27.10.2021 – 10:09
McKinsey & Company
- McKinsey study shows the conditions under which start-ups can become a growth engine for Germany by 2030
- The entire start-up ecosystem can create 1.4 million new jobs and reach a market capitalization of EUR 2,300 billion
- A total of 41,000 start-ups can be founded by 2030
Germany’s start-up ecosystem can develop into an essential part of Germany’s growth engine by 2030. The chances are enormous: 41,000 start-ups are possible by 2030 and together these new start-ups could achieve a market capitalization of EUR 2,300 billion. This growth would not only exceed today’s overall rating of the DAX40 companies by more than 20%, but could also create over 1.4 million new jobs at the same time. In view of the structural change that the German economy is currently going through, both aspects – value creation and job creation – are important for the future economic strength of the country. The prerequisite for this is that all economic players – start-ups, large corporations, medium-sized companies, financial institutions and educational institutions – join forces in regional and thematic clusters by 2030. These are the main results of the study “Entrepreneurship Zeitgeist 2030: Making start-ups Germany’s next economic powerhouse” by McKinsey & Company.
“A flourishing start-up ecosystem must use its own strengths instead of copying what already exists. Entrepreneurship is part of the DNA of the German economy. Both new world champions and strong domestic economic drivers can be founded and established in sufficient numbers, “says Karel Dörner, Senior Partner in McKinsey’s Munich office and co-author of the study. A new entrepreneurial zeitgeist is intended to support the development of both high-growth start-ups with particular economic and charisma and to promote medium-sized start-ups, the “new German medium-sized companies”. This contributes disproportionately to the creation of new jobs and innovations.
The results of the report are based on two sources: a proprietary quantitative model that predicts the effects of the German start-up ecosystems on the German economy and more than 20 qualitative interviews with experts and decision-makers from the German start-up landscape, which took place in autumn Were carried out in 2021.
Double the number of start-ups and increase the likelihood of success
In order for the German start-up landscape to become a growth engine, the already high dynamism in the start-up ecosystem Germany of around 2,900 newly founded start-ups per year must not only be maintained, but accelerated. Two thrusts can increase the market capitalization of the current start-up activity (EUR 1,100 billion) through additional value creation of EUR 1,200 billion by 2030:
- The annual doubling of the number of currently founded start-ups in 2030 with a potential market capitalization totaling EUR 500 billion and
- increasing the likelihood of success for start-ups with an additional value potential of almost EUR 500 billion
If you put both levers together, the increased success rate of the start-ups can create an additional value of EUR 200 billion, resulting in a total value of EUR 2,300 billion.
41,000 start-ups possible in this decade
According to a representative survey by McKinsey, only 5 percent of those surveyed with start-up plans actually decide to start a business. This leads, for example, to less than half as many start-ups as in the Netherlands. There are two reasons for this: the lack of clear entrepreneurial thinking and obstacles in the start-up process. The authors of the study have identified five specific sources that could double the number of start-ups founded in 2030 by 2,900 to 5,800 companies. Taking into account the start-up effects of the levers and including the start-up activity already today, a total of almost 41,000 start-ups are possible between today and 2030.
- More spin-offs from universities and research institutions: Around 1,350 more annual start-ups can be expected as a result of a more entrepreneurial mindset and teaching at universities, networking with business and improved commercialization of research performance
- Doubling the number of female founders: Better access to finance and networks as well as the doubling of the proportion of female founders to 32% enable the annual establishment of a further 630 start-ups
- Doubling the number of founders without academic training: By doubling the proportion of founders without a university degree to almost 40 percent, an additional 520 start-ups can be founded in Germany annually by 2030
- Increase the start-up activity of people in their thirties: The average age of successful founders is 45 years. An increase in the proportion of middle-aged founders can create 220 start-ups a year
- Systematically promoting talent pool of founders with a migration background: Immigrants or their descendants are more willing to start a business than non-immigrants (59 percent and 49 percent, respectively), but they only make up 20% of the current founding group. If it is possible to create a more inclusive start-up ecosystem and to close the funding gap for founders with a migration background, 180 additional start-ups will be possible annually in 2030
“Equal opportunities is an essential economic factor. We have to offer disadvantaged groups more support in setting up their own business,” says Markus Berger-de León, partner in McKinsey’s Berlin office and co-author of the study.
Making start-ups more successful
The mere increase in the number of start-ups is only one aspect on the way to a more robust entrepreneurial economy in Germany. Supporting their growth and successful value creation is just as crucial. Two ways can lead to success for founders:
- Strong growth along the start-up and financing phases in order to achieve a billion-dollar exit and to produce companies that are stable over the long term. These hyper-growth companies can account for around 85 percent of the total valuation of the start-up ecosystem by 2030
- Focus on a sustainable path to profitability or an early exit that creates many jobs. This “New German Mittelstand” would only account for 15 percent of the overall rating, but measured by its size it would be responsible for 30 percent of the jobs created in start-ups.
Compared to the USA, significantly fewer top start-ups from Germany reach the later financing rounds. The probability that a US start-up will achieve unicorn status is 1.5 times as high as that of local start-ups. For companies with hypergrowth potential, it is extremely important to acquire enough funds in late financing rounds (Series D), as these generate the majority of the market capitalization with up to 95%.
Thanks to improved access to later-stage financing – on a par with US competitors – almost 75 other German start-ups can achieve so-called unicorn status or successfully go public. “Currently, around 1 in 330 start-ups are stable over the long term. In order to improve this rate and reinvest the added value locally, the conditions for scaling a company in Germany must be improved, especially in the area of access to international talent Markets and local growth capital, “says Max Flötotto, Senior Partner in McKinsey’s Munich office and co-author of the study.
However, scaling a company through venture capital or an IPO is not the ultimate goal for all founders. Start-ups that are developing in the direction of the “New German Mittelstand” often do not go through all financing rounds, but are nevertheless successful. With their often early focus on profitability, they create jobs and tend to be more stable than start-ups with disproportionate growth potential. This makes them an important pillar of the German economy. Especially since these start-ups often do not settle in urban centers, but move jobs to more rural areas. “There they are even more strongly embedded in the ecosystem of regional actors and can ensure that the return remains in the ecosystem and does not migrate to other continents via international venture capitalists,” says Tobias Henz, Associate Partner in McKinsey’s Munich office and co-author of the study .
In order to be prepared to take on this responsibility, the next generation of entrepreneurs of the “new German middle class” should make their first experiences with the challenges of entrepreneurial thinking as early as possible (ie in school). In this way, they can also make their contribution to strengthening and improving the cooperation between established actors – large companies and medium-sized companies.
Graphics and study report for download: mck.de/zeitgeist2030
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