Establishing a business in Germany – practical advice
Legal tips on establishing a business in Germany
The startup scene in Germany in international comparison
Report of the econnect “Doing Business in Germany Tour 2016”: Part 3/4
Station 3: Startplatz, 22 June 2016
more photos on Flickr...
The third station on the econnect tour focused on setting up shop in Germany. What legal issues need to be considered? What is the startup scene like? What advice do entrepreneurs have on establising a business in Germany?
The startup scene in Germany in international comparison
Starting up business in Germany – legal aspects and pitfalls
Panel discussion: Founding a company in Germany – Theory & Practice
At the third station, StartPlatz, a start-up incubator in Cologne’s MediaPark, the session started with presentations from young startups on their businesses and their experience of founding companies in Germany.
The startup scene in Germany in international comparison
Dr. Lorenz Gräf, Managing Director, STARTPLATZ
Dr Lorenz Graf, MD & founder of StartPlatz, introduced the startup eco system in North Rhine-Westphalia. Digital transformation is threatening traditional industries and more innovation is needed. This is why start-ups are important not just for the digital economy.
Dr. Gräf sees the problem that Germany is behind other countries in terms of innovation. The UK, for example, has 17 “unicorns”, young startups with a turnover of more than $1 billion Euro, whereas Germany just has four. Startups in Germany are overwhelmingly concentrated in Berlin (37%), and he says North Rhine Westphalia needs to catch up (9%).
A key benefit of incubators like Startplatz and of their startup scholarship is that those who don’t have the staying power to set up a startup realize this after a few weeks at an incubator – with input, support and regular pitches and feedback – rather than after working for 6 months on their own at home.
Presentation slides: Dr. Lorenz Graf- Startup Eco System in NRW
The startup presentations were then followed by a series of specialist presentations and a panel discussion on establishing a business in Germany.
Startup: mak3it
Mladen Panov
Mladen Panov of mak3it, a lean startup consultancy offering agile business model development, put the frequent success of startups in innovating and in disrupting markets down to their focus on the search for solutions to their customers’ problems, rather than on just executing. He passed around a tool they use with their clients called Innovation Kickbox, originally developed by Adobe for their own employees and brought to Germany by mak3it.
Startup: rateyourclub
Joachim Lammert & Kilian Weber
Kilian Weber and Joachim Lammert presented rateyourclub, http://www.rateyourclub.de/ a platform that allows supporters to directly connect with their football clubs and gives clubs and sponsors very valuable comprehensive data on what club supporters think and want. The data gathered by the platform is comprehensive, comparable and continuous, and such market research is much more cost effective compared to companies that survey club supporters in person at e.g. football matches. They put the initial focus on football, as it is much more popular in Germany (64%,) than other sports (cf. handball 30%, ice hockey 30%, basketball 27%).
Presentation slides: rateyourclub
Startup: rise.tech
Martin Riedel
Martin Riedel of rise.tech talked about his company’s mobile collaboration solution for industry 4.0. The idea for rise.tech came from his second start-up, which made small wind turbines. The office engineers were not able to help the field staff servicing the turbines because they couldn’t actually physically see what the problem was. Rise developed software which allows teams to communicate and collaborate on solving service issues in a live chat-type interface with a chronic, photos, videos, audio files, and live video conferencing.
Starting up business in Germany – legal aspects and pitfalls
Victoria Geks, Attorney, DWF law firm
Victoria Geks, lawyer and Senior Associate at DWF Germany, went through three key points companies should have in mind when planning on founding a business in Germany. First, she outlined the different requirements for EU vs. non-EU citizens. EU citizens can set up a business without permits, whereas non-EU citizens need a valid entry visa and must then apply for a temporary residence permit for three years before they can found a business in Germany. Everyone needs a trade notification for the commencement, change or termination of business activity at the relevant trades office and must additionally register with the Commercial Registry. Ms. Geks summarized the three main legal forms companies can take under German law and their respective levels of personal liability and financial risk, as well as a brief summary of the formalities and capital required, and the applicable tax rates:
sole proprietorship (Einzelunternehmen), business partnership (Personengesellschaft), and capital company (Kapitalgesellschaft).
Presentation slides: Victoria Geks - Starting up business in Germany – legal aspects and pitfalls
Panel discussion: Founding a company in Germany – Theory & Practice
Moderator: Werner Paulus, Director, Business Development, Sanmina & Owner, wepacom.com
Speakers:
Gerd Simon, Owner, Independent Management Consulting & Analyst, Crisp Research
Karl Rabe, Manager, Windcloud
Plus Martin Riedel & Victoria Geks
The theory and practice of founding a company in Germany was the subject of the panel discussion with Gerd Simon, Martin Riedel, Victoria Geks, and Karl Rabe, all who had different perspectives on what it is like to set up shop in Germany. Moderator Werner Paulus kicked off the discussion by showing the results of a World Bank survey on the ease of doing business in 189 countries, which listed Germany at place 15. However, when it came to starting a business, Germany was at place 127.
What are the biggest challenges in terms of setting up a business in Germany? Karl Rabe of Windcloud, a young start-up from the very north of Germany which has developed comprehensive data center solutions that are powered with 100% renewable local energy, had a very good start to business when it came to finding investors, but is finding it hard to get press coverage outside of the ICT press. Martin Riedel of rise.tech said it took them eight weeks to just get the initial paperwork done and there was an awful lot of back and forth between lawyers, registries and banks.
Gerd Simon, an independent management consultant and analyst, warned that, in his experience, there are loads of ideas in Germany, but it can be hard to get someone to invest in those ideas. Investors are often already looking for an exit. It is not easy to find someone to take over your company in the German market; exits are easier in other countries, such as the Netherlands. Germans are also more risk averse than other nations. This can be seen in the types of companies available in the German system. Business failure and insolvency is viewed very negatively in German corporate circles, unlike in Anglo-Saxon countries.
Victoria Geks, who specializes in corporate and commercial law, added that she can clearly see the focus on risk avoidance, as most entrepreneurs decide to open limited liability companies in order to reduce their personal risk as much as possible. It can be very hard to find a balance between risk and capital. Martin Riedel, however, perceived this high level of risk avoidance to be something that is changing in Germany; even entrepreneurs with a few failures under their belts can still find investors.
The discussion turned to how easy or hard it is to find investors in Germany. It can be hard to get funding, particularly if you are on your own. Banks are very “risk attentive”. Karl Rabe said there is a lot of innovation and momentum around the wind energy industry in the north of Germany at the moment, which helped them convince the local banks to invest. It helped a lot that his two business partners are very well established and have good and very long-standing relationships with the main bank that invested in them.
rise.tech is Martin Riedel’s third startup and was financed by a mix of his own funds and angel investors that he found through networking. This time, he looked for investors who understand the business model of technology and engineering companies, something he learned from his other startups. As Gerd Simon remarked, “you have to invest your own first €25,000, then others will follow.” Victoria Geks agreed; “if you don’t trust yourself, they won’t trust you”.
Werner Paulus changed the focus to the legal conditions companies face in Germany and asked the panel members what they would change if they could. Victoria Geks would push to create a European Limited Liability Company; this would be more transparent, involve lower legal costs, and make it easier for investors, as they wouldn’t need to worry about different national legal requirements. Martin Riedel would change the tax system; he thinks holding companies should not be necessary.
Gerd Simon would also change the tax system. Germany’s neighbours make it easier to do business. An initial tax-free period would really help attract and keep startups. The tax incentive is justified by what successful companies can contribute to society and the jobs they will hopefully create. In terms of the war for talents, actually attracting talent to Germany is the hard thing; it’s not about the culture or language.
The evening finished up with a networking dinner at a traditional German Brauhaus in Cologne’s Old Town, Weinhaus Brungs.
Read reports from further stations on the tour here:
Station 1: Network Box - Security & E-Commerce Made in Germany
Station 2: Sedo - Making Your Mark in Germany
Station 4: Plusserver - The Do’s & Don’ts of German Business Culture
Find the econnect Tour agenda here.
See photos of the tour on the eco Flickr album.
Stations on the two-day bus tour were: