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. 

 

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.