With strict data regulation laws like the GDPR introduced in the EU and the outdated GiroCard debit system that prevents card-not-present online payments, it doesn’t come as a surprise that Germany lacks startups and lags behind in the development offuture technologies like fintech, artificial intelligence or blockchain. Despite the recent scandals in emissions related to Volkswagen, the driving force of the German economy continues to be traditional mechanical engineering, particularly in the machinery, automotive and aviation industries. Nevertheless, there has been a recent rise in online eCommerce payment platforms, with famous & successful domestic startups such as Delivery Hero or Home24. The success of these startups has been largely influenced by the large investments & VC funding they have been able to secure, a positive trend that unfortunately seems to only affect the eCommerce sector. So why is it that investors seem so reluctant to invest in deep-tech ventures in Germany?
One reason for this hesitancy is the government’s lack of support in the development of these sectors, with ethical issues and legal regulations prioritized over technological change; this is a clear contrast to the technological environment in China & the US, where concerns about ethical questions come after implementation. For example, the introduction of autonomous vehicles in the US proceeded so rapidly, with ethical concerns of driver and pedestrian safety only considered after the implementation. Such a fast rate of technological change would and has not been supported by the German government - rather, it has been opposed through strict regulations like GDPR or the ban on GMO, exemplifying the stagnant state of future technologies as a result of government policy.
In particular for the information technology sector, the lack of government support and guidance is made clear through the heavily underdeveloped internet network present in Germany. With a network built around outdated copper wiring and failed vectoring technology, it comes as no surprise that Germany has one of the slowest networks in the EU, with many domestic papers like “The Spiegel” criticizing the government as the cause for this technological broadband failure. Along with the outdated GiroCard nation-wide debit system, whose cards cannot be used for card-not-present eCommerce payments, it is quickly evident how the government seems to introduce regulations and rely on outdated traditional systems, leading to stagnation & crippled technological change in deep-tech industries.
In addition to public policy, German companies themselves don’t seem driven to fund, invest or acquire future tech startups. Most large-scale companies are focused on short-term returns based on their tried and tested business models, often unwilling to expand and invest in potential future technologies. In comparison, American and Chinese companies are very willing to support and acquire tech startups with potential but not necessarily an immediate financial return, like Google’s (Alphabet) acquisition of Onward, a AI & machine learning startup. Furthermore, the structure of the German economy is unique, with most of the GDP arising from small and medium enterprises, a grouping termed “Mittelstand” (middle standing) in German. It is even more true for these often traditional, family-run enterprises that there is no drive to expand into new technological industries. While this presents itself as a danger to the future development of the German economy, this could come as a blessing to VC firms, who can fill this gap in the market.
With widespread demographic change undergoing in Germany, there is a growing demand for these future technologies, particularly in eCommerce & fintech. This has been reflected in the success of eCommerce startups and the emergence of fintech companies such as WireCard AG, which has replaced two of Germany’s largest traditional lenders, Deutsche Bank and Commerz Bank, in the German DAX30 blue chip index. Thanks to government subsidies for education, there is plentiful knowledge & expertise available; this merely needs to be streamlined and channelled through the power of funding & investment so that Germany can develop the next SAP and challenge the dominance of American tech companies.