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Startups: How layoffs bring new impetus to the scene

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Startups: How layoffs bring new impetus to the scene

After a long high, a hangover has set in in the German startup scene. Why that’s a good sign for our author, Antler investor Christoph Klink.

The mass layoffs at startups are leaving empty meeting rooms in many places. Getty Images/ picture alliance / Contributor

A guest post by Christoph Klink, Partner at Antler

The German start-up scene has developed extremely well over the past decade. After years of constant growth in start-ups and capital inflows, the Covid years 2020 and 2021 have brought hitherto unseen heights after a brief shock. 84 new unicorns emerged in Europe, and it took companies like Gorillas just over a year to break the billion-euro barrier.

But after every party, sooner or later a hangover sets in. And this is currently leaden above the German and European start-up scene. The headlines are tumbling down – European VC investments have shrunk by a quarter in the past year and waves of layoffs affecting more than 40,000 people are sweeping through the ecosystem. But the reality is more nuanced than the many negative reports suggest.

The foundation of the start-up scene – the founders – is probably stronger than we have seen before. The current environment provides ideal conditions for the emergence of a new generation of successful companies: The upheavals in the ecosystem lead to a large number of people striving to found a company – and those who decide to found a company today are usually technically highly qualified and aware of the challenges.

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Across Europe, the number of founders coming to Antler increased by 75 percent in 2022 – in Germany alone it was well over 3,000. A large part of this increase is due to the alumni of tech companies, which have seen a change of direction in recent years.

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The effect of the “startup mafias” is well known: successful start-ups produce an extremely high density of strong founders who dare to jump from the second or third row of their previous employer in order to get started themselves. In addition to international icons such as Paypal or Skype, German success stories such as Zalando or N26 have produced a large number of successful personalities and start-ups.

Who are the new founders?

For example, Antler’s ranking of new founders in Europe is led by alumni from Booking.com, Spotify, Klarna, Deliveroo and Zalando. In Germany, Zalando is the company from whose alumni we receive the most applications for our cohorts. For Delivery Hero alumni, we see an increase in start-ups of 180 percent in 2022, and for Gorillas or Getir alumni even 250 percent. Overall, the alumni from the quick commerce and food delivery sectors as well as fintech show particularly strong growth rates for start-ups.

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Many of these companies have recently experienced major disruptions and are strategically repositioning themselves. More than 40,000 employees have left them in the past year and a half. After years of growth, companies such as Zalando, Delivery Hero, N26 or Gorillas are going through a phase of consolidation and often lay off employees. In 2022 alone, we received more than 1,200 applications from alumni of these European tech companies to found a new company with us.

Managers are looking for new challenges

What is the reason for this upswing? The disruption means that the opportunity costs for executives in these companies have shifted dramatically. Anyone who had an exciting everyday life full of growth-oriented projects and a highly valued package of options or shares 18 months ago now often has to deal with cost management and often accept significant discounts when valuing their packages of options or shares.

Two years ago it was unimaginable for strong executives to reorient themselves – under the changed circumstances, many reassess their alternatives and dare to start a company. In addition, many executives are using the restructuring measures to take time to validate a new business idea with the tailwind of a severance payment.

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These founders bring excellent skills with them. You are highly qualified, extremely motivated and have already experienced the challenges in the scaling phase of a startup. Building a successful business has never been easy, but amidst the weekly breaking records of 2021, it was easy to ignore the challenges. Founders who start today see the possible failures much more often and up close. Don’t start if you don’t want to take the risk.

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At the same time, we are seeing more and more founders with a technical background – a clear sign that the next generation of successful start-ups is increasingly relying on technology as a differentiator. The next decade will probably not be characterized by e-commerce and smartphone apps, but will require major technical breakthroughs in many cases. Looking at our growing portfolio, I see various examples of these shifts.

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Lots of startups in the climatetech industry

In recent months, we have invested, among other things, in Delivery Hero alumni who build software for high-performance data centers, or in alumnae from Tesla, Planetly and German Orbital Systems, who are now at the interface of Spacetech and Climatetech. Many of them are highly successful in opening up new markets or turning established ones upside down. Airmo, the company owned by the Tesla, Planetly and German Orbital Systems alumnae, announced its pre-seed round with the participation of the European Space Agency and a volume of 5.2 million euros just last week.

Many of these founders are concerned with finding solutions to one of the existential challenges of our time: climate change. In addition to the availability of a large amount of “patient” capital for building sustainable technologies, we see a positive “brain drain” towards climate tech. This makes the sector the largest in terms of new start-ups in our European portfolio in 2022. In addition, many founders inspire us with their deep understanding of new markets and their technological competence.

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Our portfolio includes a wide range of young companies – from cybersecurity and data security to the health sector or fintech to gaming. Anyone who would have started out in investment banks, strategy consultancies or large law firms ten years ago is now increasingly using their own talent to set up new, innovative technology companies. Good news for the German start-up scene and proof that every crisis also has something positive to offer.

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