Germany is in its third consecutive recession. For the first time in ten years, unemployment is back above three million. At the same time, reforms on bureaucracy reduction and digitalization are progressing only slowly. Verena Pausder, CEO of the Startup Association, therefore calls for consistent innovation policy:
“Germany can no longer afford political lethargy. We must focus everything on innovation instead of blocking ourselves with political turf wars. Only then will our country become Europe’s innovation and growth engine again.”
Founding momentum despite crisis
The good news: in the first half of 2025, 1,500 new startups were founded in Germany – an increase of 9 percent compared to the previous half year. Software and industrial solutions led the way, driven by AI. At the same time, however, insolvencies are rising, especially in the B2C segment. Pausder emphasizes:
“Germany is making progress in future technologies. But many startups and scaleups are under massive pressure. Now we need a startup strategy that brings new momentum: startups must finally be top priority.”
Government without clear responsibilities
The Startup Association criticizes the federal government for lacking accountability in innovation policy and turf wars between ministries that prevent progress. “Reliability and pace” are demanded.
The association also warns that the collective bargaining agreement law effectively excludes young companies from government contracts, as they can hardly meet the required standards.
The location promotion law also receives only limited approval. While it could strengthen the financial center, without corrections to reinvestment, capital market liberalization, and employee participation schemes, it remains insufficient.
According to the Startup Association, the fund risk limitation law is particularly problematic. The planned changes to valuation rules would disproportionately burden smaller funds and jeopardize their continued existence.
Mobilize capital
In the first half of 2025, 4 billion euros in venture capital flowed to Germany, of which 1.7 billion went to AI startups. About a third comes from the USA, while Europe offers weak exit markets.
The original promise of the WIN initiative to mobilize 12 billion euros by 2030 for startups must now be implemented with transparency and pace, the association says.
A European capital market union, opening institutional sources in Germany, more attractive exit channels, and rapid reforms are essential for the startup scene to compete internationally.
