. In 2017, Germany overtook the UK and is now home to the largest number of professional developers. 837K 814K 467K 368K 310K 293K 268K 255K 176K 172K 708K 745K 2017 2016 Source: Stack Overflow TU Munich is ranked as one of the top-rated European computer science institutions and as an entrepreneur school along with Karlsruhe Institute of Technology. Other Top Universities in Germany GERMANY’S DEEP TALENT POOL One of the strongest pools for deep tech, technical and entrepreneurial talent in Europe Number of professional developers by country 12
  13. 13. GERMAN ECOSYSTEM IS GAINING MOMENTUM
  14. 14. $45M* $332M $22M* $472M $738M $373M $436M 2017 2018 *Total funding received at time of acquisition – acquisition value undisclosed Source: Tracxn Concardis Founded in 2003 Retail Enterprise Application Hesse Qundis Founded in 2009 Energy Enterprise Application Erfurt SQS Founded in 1982 Software testing services Cologne proALPHA Founded in 1992 Cloud-based ERP Software Weilerbach Finanzcheck.de Founded in 2010 Fintech Hamburg Navabi Founded in 2007 Fashion Aachen Lendico Founded in 2013 Fintech Berlin $332M VC-BACKED TECH ACQUISITIONS Largest acquisitions in 2017 and 2018 14 $300M Relayr Founded in 2013 IoT Platforms Berlin
  15. 15. 15 UNUSUALLY HIGH NUMBER OF IPOS IN 2018 434 420 208 174 115 106 88 83 62 55 50 19 13 12 7 5,200 German based companies that IPOed in 2018 (IPO proceeds- $M) Source: CBInsights Note – Companies are combination of VC-backed & non-VC backed
  16. 16. 16 Source: CBInsights Note: Excludes funds raised during an IPO New additions in 2018 Total funding in $M 1,856 1,060 497 468 370 300 237 215 198 191 171 156 146 113 TOP FUNDED GERMAN TECH COMPANIES Companies which received funding in excess of $100m over the last ten years
  17. 17. VC-backed with an international investor Exits to international investors have significantly increased over the years 48% 40% 37% 35% 24% 20% Source: Crunchbase Pro (2013-2016) Source: Thomson One, Mergermarket, Crunchbase, press releases 2017 2014 2015 2016 Percentage of exits by origin of investor from 2014-2017 FOREIGN VC INVESTMENT High levels of foreign VC investment & exits to foreign Investors 46% 43% 61% 61% 54% 57% 39% 39% German Investors International Investors 17
  18. 18. PARTICULARITIES OF THE GERMAN ECOSYSTEM
  19. 19. GEOGRAPHICALLY DECENTRALIZED While Berlin is a core hub, Germany is far less centralized than the UK and France 58% 54% 42% London Paris Berlin 51% 49% 34% London Paris Berlin % of total funded startups in given hub % of nationwide active members in tech related meetup group Germany’s economy and population density is far more dispersed than that of the France and the UK Source:Eupedia Source: MeetupSource: Traxcn After Berlin: Munich, Hamburg and Frankfurt are important hubs VC funds are decentralized as well 14% 8% 3% Munich Hamburg Frankfurt Source: Traxcn 43% 36% 21% Berlin Munich Other Source: Pitchbook 19 % of total Startups in Germany
  20. 20. ROCKET INTERNET’S IMPACT ON TALENT Talent flowing out of Rocket Internet backed startups has fueled a new generation of successful founders 10 out of Germany’s largest 22 recent startups which are not currently Rocket Internet-backed were founded by entrepreneurs who used to work for a Rocket Internet-backed startup* Source: Traxcn *Based on total funding, Startups founded in last 5 years, excluding Rocket Internet Backed startups $0m $50m $100m $150m $200m $250m Totalfundingtodate(logosofexRocketInternetstart-ups) 20
  21. 21. DEAL STRUCTURE & PROCESSES A few notable differences between North American and German deal terms and processes North America Germany Preferred legal form Delaware Corporation (Inc.) GmbH (German: Gesellshaft mit beschrankter Haftung – limited liability company) Authorization process for new shares to be issued Approved by the corporation’s board of directors Requires a shareholders’ resolution to be adopted by at least 75% of the votes cast Officializing of significant measures: company formation, investment, and exit Done via e-signing of final legal docs • All significant measures require notarization and registration in the local public commercial register • Representatives of the shareholders and company must be physically present in front of a German civil notary for the reading of the entire notarial deed Board structure CEO, other founders and employees can be represented along with investors and independent board members Only investors and independent board members can be represented Source: Daily Journal 21
  22. 22. MEDIA FOR EQUITY PROGRAMS A common fundraising alternative for German B2C startups requiring large media campaigns Top 3 – European Media for Equity players are German Source: Dealroom Overview of investors and successful casesWhat is Media for equity? In exchange for company shares or convertible notes in a Startup, Media firms offer advertising space at a steep discount over a period of 6 to 24 months to the Startup • Startups benefit from avoiding hefty cash outlays for media • Advertisers benefit from diversifying their revenue base • VC’s benefit from minimized risk of media inefficiencies • While a creative alternative, this may not always be an optimal or relevant solution in every scenario Why use Media for equity? 22
  23. 23. DEEP DIVE ON GERMAN VCS
  24. 24. Bonn Cologne Munich Berlin Source: CBInsights Note: Rankings are per fund, not total AUM per firm LEGEND Fund Size ($M) 300+ 200-300 100-200 < 100 A SNAPSHOT OF GERMAN VC FUNDS Based on most recent fund size 24
  25. 25. CVC Top Sectors Direct Investment Investment in VC fund Select German Investments E-commerce, IoT, AI ICT Digital Media & IT Life Sciences & ICT Media Partnerships & ICT Media Partnerships & ICT Medical Device, Diagnostics, & Digital Health E-commerce, Art & Fashion Online Video, Media &Pub Tech Mobility, Energy & AI 1 2 3 4 5 6 7 8 9 10 Source: CBInsights MOST ACTIVE CVCS IN GERMANY Media for equity players are amongst the most active corporate VCs 25
  26. 26. LEGEND # of German portfolio companies 15+ 8-14 1-7 Source: Tracxn Investors # of portfolio companies MOST ACTIVE FOREIGN VCS VCs with Foreign Head Quarters which participated in the most VC deals in Germany since 2011 26 Investor # of portfolio companies Investors # of portfolio companies Investor # of portfolio companies Investors # of portfolio companies Investors # of portfolio companies
  27. 27. Investor Funded year Min check size (€) Max check size (€) Investments 2017/2018* Region Stage Sectors 2005 N/A 1M 233 DACH Pre-Seed to Seed Seed investments 2013 200K 10M 78 World Pre-Seed B2C and B2B-Tech: Marketplaces, Subscription, SaaS 1997 250K 1M 62 Germany Pre-Seed to Series A Software, Digital, Consumer Internet, Life Sciences, Industrial Technologies 2011 200K 1.5M 42 Europe Pre-Seed to Series A SaaS, Marketplaces 2000 250K 3.5M 39 Europe Seed to Series A Digital and industrial topics: Fintech, Marketplaces, Software, Industry 4.0, IoT 2012 300K 10M 37 World Seed to Series A Currently focuses on Digital Health, Mobility, Education, Industry 4.0, E- Sports 1997 200K 10M 35 Germany Pre-Seed to Later Stage Internet/Software/Mobile, Consumer Products, Industry Technologies, Cleantech, Lifescience 2000 50K 40M 30 World Pre-Seed to Series A Internet, Technology 1998 500K 6M 29 Europe Seed to Series A Sector-agnostic, products and services should be scalable and future- oriented 2011 50K 4M 25 Europe Pre-Seed to Later Stage Marketplaces, Proptech, Insurtech, Digital Health 2012 500K 3M 23 Europe Pre-Seed to Seed Sector-agnostic, Focus: Consumer-Tech, scalable B2B models 1999 500K 6M 23 Europe Seed to Later Stage Cleantech, Software and IT, Industry 4.0 and new materials 2015 300K 1M 23 Europe Series A B2C Internet and Mobile (focus on marketplaces) 2012 500K 3M 22 Europe Seed to Series B Enterprise Software, B2B SaaS, Enabling Technologies, IoT, IT Security 2016 50K 500K 21 World Pre-Seed to Seed Opportunity-driven: open to all areas GLOSSARY OF GERMAN VC FUNDS Page 1 of 4 Source: BerlinValley 27*Includes investments outside of Germany
  28. 28. 2828 Investor Funded year Min check size (€) Max check size (€) Investments 2017/2018* Region Stage Sectors 2009 500K 30M 20 World Seed to Later Stage Consumer Internet, Digital Services, Software & Technology 2006 50K 500K 19 Europe Pre-Seed to Series A Smart City, Future Commerce, Prop/Construction-Tech, Fintech, IoT 2016 500K 5M 15 Germany Series A to Series B Sector-agnostic 1998 500K 30M 15 World Seed to Later Stage Sector-agnostic, primarily consumer-internet & software area 2012 50K 5M 15 DACH Pre-Seed to Later Stage Secondary shares, E-Commerce and Marketplaces, Fintech, Adtech, Blockchain- Infrastructure n/a n/a n/a 15 World Seed to Later Stage Network, Infrastructure-technology, Marketplaces, Decentralized protocol, open software 2003 500K 30M 15 Europe Pre-Seed to Series B Industry 4.0, DLT, Digital Health 2013 300K 20M 15 Europe Series A B2B SaaS 2016 250K 1M 15 Europe Pre-Seed to Seed AI/ML, Enterprise Software 2013 50K 250K 15 DACH Pre-Seed to Seed B2B SaaS, Enterprise Software, Developer Tools 2014 250K 2M 13 Europe Seed to Series A Fintech, Insurtech, Digital Health, E-Learning, Proptech 1997 250K 5M 12 Europe Seed to Series B Fintech, Insurtech, Mobility & Logistics, Blockchain & Crypto, industry 4.0 & IoT 2009 250K 2.5M 12 DACH Seed to Later Stage Media-related startups 2016 500K 5M 12 World Pre-Seed to Series A Decentralization of markets, empowerment of individuals, liberation of data. Thesis yes, sectors no. Source: BerlinValley GLOSSARY OF GERMAN VC FUNDS Page 2 of 4 *Includes investments outside of Germany
  29. 29. 2929 Investor Funded year Min check size (€) Max check size (€) Investments 2017/2018* Region Stage Sectors 2010 200K 2.5M 12 Europe Seed to Series A B2B-Software, Enterprise, SaaS, AI, IoT/Industry 4.0, Robotics, Security 2014 500K 5M 11 Europe Pre-Seed to Series A Fintech, Insurtech, Asset Management 2017 50K n/a 10+ Europe Seed B2B, Europa 2013 1M 50M 10 World Series A to Later Stage Consumer, B2B, Fintech, Mobility, Blockchain 2015 500K 1.5M 10 Europe Seed to Series A Industrial IoT, Machine Intelligence, Frontier Hardware, New-Age Enterprise Software, Cyber Security 2015 5M 25M 10 Europe Series B to Later Stage Content-driven models e-commerce, marketplaces, digital networks 2014 250K 5M 10 World Seed to Series B Personal Mobility, Logistics, B2B, Fintech, Insurtech, Regtech, Proptech, Construction Tech, & B2B SaaS 2012 N/A N/A 10 Germany Pre-Seed to Series A Meta-platforms, E-Commerce, SaaS, B2B 2013 500K 3M 10 n/a Pre-Seed to Later Stage Enterprise B2B, IoT, Property Tech 1999 1M 20M 9 World Series A to Series B Sector-agnostic Investments in Internet companies, especially in B2C startups 2011 100K n/a 9 Europe Seed Deep-Tech, Food 2010 100K 500K 9 DACH Pre-Seed to Series A Attractive market segments, not yet unlocked by the efficiencies of the internet 2015 500K 2.5M 9 Europe Seed to Series A B2B Enterprise Software, Industrial Technologies, 1999 1M 3M 9 DACH Seed to Later Stage Fast-growing tech sectors such as mobile communications, software, green IT, e-commerce and the Internet Source: BerlinValley GLOSSARY OF GERMAN VC FUNDS Page 3 of 4 *Includes investments outside of Germany
  30. 30. 30 Investor Funded year Min check size (€) Max check size (€) Investments 2017/2018* Region Stage Sectors 2016 50K 200K 8 Europe Pre-Seed to Seed B2B/Enterprise Software with strong technology reference 2007 1M 10M 8 World Series A to Later Stage Direct-to-consumer/transactions-oriented business models, enabling technologies 2015 100K 500K 7 Germany Pre-Seed to Seed B2B, Marketplaces, SaaS, Deep-Tech, Digital Services 2008 500K 1M 7 DACH Seed Education Technology, Health Digital Services, Financial Services 2010 250K 2.5M 7 Europe Seed to Later Stage Digital Health, Healthtech, Medical Devices, Life-Science-Platform-Technologies 2011 500K 3M 7 DACH Seed to Series B B2B Startups, Enterprise Software, Industrial Technologies and mobility, software and hardware 2018 25K 100K 6 Europe Pre-Seed to Seed Mobility, Media, Travel, Lifestyle, Fintech 2015 250K 1M 6 World Pre-Seed to Seed Proptech, SaaS, Marketplaces, Insurtech, Fintech, Deeptech 2014 500K 5M 6 DACH Pre-Seed to Series A Fintech, Regtech, Insurtech, Legaltech 2009 5M 50M 6 World Series A to Later Stage Travel, Health, Home & Living, Beauty & Accessories, Tech, E-Commerce, Retail and Lead Generation 2012 50K 500K 6 DACH Seed to Series A Technology, Media, Industrials, Life Sciences, Education 2016 500K 3M 5 DACH Pre-Seed to Series B Internet, Fintech/Insurtech, Legaltech, Comparison, Marketplaces 2016 25K 750K 4 World Seed to Series A Consumer Internet, SaaS, B2B Solutions, Digital SMB’s 2014 100K 1.5M 3 Europe Pre-Seed to Series A E-Commerce Source: BerlinValley GLOSSARY OF GERMAN VC FUNDS Page 4 of 4 *Includes investments outside of Germany
  31. 31. 31 GLOBAL PRESENCE AND PORTFOLIO INTRODUCTION TO WHITE STAR CAPITAL White Star Capital We invest in ambitious entrepreneurs on both sides of the Atlantic. Between us, we have founded, scaled and sold many successful technology businesses. We leverage our collective experience, expertise and global network to help our startups succeed. www.whitestarvc.com

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