Investment in German start-ups drops-off

Germany has fallen behind the rest of Europe when it comes to investing in chemistry-related start-ups, according to a soon-to-be-published study by the Leibniz Center for European Economic Research and the Center for Economic Policy Studies of Leibniz University. VCI, Germany’s main chemical industry association, commissioned the study.

Although venture capital firms invested $62 million in chemistry start-ups across Europe in 2018, German start-ups accounted for less than $3 million of the total. This is despite Germany having Europe’s biggest chemical industry and largest economy.

In 2011, German chemistry start-ups attracted almost $40 million in venture capital funding. From 2015 to 2018, though, only 0.3% of venture capital invested in Germany flowed into the chemical sector. This compares with 46% going into the digital economy and 19% into biotech and health care. The study’s authors identified 281 chemistry start-ups in Germany.

The findings are a concern, VCI says, because chemistry start-ups supply the German chemical industry with innovative products and services that make it more competitive.

The study’s authors conclude that the reluctance among German venture capital firms to invest in chemistry start-ups is because many of the firms don’t have patents for their technology. Patent protection is often not possible because many chemical start-ups offer a service or are developing technology for specific customers, says Christian Rammer, coauthor of the study and deputy director of the Leibniz Center.

The solution is to provide venture capital companies with more government incentives to invest in German start-ups, says Gerd Romanowski, VCI’s managing director of science, technology, and environment. “Otherwise, we endanger chemical research in Germany,” he says.

While venture capital firms have been cool on German chemistry start-ups, they have been increasing their investment in such start-ups elsewhere in Europe. Although investment in UK chemistry start-ups has fallen somewhat since 2017, it has been increasing in France and has picked up across Europe as a whole since 2014.