The German startup ecosystem is diverse, thus offers a variety of opportunities for startups from different sector. Especially so-called “Green Startups” are gaining traction as the newest Green Startup Monitor by the German Startups Association is highlighting. More than 30% of all German startups are Green Startups, 76% of all startups see their environmental and social impact as relevant to their business strategy and 50% of all startups in Germany have integrated their social/environmental impact into key performance indicators.
But what are Green Startups? What is behind the success of the German Green Startup ecosystem and what are persisting barriers?
Startups are increasingly taking an entrepreneurial approach to solving social and environmental ‘grand challenges’ (climate change, energy and mobility transition, demographic change, changes in the world of work). Depsite being anchored in the startegy of most startups in Germany, the concept is also increasingly being integrated in management guidelines.
Startups in the German context are classified as ‘green’ if they meet the following three criteria:
- an allocation to the Green Economy
- a strategic-sustainable approach and
- a sustainable strategy which has been translated into KPIs
Given this, approximately 30% of German startups can be classified as Green Startups, while 50% of all startups can be allocated to the Green Economy. Most Green Startups in Germany operate in the ICT sector (22%) followed by the nutrition and food sector (11%), consumer goods (10%), healthcare (6%), automotive & mobility (6%), energy & electricity (6%), etc. Green Startups account for the majority of all startups in five sectors: agriculture and agribusiness, energy and electricity, textiles, consumer goods and nutrition and food. With their solutions, they are thus, driving sustainable structural change in these sectors, which are so important for the socio-ecological transformation within Germany.
Overall, Green Startups consider themselves as more innovative compared to classic startups. They especially see their products, services and technolgies as more innovative. 8 out of 10 Green startups classify themselves as innovative or very innovative. While Green Startups continue to stand out due to a significantly higher rate of female founders with 19%, the number has slightly decreased compared to the previous year.
One of the main barriers for Green Startups remains access to funding. The largest gap can be found in the area of venture capital: While 42% of Green Startups would like to have access to VC funding, only 16% have been able to attract VC funding. What is also noticable: Six out of 10 Green Startups wish for the government to support with funding. Although Green Startups already receive more state funding than non-green startups (48% vs. 42% of non-green startups), a significant funding gap can be identified for 11% of Green Startups. This increases the need for a ‘sustainability’ government funding scheme to close the gap. Additionally, incubators, company builders and accelerators, i.e. forms of funding that combine financial and non-financial support, also play an important role for Green startups. 23% of Green Startups would like to receive such support.
As highlighted earlier, Green Startups account for a significant share of all startups with the Federal Republic of Germany. However, there are significant differences between the individual federal states which also is an indication for the best location for foreign startups seeking to build a Green Startup in Germany. Particularly green are Mecklenburg-Western Pomerania and the Saarland with each 35%, Hesse (31%), as well as Schleswig-Holstein (29%), Lower Saxony (29%) and Saxony (29%). Green Startup activity is below average in Saxony-Anhalt (19%), Hamburg (20%) and Bavaria (21%). However, especially Hamburg has been seeing an increase compared to the previous year.
The Covid-19 pandemic has also contributed to another main challenge for Green Startups: Customer acquisition and sales. While this number is lesser than compared to traditional startups, it is with 63% of all Green Startups seeing customer acquisition and sales as their main challenge relatively high. Other challenges highlighted by Green Startups include product development, liquidity, profitability and tax as well as legal regulations. 12% of Green Startups find the internationalisation process challening.
Addressing policy makers, 47% of Green Startups wish for a ‘Sustainability’ government funding mechanism. 47% also feel that bureaucratic and administrative services should be eased. Another 40% see the need for the expansion of state VC funding and 27% wish for more programmes to exchange and cooperate with established companies.
Overall, Green Startups are promoters of a sustainable transformation of the economy and create a double dividend, an economic one as well as an ecological and social. Germany thus is also an interesting market for foreign Green Startups seeking to capture the German market. The consumer awareness for ecological fair and sustainable products has significantly increased in recent years and is likely to continue on this growth path.