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Innovations and Start-ups
Analyses and survey findings on
- Innovation activities in the business sector,
- Innovation strategies, financing and obstacles of small and medium-sized enterprises,
- Start-up activity and start-up financing.
The current KfW Entrepreneurship Monitor 2019:
KfW Entrepreneurship Monitor 2019 (PDF, 572 KB, non-accessible)
Further information KfW Entrepreneurship Monitor 2019
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The business climate in the VC market is recovering after two major setbacks. The business climate indicator of the early-stage segment rose by a strong 13.2 points to 23.2 balance points in the second quarter of 2019. VC investors are more positive about their current business situation but, in particular, they hold much more optimistic business expectations again. The sentiment indicators for the VC market environment, however, are increasingly deteriorating.
PDF for download:
German Venture Capital Barometer 2nd Quarter 2019 (PDF, 200 KB, non-accessible)
Sentiment in the later stage of the German private equity market has fallen for the fourth consecutive quarter. The business climate indicator of the later-stage segment dipped slightly by another 2.7 points to 10.1 balance points in the second quarter of 2019. Equity investors are more downbeat about their current business situation than before but again hold more optimistic business expectations. The indicator for the current business situation fell to 14.1 balance points (-9.5), while the indicator for business expectations climbed to 6.1 balance points (+4.1).But despite the cooling business climate, most assessments of the later-stage market environment remain in the green.
PDF for download:
German Private Equity Barometer 2nd Quarter 2019 (PDF, 200 KB, non-accessible)
For the 3rd time, KfW Group, together with 17 trade associations, has surveyed the businesses on their digitalisation activity. The most relevant results are:
- Two thirds of businesses (66%) have plans to implement digitalisation projects in the next two years. These plans can be observed in all business sectors
- Problems come in to focus with increased commitment to digitalisation
- Data security / data protection and lack of IT competences, including a shortage of qualified IT workers, as well as difficulty adapting the organisational structure and work organisation are the biggest hurdles
PDF for download:
Business Survey 2019 – Digitalisation (Summary) (PDF, 416 KB, non-accessible)
Focus on Economics
Three types of innovators can be identified among the group of small and medium-sized enterprises (SMEs). This study examines whether there are any differences in business performance between the three groups.
The key finding of the analysis is that R&D-based innovators more often achieve higher growth rates. However, if we disregard enterprises with extremely high growth rates, there is hardly a difference in business growth between the groups. Small and medium-sized enterprises can be successful innovators even without own R&D.
PDF for download:
Focus on Economics
The ways in which SMEs generate innovations are only rarely the subject of public debate. The new survey by KfW Research and the ifh Göttingen demonstrates that small and medium-sized SMEs can be divided into three types of innovators.
One innovator type mainly uses industry-specific practical knowledge. A second innovator type primarily relies on the sales market as a source for information, a wide range of in-company interactions and a well-developed error management culture. The third innovator type conducts its own R&D and uses scientific findings. Other sources include information from the business environment, a well-developed error management culture and the use of management practices aimed at stimulating innovation activity.
PDF for download:
KfW SME Innovation Report 2018
Innovator rate has fallen again
The share of innovative small and medium enterprises (SMEs) is returning to its long-term downward trend after a brief interim high. Since the middle of the 2000s, especially small SMEs with less than 5 employees have ceased their innovation activities. The central findings are:
- The innovator rate drops by 4 percentage points to 23%
- Innovation spending in SMEs continues to fall to EUR 30.7 billion
- Process innovations are developing positively against the trend - digitization is likely to be a focus here
- Research-based SMEs are launching market novelties seven times more frequently than companies without own research and development (R&D)
PDF for download:
Please note: Up to the year 2018, our publication was called the KfW Start-up Monitor
Bolstered by a healthy domestic economy, start-up activity in Germany stabilised in 2018 after declining for many years. The number of business starters was 547,000, down slightly on the previous year. The number of business start-ups by women grew, while male start-ups continued trending downward. Start-up activity has been dominated by new business creation. The year 2018 saw more of it than ever before: Eight in ten business starters ventured into self-employment by setting up new businesses. But there has also been a positive trend regarding business starts through the takeover of existing firms for some time now. Business starters have invested noticeably more capital in their business on average in the past decade. Full-time business starters in particular are investing larger amounts. Overall, start-up finance remains a hurdle at which even many start-up plans fall.
PDF for download:
KfW Entrepreneurship Monitor 2019 (PDF, 572 KB, non-accessible)
Sentiment in the German private equity market continued to fall after the turn the year. In the first quarter of 2019, the business climate index of the German Private Equity Barometer dropped by 3.1 points to 64.7 balance points. At the same time, the VC business climate continued to be very good despite the decline, while the later-stage climate stabilised on what is still a “good” level. The market environment exhibited varying developments. The fundraising climate improved to just under its all-time high, while assessments of the level of deal flow rose to a new record. Furthermore, the pricing climate eased noticeably. On the other hand, exit opportunities deteriorated sharply and pressure on write-downs increased.
PDF for download:
German Private Equity Barometer 1st Quarter 2019 (PDF, 207 KB, non-accessible)
The Czech Republic has been regarded as one of Central Eastern Europe’s most attractive locations for many years. The country has a long industrial tradition and rests on a sound economic footing. It has also created noteworthy research infrastructure in the past decade. On that basis, Germany’s neighbour is now undertaking broad efforts to modernise its economy even faster with the aim of joining the ranks of Europe’s top innovators by 2030.
PDF for download:
Czech Republic – focus on research and development is a sound strategy (PDF, 353 KB, non-accessible)
Digitalisation has reached SMEs. The share of SMEs that has successfully implemented digitalisation projects has risen to 30%, up 4 percentage points on the last period. Companies of all sizes have shown growth – and this in almost industries. Total expenditure on digitalisation has risen to EUR 15 billion but expenditure per company has stagnated at a low level. Furthermore, small companies invest less and less often in digitalisation. This gives rise to concerns of a potential divide emerging between large, heavily digitalised SMEs and small SMEs left behind in the digital transformation.
PDF for download:
KfW SME Digitalisation Report 2018 (PDF, 888 KB, non-accessible)
Sentiment in the German private equity market continued to decline at the end of the year. In the fourth quarter of 2018, the business climate index of the German Private Equity Barometer fell by 4.2 points to 67.9 balance points. But although confidence was lower in the second half-year, 2018 was on average the year with the best business climate since 2003 when the German Private Equity Barometer was launched. But sentiment was divided at the end of the year. While the business climate set a new record in the venture capital segment, it cooled yet again in the later-stage segment.
PDF for download:
German Private Equity Barometer 4th Quarter 2018 (PDF, 204 KB, non-accessible)
Focus on Economics
Fear of failure hampers start-up activity in Germany more than elsewhere. But the good news is that this fear is slowly fading. Fear of failure is mostly driven by fear of financial burdens, should things go wrong. Contrary to widespread assumption, fear of stigmatisation hardly plays a role. Financial risk is part and parcel of entrepreneurial freedom and must not be ignored. Improved teaching of entrepreneurial skills and basic economics, however, can provide potential business founders with the tools to more accurately gauge this risk and take away some of the fear – a knowledge basis that should be created early.
PDF for download:
Focus on Economics
According to recent data collected by the KfW SME Panel, around 227,000 owner-managers of small and medium-sized enterprises want to place their business into the hands of a successor by the end of 2020. More than one third of these enterprises have already found a successor. A further quarter are conducting negotiations. The current generation of owner-managers is generally more aware of the need to face the challenges of generational change in a timely manner. Succession outside the family is generally on the rise. Most succession planners have a sound earnings situation, profitability and equity base. Nevertheless, not all will succeed in handing over their business. Time is running out for 36,000 SMEs in particular. They want to complete their succession in the next two years but have not even taken the first step yet. And the main bottleneck remains: The pool of emerging entrepreneurs is too small.
PDF for download:
Status report on SME succession: Planning steady at a high level (PDF, 346 KB, non-accessible)
Focus on Economics
Migrants are more active entrepreneurs than the average citizen. For one thing, they have a stronger desire for occupational independence and for another they have lower formal qualifications on average and, hence, more limited labour market opportunities. Migrant start-ups are also different, as they have more co-workers and focus on the personal services sector. They are more strongly affected by certain start-up problems, such as financing. All these patterns are even slightly more pronounced among migrants who live in a non-German-speaking household. Language barriers play a role here and it takes time and support to break them down.
PDF for download:
Migrant start-ups – a stronger desire for self-employment (PDF, 234 KB, non-accessible)
Focus on Economics
In 2017 there were around 154,000 ‘young’ social entrepreneurs with 108,000 social enterprises in Germany. That was a share of 9% of all young entrepreneurs. Besides seeking to make a profit, at the very top of their target system is a particular social or ecological concern for which they forgo possible returns. In addition, they also like to break new ground. Just under one third of ‘young’ social entrepreneurs offer new-to-market innovations that were previously unavailable in their target market and one in four develop technological innovations of their own to market readiness. That makes many social entrepreneurs pioneers of sustainable economic development. The share of social entrepreneurs is above average among older business founders. They show that it is possible to realise new plans even at an advanced age and that should be welcomed in the face of demographic change. Social entrepreneurs are more likely to be unsure about having the required business skills, so they should be supported in acquiring such skills.
PDF for download:
Focus on Economics
Many businesses deplore that high costs, high risks and financing difficulties are making it hard for them to innovate. This study therefore examines whether differences exist in the financing of capital expenditure and innovation and whether these differences may be a sign of limited innovation finance opportunities. In fact, innovation finance is clearly distinct from investment finance. The findings confirm theoretical considerations that specific characteristics of innovation (such as uncertainty about success, difficulties in assessing projects and lack of collateral) are a barrier to external financing with bank loans in particular.
PDF for download:
Focus on Economics
What factors determine whether an enterprise carries out digitalisation projects or produces innovations? The analysis shows that digitalisation projects are concentrated much less on individual groups of enterprises – classified by age, size and sales region – than innovations. In addition, digitalisation projects depend less on the current business cycle. Nevertheless, they are carried out primarily by young entrepreneurs. This does not apply to the same extent to innovations. Overall, however, SMEs’ digitalisation and innovation activities are influenced by similar factors.
PDF for download:
Number of start-up founders increased to 108,000 in 2017
The number of start-up founders rose to 108,000 in 2017. They are of particular economic interest with 60,000 innovative or growth-oriented young companies – in particular the 12,500 start-ups who are both innovative and growth-oriented. The public image of start-up founders applies in many ways, if slightly distorted: They are often young, male and from an academic background and their start-ups are mostly internet-based, digital and international. These qualities stand for efficient marketing channels, higher scalability and larger markets. German start-up founders are often more business customer-oriented than other young entrepreneurs – they are therefore different to successful international start-ups. However, their B2B focus could be advantageous in the future.
The German private equity market was in good shape in late summer. The business climate fell slightly overall but remains very good. In the third quarter of 2018, the business climate index of the German Private Equity Barometer fell by 5 points to 72.1 balance points. The early-stage climate exceeded the previous quarter’s peak level again slightly, while the later stage segment took a breather from its record-breaking run. The signs of weakness in the market environment that appeared in the previous quarter have vanished.
PDF for download:
German Private Equity Barometer 3rd Quarter 2018 (PDF, 210 KB, non-accessible)
Digitalisation is gaining momentum
Together with 20 trade associations, KfW Group has carried out a business survey on bank behaviour and financing for the 17th time.
The most important findings on digitalisation are:
- More than half of businesses have firm plans to implement digitalisation projects.
- Large enterprises, manufacturers and companies of wholesale and foreign trade are at the forefront of digitalisation.
- Main motivation for investment is improving efficiency.
- Access to credit for digitalisation projects poorer than for other investments.
PDF for download:
Business Survey 2018 – Digitalisation (PDF, 35 KB, non-accessible)
The German private equity market has carried the momentum from the start of the year into early summer, with sentiment reaching a new record high. In the second quarter of 2018, the business climate index of the German Private Equity Barometer rose by 10.4 points to 77.1 balance points. Both the business situation and business expectations reached new highs. The business climate probably received its decisive impetus from the very positive development of demand for private equity. The fundraising climate and exit environment, however, are showing signs of a reversal. The business climate reached new record levels in both the early-stage and later-stage segment, with the later-stage segment crossing the 80-point mark for the first time.
PDF for download:
German Private Equity Barometer 2nd Quarter 2018 (PDF, 85 KB, non-accessible)
Economics in Brief
In 2017, migrants were responsible for one in five business start-ups in Germany and the trend is continuing. But as a result of the renewed decline in overall start-up activity, the absolute number of migrant start-ups fell to a new low of 115,000. Migrants are typically more entrepreneurial than the average citizen. In the past years, however, the migrant start-up rate was closer to the average. The latest data of the KfW Start-up Monitor show that the start-up rate among migrants in 2017 was nearly equal to the general start-up rate – an effect of the very tight labour market.
PDF for download:
Migrants’ start-up propensity is now in line with the average (PDF, 51 KB, non-accessible)
The labour market continues to exert a firm grip on start-up activity in Germany. Despite the cyclical upswing, the number of first-time founders dropped again in 2017. A mere 557,000 persons started a new business of their own – fewer than ever before. What is positive is the renewed improvement in structural quality. Two and a half times more opportunity entrepreneurs than necessity entrepreneurs started in 2017. The number of innovative, digital and high-growth business founders has also grown in both categories. This is a positive sign for the 2017 start-up cohort’s chances of success.
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The German private equity market remained in high spirits at the beginning of the year. In the first quarter of 2018, the business climate index of the German Private Equity Barometer rose by 2.4 points to 66.7 balance points. Both the business situation and expectations improved on the previous quarter. The business climate indicator and most of the other indicators remained very stable at the start of the year. Only the fundraising and innovation climates fell slightly but their general upward trend remains intact. The two segments of the private equity market experienced different trends. The business climate in the venture capital market cooled off again slightly. The business climate in the later-stage segment, on the other hand, recovered from its previous decline.
PDF for download:
German Private Equity Barometer 1st Quarter 2018 (PDF, 85 KB, non-accessible)
Trend towards fewer innovators continues
The share of innovative SMEs has risen after falling almost continually for a good 10 years. However, it is questionable as to whether this encouraging recovery reflects a reversal of the long-term downward trend. The central results are:
• The innovator ratio has risen by 5 percentage points to 27 % but remains far from its peak
• The innovation decline negatively affects turnover with new products
• No need and a lack of ideas are the main reasons for not innovating
PDF for download:
KfW SME Innovation Report 2017 (PDF, 996 KB, non-accessible)
Germany’s innovation system has long been one of the strongest in Europe. In the past years, however, it has dropped two positions in the European ranking. Reasons include small and medium-sized enterprises’ decreasing innovation activity and the low number of fast-growing enterprises.
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For the first time, the KfW SME Panel surveyed whether small and medium-sized enterprises are conducting digitalisation projects and how much they spend on them. The key findings are:
• Total investment for digitalisation in 2016: only EUR 14 billion
• Only one in four SMEs with completed digitalisation projects
• Small businesses are particularly hesitant
• Knowledge-based service providers and R&D-intensive manufacturing are pioneers
PDF for download:
Digitalisation in German SMEs: state of implementation and investment (PDF, 166 KB, non-accessible)
Sentiment in the German private equity market fell slightly in the final quarter of 2017. At 66.1 balance points, the business climate index of the German Private Equity Barometer ended the year only 4.0 points below its third-quarter record level. The minor drop was evident among both early-stage and later-stage investors. But despite the decline, the business climate remained very good in both market segments. 2017 was a year of superlatives in the German private equity market. The assessments of the business climate, fundraising climate, exit conditions and promotional environment have never been better. The record year thus came exactly ten years after the outbreak of the financial crisis. On average for the year, sentiment in 2017 was clearly better than in the German Private Equity Barometer’s previously best year 2007. The downside of the good development, however, were higher entry prices for investments – a challenge investors will probably have to deal with for some time to come.
PDF for download:
German Private Equity Barometer 4th Quarter 2017 (PDF, 105 KB, non-accessible)
Focus on Economics
A wave of successions will sweep across Germany's small and medium-sized enterprise sector in the coming years. Until the year 2019, 240,000 businesses will change owners. For some 100,000 of them, time is running out. They still do not have a succession plan. But the nearer the time of transfer approaches, the less owners invest in their business. Clarity of succession therefore leverages investment - by a considerable 40 %. Managing generational change remains difficult. There are still not enough qualified new entrepreneurs moving up. Moreover, most owner-managers are not very flexible and have decided on a single form of succession. The demographic trend will ensure that the need for successors will also remain high in the future. One quarter of all owner-managers will be well over the age of 70 by the time they plan to retire. Already, 1.4 million are aged 55 or over.
PDF for download:
Wave of successions in German SMEs: 240,000 successors wanted by 2019 (PDF, 166 KB, non-accessible)
Economics in Brief
The Global Entrepreneurship Index (GEI) is a valuable indicator for the international position of Germany as a start-up location. In the GEI ranking, which is led by the USA, Germany is regularly among the 15 best. The rank is commensurate with Germany’s start-up environment: good but with upside potential! The GEI ranking shows a need for improvement in the entrepreneurial qualities of the population. The quality of Germany’s entrepreneurially relevant institutions can, however, stand comparison with other countries. Weaknesses are evident though in the areas of networking and human capital. Recommendations for redressing these weaknesses are not new and some targeted measures are already established.
PDF for download:
Start-up location Germany: good with upside potential (PDF, 96 KB, non-accessible)
Focus on Economics
German SMEs’ internal funding capacity determines whether they conduct R&D and how much they spend on it. Credit rating, on the other hand, is not a factor. R&D funding thus differs fundamentally from capital expenditure funding. This is probably because R&D projects involve high uncertainty of success and little investment in tangible assets.
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Sentiment on the German private equity market improved once again in the third quarter. The business climate index of the German Private Equity Barometer increased by 4.9 points to 70.2 balance points in the third quarter of 2017, clearly beating its own record of the second quarter. The trend shows unprecedented confidence in the early-stage segment of the private equity market. The business climate in the later-stage segment remained very good and virtually unchanged. The renewed improvement in the business climate has generally come about on the back of a much better exit environment. Investors’ assessment of exit possibilities noticeably exceeded the previous record high of the first quarter of 2015.
PDF for download:
German Private Equity Barometer 3rd quarter 2017 (PDF, 105 KB, non-accessible)
Focus on Economics
The number of innovators in the SME sector has fallen significantly since the middle of the last decade. A total of seven factors can be attributed to the decline: weak economic development, declining start-up figures, lower returns to innovation, financing difficulties, a shortage of skilled workers, the aging workforce and the absence of a technology hub.
Focus on Economics
Women run start-ups differently than men – especially mothers. Known as mompreneurs, they account for one in six start-ups in Germany and set very own accents. Balancing work and family life is crucial to mompreneurs in every way. Many start a business primarily to manage their time more flexibly, but others put their plans on ice out of concern they could put a strain on family life. But many mompreneurs manage this balancing act. They limit their working hours and, in turn, are less likely to start their business on their own – and some definitely have growth ambitions.
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The German private equity market continued to smash records in early summer, with sentiment reaching a new high. The business climate index of the German Private Equity Barometer rose by 3.4 points to 65.2 balance points in the second quarter of 2017. The submarkets trended in opposite directions yet again. Confidence among early-stage investors fell slightly, while later-stage investors were more confident again. The only remaining stumbling block are the high company valuations and the associated high entry prices. Both early and later-stage investors have never been more dissatisfied with them. Start-ups initiate negotiations with investors with the corresponding degree of confidence, and SMEs are also aware of their quality. Entry prices reflect that.
PDF for download:
German Private Equity Barometer 2nd quarter 2017 (PDF, 65 KB, non-accessible)
Focus on Economics
High-growth enterprises are regarded as beacons of hope for economic growth and the creation of new jobs. Success factors are employment of graduates, early orientation to international markets, and an innovation strategy grounded on research and development (R&D). It is also evident that high-growth enterprises are often young and (still) small. But high-growth enterprises need to be supported by economic policy measures so that they can realise their full potential.
PDF for download:
Success factors of high-growth enterprises (PDF, 131 KB, non-accessible)
Business Survey 2017
Digital transformation of industries: broad basis, multiple barriers
KfW Group has conducted the 16th business survey among enterprises of all size classes, sectors, legal forms and regions. In addition to "credit access", the traditional topic, the current survey wave included a block of questions on digital transformation for the first time.
The most important results:
- to harness opportunities offered by digital technologies and applications is the most dominant motivation for investing in digital transformation.
- wholesale and foreign trade companies are blazing the trail in developing a digital presence.
- small and young enterprises are much more reluctant.
- difficulties in adapting their organisational structure and work organisation is the barrier cited most frequently.
PDF for download:
Business Survey 2017 – Digital transformation of industries (Summary) (PDF, 35 KB, non-accessible)
Record employment with side-effects: fewer start-ups than ever
The healthy labour market continues to deter start-up activity in Germany. The number of business start-ups fell to a new low in 2016. New businesses were started by 672,000 persons, 91,000 fewer than in 2015.
One bright spot is their higher structural quality. Never before have there been fewer necessity start-ups and never before has the ratio of opportunity start-ups to necessity start-ups been better. Growth entrepreneurs make up 17 % of business founders, or 115,000 persons.
Growth start-ups are more digital, innovative and capital-intensive than others – a good basis for success. The continuing decline in start-up activity is an economic concern. A shortage of business founders today means a competitive disadvantage for the whole economy tomorrow. But the outlook for 2017 gives hope as the decline appears to be levelling off.
German private equity investors started the year with great confidence. In the first quarter of 2017 the business climate index of the German Private Equity Barometer stood almost unchanged at 61.8 balance points (-0.2 points). The indicator for the current business situation climbed moderately by 0.5 points to 65.1 balance points, while business expectations fell slightly by 1.0 points to 58.6 balance points. In the two sub-markets the mood among early-stage investors improved again but is now more settled among later-stage investors. The main factors of the market environment point to a successful VC year 2017.
PDF for download:
German Private Equity Barometer 1st quarter 2017 (PDF, 76 KB, non-accessible)
Focus on Economics
Compared with the pre-crisis level of 2008, business investment has developed at a much slower pace than GDP. Last year enterprises invested EUR 370 billion in capital stock, or a mere 11.8 % of GDP, which was only marginally more than in 2009, the year of deep recession. In 2008 the investment-to-GDP ratio was still 13.3 %. In purely arithmetic terms, the decline of 1.5 percentage points represents an investment gap of some EUR 45 billion. So how concerned should we be about this?
PDF for download:
Business investment: waiting for Godot? (PDF, 77 KB, non-accessible)
KfW SME Innovation Report 2016
Innovationen is concentraded in increasingly fewer enterprises
The share of innovative SMEs in Germany has dropped sharply to 22 %, the lowest level since 2004. Innovation expenditure in the SME sector has remained steady in the past years, however. Innovation efforts are thus concentrated in fewer and fewer enterprises. Several factors have contributed to the long-term trend towards fewer innovators. These include reduced start-up activity, the demographic trend and weak business expectations as well as uncertainty resulting from political and economic imponderables.
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Focus on Economics
Migrants have an above-average entrepreneurial drive. Each year, some 170,000 start a business of their own in Germany. The flipside of the higher rate of entrepreneurship among migrants is a slightly higher rate of failure. Nevertheless, migrants make a larger footprint on the start-up landscape than the average. Not only do they start businesses more often, but also on a larger scale. Migrants invest more working time in their start-up projects, are more likely to start off in a team, and employ more workers.
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Economics in Brief
Germany has been able to substantially increase its R&D expenditure in relation to GDP from the low of 1995. But the increase is not sufficient to regain lost positions on the international ranking. After all, many OECD countries are pursuing more ambitious research strategies.
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In the final quarter of 2016 the business climate in the German private equity market reached the highest level since 2007. The business climate index of the German Private Equity Barometer rose 2.5 points to 62.1 balance points. The indicator for the current business situation climbed 4.4 points to 64.6 balance points, while business expectations increased by 0.6 points to 59.5 balance points. Early-stage and later-stage investors rate the current business climate differently, however. While later-stage investors' sentiment was at record high the end of the year, the mood among early-stage investors remained good but dipped again.
PDF for download:
German Private Equity Barometer 4th quarter 2016 (PDF, 105 KB, non-accessible)
Focus on Economics
The digital distribution of products and services via e-commerce solutions offers abundant opportunities for small and medium-sized enterprises. Although it holds high potential, SMEs are still slow to fully exploit its potential, as illustrated by an analysis performed on the basis of the KfW SME Panel. Only around one in six SMEs make use of e-commerce channels (16 %). They generated around EUR 153 billion in turnover through online sales channels in 2015 – 4 % of SMEs’ total turnover. The more SMEs focused on e-commerce, the higher their turnover growth was. But higher competitive pressure also results in lower profitability. Even if not every sector is equally suited for e-commerce, there is no doubt that e-commerce will become increasingly important. This is due not least to generational change, as younger entrepreneurs are more comfortable with digital selling.
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SMEs in Germany are slow to adopt e-commerce (PDF, 161 KB, non-accessible)
France, Germany, Italy, Spain and the United Kingdom
Venture Capital is important for financing innovative start-ups. In a joint study the National Promotion Institutions of France, Germany, Italy, Spain and the United Kingdom identify four main areas where further actions are paramount for boosting EU venture capital to the next level: Increasing the supply of funds for VC investments, reducing the fragmentation within the European VC markets, increasing quantity and quality of demand for VC and finally improving exit routes for VC investments. To build momentum in VC across Europe, activities in these fields on both the EU as well as the national level are needed.
PDF for download:
Building Momentum in Venture Capital across Europe (PDF, 951 KB, non-accessible)
The mood on the German private equity market has brightened significantly. The business climate index of the German Private Equity Barometer increased by 12.0 points to 59.6 balance points in the third quarter. Equity investors rated their current business situation much better than in the previous quarter and were significantly more optimistic about their expectations for the next six months. Sentiment on the VC market, in particular, surged in response to economic-policy decisions. It is nearly as good as a year ago, when it climbed to a record high.
PDF for download:
German Private Equity Barometer 3rd quarter 2016 (PDF, 102 KB, non-accessible)
Business sentiment is stabilising again
Sentiment on the German private equity market stabilised again in early summer. After the slump at the start of the year the business climate index of the German Private Equity Barometer of KfW and BVK rose slightly by 2.2 points to 47.6 balance points in the second quarter of 2016. Unlike the preceding quarter, market sentiment in the early-stage and later-stage segment is currently moving in opposite directions. After the business climate in the early-stage segment fell from its record high to below its historic mean within half a year, it recovered significantly in early summer. Market sentiment in the later-stage segment, in turn, has fallen slightly.
PDF for download:
German Private Equity Barometer: 2nd Quarter 2016 (PDF, 86 KB, non-accessible)
Focus on Economics
German SMEs have a great deal of catching up to do when it comes to digitalisation. Although over 80 % of SMEs have carried out digitalisation projects during the past three years, small companies in particular spend only moderate amounts on them. Only one in five companies is a digital pioneer. A third are still in the early stages of digitalisation. A shortage of IT skills within the workforce (67 %), data security and data protection (62 %) and inadequate internet connection speeds (58 %) represent key obstacles. Many companies do not currently recognise the benefit to their business of further digitalisation and baulk at the high costs (59 %). Thirty-two per cent of SMEs are hampered by the difficulties of financing digitalisation.
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Focus on Economics
One in three start-up entrepreneurs takes over or acquires an active participation in an existing business. As entrepreneurs are not immune to demographic change either, increasing numbers of SMEs are ready to change ownership. Takeover entrepreneurs therefore play an important role in preserving the Mittelstand, the backbone of the German economy. Most business transfers are still based on family succession. Here, more and more daughters appear to the taking over their fathers' companies. The share of female takeover entrepreneurs has more than doubled in the past years.
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Transfer-planning entrepreneurs outnumber takeover entrepreneurs 3 to 1 (PDF, 95 KB, non-accessible)
Focus on Economics
Business succession is increasingly turning into a key challenge for SMEs' competitiveness. Some 620,000 small and medium-sized entrepreneurs plan to transfer or sell their business by the year 2018. However, a fundamental demographic bottleneck is emerging. There are not enough potential successors for the growing numbers of older entrepreneurs. Besides, many entrepreneurs wait very long before they think about their succession. One in three business owners who plan to retire within three years still has no concrete plans.
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Focus on Economics
SME innovation is hampered by various obstacles. Small and young enterprises grapple primarily with funding problems. Construction firms struggle mainly with bureaucratic barriers. Companies in “low-tech” segments and the skilled crafts sector mostly face problems with organisation and personnel, in combination with funding difficulties. These findings suggest that innovation support should be broad-based and must comprise both financial and non-financial support.
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Labour market greatly lowers appetite for self-employment, innovative founders hold their own
The number of business founders in Germany fell significantly by 152,000 (-17 %) to 763,000 in the year 2015. The strong labour market led to an above-average decline of 28 % in the number of necessity founders. As necessity founders are more frequently full-timers, their lower number significantly impacted on the number of full-time founders. Economically important start-up groups held their own amid the strong decline. The number of opportunity founders dropped less sharply, by 15 %, while the number of innovative founders even saw a modest rise of 6 %. Digital founders were surveyed for the first time. They make up a good one fifth of start-up activity. They compete more often on international markets than other business founders, which makes them a driving force that strengthens Germany’s competitiveness.
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Market sentiment drops sharply
Sentiment on the German private equity market cooled significantly at the beginning of the year. German Private Equity Barometer's business climate indicator of KfW and BVK fell sharply to 45.4 balance points in the first quarter. The business climate in the later-stage segment remains very good despite the decline but slipped below its long-term average in the early-stage segment. Equity investors are more pessimistic about their current business situation and their expectations for the future. Based on a general assessment of the underlying conditions, the current market sentiment is worse than should be expected.
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German Private Equity Barometer: 1st Quarter 2016 (PDF, 102 KB, non-accessible)
Focus on Economics
The working population in Germany is ageing, affecting innovation activity in the SME sector. The likelihood that a typical small or medium-sized enterprise innovates drops by almost one fourth when the proportion of its workers who are over the age of 54 is 75 % instead of 16 %. In order to avoid the negative effects of an ageing workforce, companies have to do more to upgrade employee skills and adopt organisational measures such as forming mixed-age teams.
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SMEs and innovation: enterprises innovate less as their workforce ages (PDF, 133 KB, non-accessible)
Focus on Economics
More than one fifth of Germany's SME employees are over the age of 54. The KfW SME Panel survey shows that SMEs do not see their older employees as a liability. On the contrary – they treasure mature workers' reliability and valuable expertise. In order to bring out the specific strengths of older employees, work procedures and conditions need to be adapted. In many SMEs, however, measures aimed at adapting workplaces to accommodate older workers, implementing workplace health management and creating a multi-generational work environment are still in the planning phase.
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Older workers in SMEs – a golden asset or a liability? (PDF, 1 MB, non-accessible)
Economics in Brief
SMEs benefit from investing in research and development (R&D). Those who undertake R&D of their own grow faster, create more jobs and achieve higher profit margins. When a business conducts R&D continuously, for example, its turnover in the following two years is almost five percentage points higher than that of an enterprise without R&D. Research and development is a major lever for improving business performance.
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SME business performance – research and development pays off (PDF, 62 KB, non-accessible)
KfW SME Innovation Report 2015
Germany's innovation performance remains low despite slight increase
The share of innovators among German SMEs recently increased slightly again to 29 %. Nevertheless, the proportion of innovators is still at the second lowest level since 2004. A recovery to the pre-financial crisis levels is still out of reach. External stimuli play an important role in producing innovations: 80 % of SMEs take innovative ideas on board from external sources. A good one fourth of enterprises collaborate with other enterprises or research institutes. Financing difficulties remain the number 1 barrier for innovations.
Business climate remains very positive
The business climate on the German private equity market was generally unchanged at the end of the year. The overall business climate index of the KfW and BVK German Private Equity Barometer remained at 59.8 balance points in the fourth quarter. Sentiment in the early-stage and later-stage segments, however, developed rather differently. Whilst the early-stage financiers massively corrected their business climate assessment downwards again following the sharp rise in business expectations in the previous quarter, the later-stage financiers’ sentiment rose considerably. The basic conditions remain positive, especially the fundraising climate, which reached an all-time high.
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German Private Equity Barometer: 4th Quarter 2015 (PDF, 153 KB, non-accessible)
Focus on Economics
Roughly one out of every five entrepreneurs is a migrant, meaning they do not have or were not born with German citizenship. In 2014, 179,000 migrants started their own business. The labour market plays an important role for migrants deciding whether to start a business: They set up businesses more often as they have no other attractive forms of employment and often come from unemployment. However, migrants create more jobs more often. Migrants therefore make an important contribution to start-up activity. Migrants are, however, more likely to abandon their start-ups: After 3 years, 70 % of all start-ups are still running, for migrants this number is 60 %. This can mainly be explained by their structural characteristics.
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Focus on Economics
What characterises SMEs that grow strongly over a long period of time? Small and medium-sized enterprises that grow quickly in the long term employ university graduates more often, cooperate with other enterprises and research facilities more frequently and have more foreign operations. They pursue a differentiation strategy more often in which they above all rely on innovations. In order to realise their expansion plans, fast-growing enterprises also invest more often and with higher amounts than other SMEs.
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What are the hallmarks of consistently successful businesses? (PDF, 138 KB, non-accessible)
The KfW and BVK German Private Equity Barometer showed a continued rise in sentiment in late summer. The business climate indicator of the German private equity market increased by 2.0 points to 59.8 balance points in the third quarter of 2015. Private equity capital providers reported further improvement to the business situation overall, as well as increased business expectations. A glance at the market segments reveals that the business climate in the early-stage segment improved noticeably and in the late-stage segment stabilised on a high level. The climate indicators pertaining to fundraising, exits and write-downs reached record levels.
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German Private Equity Barometer: 3rd Quarter 2015 (PDF, 33 KB, non-accessible)
Focus on Economics
Start-up activity in Germany varies greatly from one state to the next. This can be seen in the start-up figures, industry structure, female participation and entrepreneurs’ motives. However, there are some similarities between neighbouring states with regard to the type of people who become entrepreneurs and the type of projects they engage in: northern and central Germany, southern and western Germany, eastern Germany and city states.
They are, however, similar in terms of what the greatest hurdles are: entrepreneurs most often abort their start-up plans after weighing up the financial risk. The second most important obstacle in nearly all states is obtaining start-up funding.
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SME Investment and Innovation – France, Germany, Italy and Spain
There are more than 13 million SMEs in France, Germany, Italy and Spain. They represent more than 98 % of all enterprises, account for more than half the workforce and generate a substantial part of value added in these countries. In a joint study with the promotional banks BPI, CDP and ICO, KfW analyses the structure and the development of SMEs in the four economies. Their investment and innovation activities are crucial for the future competitiveness of Europe but have suffered from persistent weakness since the financial and economic crisis. Also in Germany, SME investment and innovation are still well below pre-crisis levels. To address this issue and ensure long-term economic growth, we need specific measures directed at SMEs at both a European and national level.
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SME Investment and Innovation – France, Germany, Italy and Spain (PDF, 3 MB, non-accessible)
Focus on Economics
Business start-ups that are well-informed about financial matters are more competitive. They have fewer financial problems, use more favourable financial resources and are much less likely to abort their start-up projects early on. These correlations are shown for the first time in a special analysis of the KfW Start-Up Monitor 2014. Through deficits in financial literacy, Germany is losing valuable entrepreneurial potential – thus some projects in recent years would have been more successful with better financial knowledge. Entrepreneurs of today can benefit in the short-term from targeted coaching and training. Training programmes like these have a demonstrable impact. However, participation rates still leave room improvement. For the future potential of entrepreneurs, entrepreneurship training in schools is key.
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The business climate index of the KfW and BVK German Private Equity Barometer improved again in the early summer months, increasing by 7.6 points to 57.8 balance points in the second quarter of 2015. An improved assessment of business situation and more optimistic business expectations again stabilised the upward trend of the business climate. Equity investor sentiment improved, both in the early and late-stage segment. Assessments of the innovation climate are better than ever, whilst opinions on VC demand are currently restrained.
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German Private Equity Barometer: 2nd Quarter 2015 (PDF, 33 KB, non-accessible)
Focus on Economics
In developed countries, investments in R&D are the key driver for growth. The fact that Germany has stepped up its R&D efforts since 2007 is therefore very encouraging. This has occurred both in industry and the public sector. Germany now ranks fifth among comparable OECD countries, which means it even beats the USA and is far ahead of France and Great Britain.
Germany’s strength in R&D is due to its favourable sector composition and has less to do with how much effort the respective sectors put into R&D.
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Focus on Economics
Around 700,000 SMEs in Germany are currently led by women. This is one in every fifth small and medium-sized fim. Services make up over half of woman-led SMEs. The economic importance of woman-led SMEs is considerable, but disproportionally regarding their share in the SME sector. The share of female-led businesses will increase, because start-ups by women are on the rise. The exploitation of the potential of women as business leaders is to be welcomed: A shrinking workforce and the rapid ageing of SME owners put pressure on the 'German Mittelstand'.
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How female is the world of small business? Women as business leaders (PDF, 179 KB, non-accessible)
Focus on Economics
Innovative start-ups play an important role in the commercialisation of new ideas and technologies. As a result, they contribute directly to the economy. However, their innovative success is often difficult to assess, which is why start-ups are often faced with financing problems. For them, venture capital is an appropriate and important financing alternative. Germany’s venture capital market still lags far behind in an international comparison. In particular, the aim should be to close the gap in the market for start-up finance and large-volume growth finance. Only through this can start-ups successfully develop their ideas and innovations in Germany.
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Germany’s private equity market lacks venture capital (PDF, 102 KB, non-accessible)
KfW Start-up Monitor 2015
The number of start-ups in Germany rose again in 2014. As the KfW Start-up Monitor 2015 shows, around 915,000 took the plunge into self-employment last year – some 47,000 more than in 2013. The rise is a result of growth in the number of people starting up full-time businesses and a decline in part-time start-ups. Start-ups in the freelance sector were the driving force behind entrepreneurial activity. In contrast, there were fewer start-ups operating in the commercial sector than in 2013.
The KfW/BVK German Private Equity Barometer reveals a tentative start to the year, with the German private equity market Business Climate indicator falling 7.2 points to 50.2 balance points in the first quarter of 2015. The downturn can be attributed to a more pessimistic outlook. However, business climate remains strong overall. Sentiment in both the early-investor and later-investor segments is somewhat reserved but the fundraising climate and exit environment continue to improve. Higher business valuations make it more difficult to conclude new deals.
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German Private Equity Barometer: 1st Quarter 2015 (PDF, 37 KB, non-accessible)
KfW SME Innovation Report
Standstill in Europe is slowing down innovation
German SMEs’ innovative activity has slowed for the third consecutive year. The latest figures reveal that only 28 % of small and medium-sized enterprises are still investing in innovative products or processes. As a result, the share of innovative SMEs is currently even lower than in the years 2007–2009, which were heavily influenced by the financial crisis. The causes for this are continuing economic stagnation in Europe and increasing price competition. Sales and employment opportunities are not being exploited.
KfW SME Innovation Report 2014 (PDF, 194 KB, non-accessible)
The German Private Equity Barometer, calculated by KfW and the BVK, showed a rise in sentiment at the end of the year, with the business climate indicator for the German equity capital market increasing in the fourth quarter of 2014 by 9.6 points to 57.4 balance points. The business climate improved particularly in the early stage segment, with sentiment once again on par with the late stage segment. Equity investors’ assessment of the fundraising climate is better than ever. They do, however, appear to be dissatisfied with the current entry prices and deal flow quality.
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German Private Equity Barometer: 4th Quarter 2014 (PDF, 169 KB, non-accessible)
Economics in Brief
One quarter of Germans could imagine becoming self-employed but a good third of them lack the business ideas to do so. The KfW Start-up Monitor 2014 sheds light on how new entrepreneurs come by their ideas. It is most common to see business ideas develop from identified niches on the market, from the career choice of the entrepreneur or based on suggestions from others. The last two seem to be particularly motivating – if the business idea is "typical of the profession" or comes from third parties, then the start-up plans are realised more frequently.
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Focus on Economics
The number of business start-ups in Germany has slumped in recent years. Although one in four people say they are open to the idea of becoming self-employed, many hesitate to do so because of the financial risks of self-employment compared with the advantages of salaried employment. Fear of failure is of lesser importance. We can get business start-ups going again by mobilising those usually less inclined to become entrepreneurs - not least women. There is also potential to be found in the ranks of the former self-employed. However, to exploit this potential we will need to see some cultural changes first.
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Focus on Economics
Demographic change makes it likely that the number of entrepreneurs founding companies in Germany will continue to fall. A rising number of graduates could counter this trend since they are far more inclined to start up a business than non-graduates. University spin-offs are especially innovative. Most graduates, however, only set up a business some time after completing their higher education and rely on business ideas from professional practice.
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The German Private Equity Barometer published by KfW and the BVK indicates that the business climate on the German private equity market remains favourable. Although the indicator fell 8.2 points to 47.8 in the third quarter of 2014, it is still well above its historical average. The late-stage sector saw a more pronounced decline in the business climate, while in the early-stage sector it barely changed at all. The fundraising climate is the best it has been in a while thanks to the low prevailing interest rates, while high-profile IPOs have fuelled exit speculation among equity investors.
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German Private Equity Barometer 3rd Quarter 2014 (PDF, 128 KB, non-accessible)
Economics in Brief
Sales expectations in an industry are crucial for the innovation activity of small and medium-sized enterprises. This applies above all to the launch of product imitations. By contrast, process innovations and new products on the market are less dependent on industry sentiment. The gloomier economic outlook at present is likely to result in a further decline in the German innovation rate.
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Falling sales expectations curb SME innovation activity in Germany (PDF, 146 KB, non-accessible)
The German Private Equity Barometer jointly calculated by KfW and BVK again shows improved sentiment after the subdued start to the year. The business climate indicator climbed 9.4 points in the second quarter of 2014 to 56.0 balance points. The business climate improved in both segments of the private equity market: opinions of the business situation improved for early-stage and later-stage financiers alike, while business expectations of private equity investors are now more optimistic.
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German Private Equity Barometer 2nd Quarter 2014 (PDF, 145 KB, non-accessible)
The German Private Equity Barometer produced by KfW in conjunction with BVK reports a muted sentiment in the first quarter of 2014. The business climate indicator fell by 3.9 points to 46.5 at the start of the year. Looking more closely, the sentiments in the two segments of the private equity market differ. The climate cooled again in the early stage segment, particularly because of the adjustment to the current business situation, while sentiment in the later stage segment brightened up once more – fuelled by the current business situation in contrast.
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German Private Equity Barometer 1st Quarter 2014 (PDF, 46 KB, non-accessible)
KfW Start-up Monitor 2014
New entrepreneurs are tackling more promising projects in Germany than in recent years. In 2013 more than half of all new entrepreneurs launched their business project due to a specific business idea. Almost three times as many new entrepreneurs launched novel products and services onto the transregional market compared to 2009, facilitated by easier access to financing. Capital expenditure amounted to just under EUR 10 billion in total.
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Focus on Economics
SMEs have to rely heavily on their internal financing capability if they wish to finance innovations. Since the special features of innovation projects make it difficult to obtain external financing, 79 % of innovation financing is generated from internal funds. Bank loans – which are otherwise the most important source of external financing in Germany – play a minor role, making up a mere 7 %. This dependency on internal sources means that small companies and firms with technologically demanding projects in particular are unable to fully develop their innovative strength.
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KfW SME Panel 2013: How German SMEs finance their innovations (PDF, 192 KB, non-accessible)
The German Private Equity Barometer produced by KfW in conjunction with BVK reported a significant improvement in sentiment in the fourth quarter of 2013. The business climate indicator gained 19.7 points to close the year at a two-year high of 51.1 points. Sentiment improved in both private equity market segments, albeit with a different emphasis in each segment. In the early stage segment, the current business situation sub-index underwent a marked improvement, while the later stage segment saw a pronounced rise in business expectations.
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German Private Equity Barometer 4th Quarter 2013 (PDF, 117 KB, non-accessible)
Focus on Economics
Although the innovation activities of SMEs have stabilised in the third year after the financial crisis, they have not yet fully recovered. The share of companies that have launched new products or processes has stagnated at around 30 %, which remains almost one third below pre-crisis levels. However, the good prospects for the economy in 2014 offer hope of a turnaround. The most important prerequisite for an expansion of innovation efforts remains an improvement in orders and sales.
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Economics in Brief
More than half of companies that were up to four years old at the end of 2012 use social media for business purposes. Young companies are thus ahead of established companies in this respect. Social media are used most frequently by the service sector, followed by manufacturing and the construction industry. The basis for a social media strategy is a profile in a social network. The main reasons for the commercial use of social media – with which companies are largely satisfied – are advertising, marketing and publicity.
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Young companies lead the way in the use of social media (PDF, 112 KB, non-accessible)
Focus on Economics
Germany needs more entrepreneurs. The opportunities for creating a stronger entrepreneurial culture are manifold: schools, media and research activities are ideally placed to contribute to a change in attitudes.
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Germany's entrepreneurial culture: strengths and weaknesses (PDF, 309 KB, non-accessible)
Sentiment in the later-stage segment of the GPEB was down in the third quarter of 2013 for the second time in a row.
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German Private Equity Barometer 3. Quarter 2013 (PDF, 199 KB, non-accessible)
Focus on Economics
More per capita growth is possible, despite declining working population.
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Solving the demographic problem (PDF, 252 KB, non-accessible)
Focus on Economics
The entrepreneurs in Germany are getting older. Is this trend impacting on levels of in-novation? Not in terms of products, but with regard to processes.
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Economics in Brief
Germany's self-employed are older than their employed counterparts. Low-birth-rate generation and declining start-up ratios have led to a decline in the proportion of young entrepreneurs.
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Economics in Brief
Energy cooperatives are growing in importance for the energy turnaround. Their role is changing, but they are also faced with new challenges.
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Energy cooperatives need to professionalise following elections (PDF, 179 KB, non-accessible)
Economics in Brief
How can social enterprises in Germany contribute to solving social problems and how do they raise funding. A brief presentation of a few key findings of an extensive study.
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Social enterprises as an investment? (PDF, 113 KB, non-accessible)
Focus on Economics
The stability of start-up projects is statistically higher in cases where business founders had followed an advisory or further training programme. Such programmes often cost nothing.
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Good advice helps – and it needn't be expensive (PDF, 212 KB, non-accessible)
Economics in Brief
Over the past few years, the number of new entrepreneurs in the skilled trades has been falling at a disproportionally rapid rate. In 2012, around 91,000 craftsmen became self-employed.
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Start-up activity in the skilled trades: visible change (PDF, 175 KB, non-accessible)
Focus on Economics
Competition increases for the ‚Mittelstand’. German SMEs rely on existing strenghts: quality, service and reliability.
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Mixed sentiment on the investment market.
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German Private Equity Barometer 2. Quarter 2013 (PDF, 200 KB, non-accessible)
Economics in Brief
Our results, based on the KfW/ZEW Start-up Panel, show that the start-ups of necessity entrepreneurs are more likely than others to pursue a cost leadership strategy, and less likely to pursue a differentiation strategy. This choice does not come without risk.
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Necessity entrepreneurs tend to compete on price more often (PDF, 179 KB, non-accessible)
Papers and Proceedings on Economics
To take over an existing business is one option to become an entrepreneur and start into self-employment. About 10 % of all founders have decided to do so on average over the last ten years. As a rule, businesses taken over are bigger than newly established ventures and the financing volume is higher.
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Papers and Proceedings on Economics
Bank loans are the most frequently used financing source for young innovative enterprises. However, enterprises have higher R&D intensity on average if they do not use credit financing.
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Focus on Economics
The majority of entrepreneurs begin their self-employment via a sideline start-up. But only a minority of those sideline entrepreneurs extend their self-employment towards full-time during the first 12 months after start-up.
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Sideline start-ups rarely transition to fulltime ventures (PDF, 246 KB, non-accessible)
KfW-Gründungsmonitor (KfW Start-up Monitor)
The KfW Start-up Monitor 2013 gives a broad overview over start-up activity in Germany in 2012 including the number of new entrepreneurs and the employment effect of new enterprises.
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KfW Start-up Monitor 2013, Tables and Methodology (PDF, 351 KB, non-accessible)
Strong brightening of the business climate in the German equity market.
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German Private Equity Barometer 1. Quarter 2013 (PDF, 263 KB, non-accessible)
Brief overview
Start-up activities in Germany
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Brief overview on start-up activity in Germany (PDF, 32 KB, non-accessible)
Papers and Proceedings on Economics
A business start-up process does not always come to fruition. Around 3 % of the population completed plans to start a business on average. Around half of them abandoned their plans, while the other half carried out their start-up project.
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Focus on Economics
The remuneration scheme of VC funds creates significant conflicts of interest between investors of VC funds and fund managers. This article discusses what these conflicts look like, what their consequences are and how they can be addressed.
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Focus on Economics
The innovation efforts of SME's in Germany have declined in the last years. In particular the recent financial and economic crisis in 2008/2009 led to a drastic turning point.
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Economics in Brief
The first years of an enterprise are the most difficult ones.
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Focus on Economics
To be the leader of the pack? Innovation strategies in the German SME sector.
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KfW/ZEW Start-up Panel
Analysis of development of young enterprises during their first five to seven business years for the areas human resources and financing behavior as well as determinants of business start-up survival.
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Focus on Economics
Barriers to innovation in SMEs.
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Barriers to innovation in SMEs (PDF, 267 KB, non-accessible)
