Author: Eric Weber, SPINLAB
In the last years, the German startup ecosystem has grown dramatically and with it, the number of accelerator programs increased to more than 12 programs in early 2019. For Indian founders some of those accelerators may offer a great landing platform to the German and European market. However, finding and selecting a suitable program is not easy and Indian founders may need some guidance. Especially the twelve Digital Hubs that have been announced by the German Ministry for Economic Affairs may provide a good starting point, since they link cities to certain fields of thematic specialization such as Smart Infrastructure, FinTech, Logistics or Digital Health. However, founders should ask the right questions when it comes to this selection process.
How far is the startup?
Different programs are targeting on different startups. Many accelerators require a running prototype (or at least a market-proven concept) and a more or less complete team. Other acceleration programs focus on even more mature startups. Interested founders should check the websites and portfolio companies of accelerators carefully to see if their own status fits to the target group of the program. If you join an acceleration program too early, their contacts to investors and potential partners or customers may come too early for you, while the benefit would have been much higher later on. Founders should also consider, that developing the Minimum Viable Product (MVP) at home with an existing network might be easier in many cases.
What about financing?
Many acceleration programs provide small amounts of money in exchange for small equites shares. A typical deal in Germany is 25.000 Euro for 5% equity. This brings two main considerations. Firstly, if the startup has raised money already, many accelerator deals may mean a downround on the previous valuation and so founders have to decide how much value they expect from additional services such as coaching and office space. But especially for international startups that services may have even more value than for locals. Secondly, founders should ask themselves critically if the additional money covers the additional costs for travel and accommodation and leaves enough space to really get the business started. Here, the location of the program has a great influence: while Munich or Hamburg are quite expensive, other cities like Berlin or Leipzig are comparably cheap. Still even the latter ones are between 2-2,5x as expensive as Mumbai.
Beyond the acceleration programs themselves, the German venture capital scene is quite conservative and investing into internationals who are in Europe since some weeks or months adds up additional risks. If you want to raise money from local investors, it is strongly recommendable to use accelerators or other trustworthy consultants as intermediary and also you need to be prepared for German as business and contract language. Finally, you should be willing to move your headquarter to Germany and build up your team here (which is way more expensive and difficult compared to India). Especially for seed startups targeting on business angels, it could be the better choice to raise money in India, build a team there (especially coders) and do only sales in Germany, since language and cultural barriers as well as different legal environments may cause some reluctance of German investors during smaller financing rounds. When the financing rounds get bigger (B, C round or above) these additional transaction costs may be more justifiable for German venture capitalists.
What happens during the program?
Another important question is the content of an acceleration program and the background of the organizer. Two typical questions of accelerators are financing and market readiness. A founder should always try to identify what he needs most and how he can benefit from the accelerator. In case of a lack of clarity, founders should ask the accelerator managers and check the mentors of the program.
Many accelerators in Germany focus on special industries or technologies enabling them to offer highly specialized know-how and networks. However, they might lack on cross industry experiences. Through the ‘Digital Hub Initiative’ the German government tries to even increase the focus of selected regions on startups in special industries to boost their international competitiveness. Depending on their business model Indian founders should consider industry specialisations during their selection process.
Usually the industry focus is also connected with big German corporates that host the accelerator program and try to see and learn from startups. Today, most of the biggest German companies run own accelerator programs. If this strong affiliation provides extra benefits for a startup and it fits well, the founders should try to learn more about the conditions. On the other hand, a strong link to one corporate may cause dependencies with a long-term impact. Especially if the acceleration program takes equity shares, an Indian startup should ask itself if it wants to have a big German corporation on its shareholders list. While this is highly beneficial in many cases, it can also have negative effects (esp. if you want to cooperate or sell to their competitors or in the case of different exit scenarios).
What about language and cultural barriers?
Of course, every nation in the world is unique with different traditions, habits and languages. The Indian mentality is more open, sales- and contact-friendly than the German one. Behaviours which are quite usual in India, especially in field of selling yourself and your company and high self-esteem might seem to be overselling and arrogant in Germany. It is very unlikely to be successful with cold calling and sales processes are quite slow and intensive. Also, German companies pay much more attention towards contractual agreements, especially in the fields of Intellectual Property and data security. While bigger corporates have dedicated startup people, especially SMEs (German Mittelstand) do have a lack of openness. Also the equality of genders, sexual orientations and age groups are a common European value. Regardless of the origin and religion, international founders are save and welcome in mostly all parts of Germany. Of course, the internationality and understanding is higher in the bigger German cities. Also the language skills are much better developed in bigger cities that host more international guests and expats.
Altogether, accelerators may help you to learn quickly about the German business culture and to make contacts within Germany, where warm introductions are extremely helpful. They can also help to bridge language barriers. With a trustworthy partner in the background, Indian startups can access German companies much better.
Where to get an overview?
Professional German programs usually use the international platforms such as www.f6s.com, www.angellist.comor www.seed-db.com. National collections include www.founderio.de and a guest article on the leading German startup online magazine www.gruenderszene.de
To sum up, Indian founders can use accelerator programs in Germany to enter the German and European market mainly with benefits for sales and partnering with German Mittelstand (SMEs) and big corporations. However, they must consider their own status and circumstances as well as the detailed offers by individual programs. Not every Indian startup needs an accelerator to start business in Germany and not every accelerator can be recommended.