German corporations step up backing for startups

Germany looks like it is on course for the lowest level of venture capital activity for at least a decade, judging by Pitchbook data for the year so far – so why are there feelings of tentative optimism inside the country itself (and not just from a first victory at the World Cup)?

Pitchbook data shows a steady fall in VC activity by deal volume since 2021’s zero interest rate era high.

But there has been an increase by deal value in the past two years and, judging by nearly the half way point of the year, this year should be back around the 2022 levels. Certainly, if reports are true that Helsing, a defence company headquartered in Munich and backed by Swedish industrial group Saab, is on the cusp of finalising a $1.2bn funding round, this will boost the total.

Helsing would follow this month’s $1.4bn backing of Neura Robotics’s that values the platform at about $7bn and includes investment from crypto group Tether, and American tech companies Qualcomm, Amazon and Nvidia’s corporate VC units.

This CVC support points to a possible cause for the nascent optimism in Germany. Global Corporate Venturing’s data showed CVCs were involved in a record 17.2% of startup fundraising rounds last year and edging higher again this year beyond 18%. Vitally, for the country, local corporations are stepping in, not just foreign ones.

Industrial equipment suppliers Robert Bosch and Schaeffler both backed Neura, while Germany-based consultants Roland Berger has funded Aleph Alpha co-founder Jonas Andrulis’ new artificial intelligence startup, CNTR. This startup focuses on developing “collaborative AI” for industrial applications, aiming to solve current market frustrations by building tools that work directly with human experts.

Stefan Schaible, CNTR’s chief operating officer, is also global managing partner of Roland Berger, which operates as a corporate venture builder for the startup.

If your company runs a venture building programme, I’d be really grateful if you could take a few minutes to tell us about it through this quick survey.

Andrulis’ previous startup, Aleph Alpha, recently agreed to merge with Canadian AI enterprise platform Cohere in a deal that values the combined entity at $20bn.

As part of the transaction, Aleph Alpha’s largest investor, Schwarz Group, parent company of retailer Lidl, is committing $600m in equity and research funding to Cohere’s series E round and opening up its European data centre infrastructure to the combined business.

The country and corporations, therefore, are finally stepping up to develop the supply chain for the emerging platform around AI and thinking about the platforms required to build new industries and support existing ones.

Talking to local CVCs involved in the Schmalenbach network, the German business administration association, Germany’s private equity and venture capital association BVK, as well as individual GCV members companies indicate that more companies are preparing to unlock their dry powder on more startup deals and new CVC units are being formalised.

This is important. Germany has been in a slump since its triple strategic bet to outsource defence to the US, buy cheap energy from Russia and export to China started to fail from about 2022. A Mittelstand supplying large manufacturers, such as car makers, is then vulnerable, too. The average revenue per employee at Bosch, for example, is about €200,000. It is 10 or 20 times this at larger conglomerates, such as Apple and Alphabet, let alone startups like Anthropic.

Backing a platform like Neura, CNTR, Aleph Alpha/Cohere and potentially Helsing, therefore, offers a way to repurpose and retrain and build higher-value jobs. This means incumbents have to look outside-in for opportunities through corporate venture capital and venture clienting as well as inside-out for corporate venture building to use insights around customer problems.