More and more German startups are migrating abroad – here are the top 5 reasons why

9. Dezember 2022

Year after year, more and more startups, especially successful ones, are moving abroad. Therefore, knowledge, jobs and innovative value creation processes are increasingly migrating beyond German borders. This makes Germany face the challenge of regaining its attractiveness in the future. In order to retain and promote young companies in the long term. According to a survey by the German state-owned investment and development bank Kreditanstalt für Wiederaufbau (2022), the number of German startups willing to migrate is currently limited. The reasons for their migration are manifold. Let’s have a look at the five most important reasons (Viete 2022). 

1. Financing opportunities

On the one hand, Germany can look back on a record year in terms of investment volume in the wake of the international VC boom. On the other hand it remains well behind larger markets such as the USA or the UK. Although a large number of funding opportunities have been created around startups in Germany in recent years, growth financing abroad still represents the more promising option. The most important recorded reason for German startups to migrate is therefore better financing opportunities abroad.

2. Exit opportunities

In second place are better exit opportunities, i. e. sales to foreign firms, or listings on foreign stock exchanges. This is due to huge interest in innovative German startups – especially abroad. If we compare the number of M&As with German startup participation in 2020 and 2021, it has increased by 90% compared to the previous year. Remarkably, more than two-thirds of the transactions originated from foreign investors.

3. Valuation level

Against the backdrop of the buying power of foreign investors, the prospect of a comparably increased valuation level is also considered an incentive to take the step abroad. In the USA in particular, larger volumes are invested on average per financing round compared to Germany. It is not without reason that American companies are often involved in high rounds in this country. 

4. Technological environment

Apart from financing-related aspects, the prospect of a better technological environment is also one of the reasons for young firms to look abroad. This can be decisive for their development, because the technological environment defines the entire ecosystem surrounding startups. For example, product or service development progresses much faster and more precisely in environments that maintain the status quo of innovation progress. 

5. Investor desire

Foreign investors are known to be involved in a large number of financing rounds for German startups, especially those with larger volumes. This is often accompanied by their desire to relocate the company’s headquarters to corresponding markets of interest. As startups increasingly comply with this wish, the investor desire is among the top five reasons why startups migrate abroad. 

In summary, especially the financing environment is an important motivating factor for the choice of location. However, specific interests of startups also impel companies to move abroad. To keep startups in the country itself, Germany has to become more attractive as a location. It is necessary, to drive the expansion of the VC ecosystem and specifically address the needs of young high-growth companies.