Month: May 2014

Quo vadis, German Incubators?

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A consolidation in the German Incubator scene has been anticipated since the end of 2013 and now with EPIC Companies, the second large German-based Incubator has reduced its staff and consolidated its activities, as reported by Venture Village. Previously, Bertelsmann had quietly closed the doors of its incubator Bevation and Team Europe had announced a change in strategy in order to reduce its overhead costs. 

Despite EPIC company’s appeasement-strategy and assurance that its employees will mostly be transferred to its portfolio companies and that there will be only a very small number of layoffs , the reaction in the German startup-scene to the company’s’  press release last week have been rather negative. The rationale behind EPIC boss Mato Peric’ decision is simple: relatively high overhead costs and a cost-benefit-ratio that would have put the incubator under immense pressure in the next few years. “We did not want to be in a position where we needed to constantly launch new companies only to justify a big overhead”, Peric told the Berliner Morgenpost. The number of employees at Epic Companies also grew fast. “We are more than 200 employees across all portfolio companies, and we will remain more than 200”, Peric added. It sounds like the only thing that will change is the allocation of EPIC’s workforce, as many of the employees will be transferred from the Holding to the individual portfolio companies and therefore be released from EPIC’s payroll. 

Inkubatoren Szene

 

In addition to reduced overhead costs, the incubators’ recent decision is part of a targeted long-term change in strategy. Interesting to see will be how the incubator will be positioned from now on. Even though, Peric says that the portfolio (EPIC currently has 7 startups in its portfolio) will not change, rumors are that EPIC will mainly focus on investments in promising startups while building fewer ventures from scratch. EPIC Companies is not the only incubator who is contemplating a change of mind like that: Berlin-based Team Europe already signaled significant changes to its business strategy (resulting in staff cuts) in late 2013 – the incubator announced a downsizing in activities, with an aim of co-founding just two “fast-growing and sustainable” internet companies per year.

On the one hand, 2013 has been a hyped-up year for Incubators in Germany, which is why a consolidation seemed to be inevitable. On the other hand, the overall market situation became much more intense in terms of competitive pressure. Competing incubators, accelerator programs and other funding programs for startups – everyone wanted a piece of the cake. All of a sudden, founders had numerous options for their startups to choose from and often ended up choosing another funding model. Most incubators got under a lot of pressure and were not able to generate Exits in order to compensate for their high operating costs.

Swimming against the stream

A  general turning-away from the incubator-model however is not very likely. Besides a few recent negative developments there are also promising signs: As one of the first investors from the pharma-industry Bayer AG, the German pharmaceutical giant, announced an investment  in the High-Tech Gründerfonds II, the famous German early stage seed investor, and founded its own incubator CoLaborator in Berlin in early 2014. CoLaborator focuses on early stage biotech start ups and provides office space as well as sophisticated know-how in the area of bio-technology. Another newly established incubator with a special niche focus is the Frankfurt-based main incubator, through which the Commerzbank aims to bring innovations to the banking industry. The incubator supports fin-tech startups and founders with capital and access to the Commerzbank-infrastructure.

Quo vadis?

Observing the most recent developments in the German Incubator scene, it seems as if there are two strategies at present: Either to address a specific target group, with a strong connection to the core business, or to diversify the investment approach. Diversification in this respect ranges from developing completely new ideas from scratch to predominantly focusing on investments in promising business models. The imaginary line between incubators and company builder seems to be rather blurry anyway: Rocket Internet, for example, clearly describes itself as an incubator on their website, while Project A calls itself a company builder.

Making Germany a More Attractive Place for Statups

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There has been a lot of noise lately whether Germany is a favorable environment for startups and entrepreneurs and in what way the conditions for young companies located here could be improved. The wide-spread public opinion: too much regulation, not enough capital and a general culture that is too risk-averse to bring up innovations. The BVK, Federal Association of German Capital Association, has now come forward with a new proposal that would favor more Venture Capital investments in Germany.

“In order to make Germany internationally more attractive as an investment destination for venture capital, we will issue a new set of rules (Venture Capital Act) depending on funding opportunities.” This has been written down in the coalition agreement between CDU, CSU and SPD in fall 2013. The German Bundestag now urged the Federal Government, to improve the conditions for venture capital in this legislative period. The BVK has proposed a draft bill, that includes a series of actions, most notably: 

  • Opening clause for regulated investors – that way, investors will be able to put a small portion of their money into Venture Capital free from regulatory constraints
  • Repeal of the sales tax on management fees – Germany is the only European country that still taxes the administrative services of fund managers – a clear disadvantage for Germany Venture Capital firms.
  •  Direct tax benefits for R&D projects – compared to other European countries, German companies are operating at a significant disadvantage when it comes to tax benefits for R&D activities. 

In the last three years startups in Germany received almost EUR 2bn in Venture Capital – a decent plus of 19% (reported by the BVK). That might seem like a lot of money, compared to the EUR 64bn in the same period for the U.S. however, the amount is quite low. The proposed measures for a Venture Capital Fund Law in Germany are intended to enhance the investment environment for all parties – Fund investors, fund sponsors and portfolio companies. A constantly changing industry like the startup industry needs a flexible regulatory environment in order to stay competitive. The German regulatory authorities are said to be anything but flexible. The BVK bill proposal is a step in the right direction. A first step with a lot of ground to cover…

Klaus Hommel Is The Godfather of the German Start-Up Scene: Always In The Background But He Definitely Knows How To Pick ’em.

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Having Klaus Hommels on board as an investor is an advertising campaign in itself – the man has become an international figurehead for startups. His early-stage investments in Skype, Facebook and Spotify have earned him a place as one of Europe’s leading angel investors. Today, he invests in promising internet startups through his own venture capital fund by the name Hommels Holding.

Hommels is known for his unconventional methods: Unforgotten, how he bugged Niklas Zennström with daily calls for about two months until he finally gave in and let him invest in Skype. He recognizes promising trends one and a half year before everyone else. With this foresight he also managed to secure shares in Facebook and Spotify before the general public eventually jumped on the bandwagon. Hommels chooses his investments wisely. He pays attention to potential market size, the customers’ willingness to pay and the personality of the founders. He usually invests a six-figure amount  and gets strategically involved. A special focus lies on founders, who have failed with an attempt to start a business before. He prefers entrepreneurs like Lars Hinrichs, who stranded with a PR-agency for startups before he started Xing, which now has a market cap of EUR 500m and is the main competitor of LinkedIn – all with the help of Hommels.

“Who has gone bust before, is going to be more careful with the money the next time” says Hommels. He has his own personal experiences with crises: After a successful corporate career – CFO of Bertelsmann, board member of AOL – he choose, of all years, the year 2000 to go into business for himself. Bad timing, because the New Economy had just gone bust. However, as the industry picked up speed again, he knew what he had to do.

 

Also noteworthy is what Hommels told VentureVillage on how he got into investing at the age of 15:

“It started when my grandma gave me $20,000 bucks – to buy stocks- and she said if you lose something, I cover it. If you gain something, you keep it. At that time, I was a very fast right wing with Puma shoes… Puma made an IPO. I said, OK, I know this, great shoes. So I bought with this $20,000 bucks, Puma, and I tripled the money. So I earned $60,000 at a time when I got $20 bucks pocket money a month.

I thought, this is so cool, this investing. I just telephone twice and I make more money than the next 100 years of pocket money.”

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YOU IS NOW Berlin presents its next round of startups for its accelerator program

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ImmobilienScout24’s start-up incubator YOU IS NOW introduces its new round. The second round of the accelerator program will include PopUp Berlin, GroupEstate and Sorglosinternet.

After completing the first round in February, the YOU IS NOW Berlin Accelerator Program will now start a second round. PopUp Berlin, GroupEstate and Sorglosinternet will develop their business ideas and will be supported by over 30 internal ImmobilienScout24 mentors and external mentors such as YouTube founder Jawed Karim who will coach the start-ups. In addition, the Founder Institute will offer workshops, seminars and pitch coaching.

Dennis Boehres, co-founder of PopUp Berlin, talked to VentureVillage about the value of the program to his startup: “We’re enthusiastic for this opportunity to accelerate the development of our platform and services and get our service on the next level of functionality, attention and traction.” PopUp Berlin is a community marketplace that connects landlord and commercial property owners to creative businesses who are looking for a popup-store to test, promote or develop their business ideas.

With GroupEstate, Founder Joel Dullroy and his team are building an online tool for the collaborative acquisition of property between friends, couples and flatmates. The tool will offer everything that is required for making a purchase: contract templates, a financial dashboard, a notary and credit finder and an investment management function.

“Personally, I am very happy to be working with ImmobilienScout24 again. They funded and supported my last startup, which unfortunately failed due to problems within the team,” says Dullroy referring to his co-founder who accused the accelerator of purposely letting the startup file for bankruptcy.

With the sorglosbox (“worry-free box”), businesses (airports, restaurants,…) can offer free wifi to their customers without fearing legal issues with providing each user their own IP address. Looking forward to the program, Wolfgang Lauterbach, co-founder and CEO atSorglosinternet told VentureVillage: “We have made our first steps as a startup. With the YIN expertise and mentoring team, we want to ensure to professionalize our processes and work on further ideas while having our first real office space.”

The Accelerator Program

The focus of YOU IS NOW is on internet-based business models which are thematically linked with the Scout24 portals. According to ImmobilienScout24, the in-house incubator and accelerator program is an important component of the online business’s strategy for innovation and growth.

The program, which started in November 2013 with a first round of five teams, provides the startups with a co-working space as well as up to €15,000. While in the beginning €25,000 was given away to startups, YOU IS NOW stated that in the beginning financial support was not as necessary to startups as advice. In order to participate, the startups do not give away any shares.

“The focus of our accelerator program is on business ideas that create added value for the property industry”, states Torsten Oelke, the initiator of YOU IS NOW Berlin. “The start-ups in the second accelerator class have this potential. We are excited to see how they will develop and what sort of synergies with ImmobilienScout24 might possibly develop.”

Key Facts:

  • 3-5 Teams (up to 4 members per team)
  • 15.000 € funding
  • Co-working space in Berlin
  • Extensive mentoring from ImmobilienScout24
  • External mentors
  • Weekly trainings at the Founder Institute Berlin
  • 0% equity, no strings attached!
  • Three batches every year
  • The most successful team will get a ticket to stay with YOU IS NOW as an alumni during the time of the next accelerator batch! That’s another 3 month’s of office space and mentoring for free!

 

Photo: © Gruenderszene

Original story: © VentureVillage, 05-12-14