Leistungen // Laterales Management

what impresses and convinces investors?

In August 2016 the start-up barometer of Ernst & Young shocked the Berlin start-up scene: Berlin is no longer the capital city for new companies. London, Paris and even Stockholm are now taking in more investor money than the federal capital. Only one year ago Berlin took in 1.5 billion and now the figure is just 500 million euros. A year ago it was way ahead of London with a billion euros. What happened?

Statistics always have to be examined very carefully. First of all, the authors of the study acknowledge that a year ago the one-off effect of Rocket Internet brought Berlin to the top position. Rocket Internet includes start-ups, for example Zalando, which is now listed on the stock exchange. Zalando is the second largest employer in Berlin with approximately 20,000 jobs as well as venture capitalists. When Zalando invests, there is no messing about. And then Berlin is right at the top again in no time at all.

Unicorns make it more difficult to compare locations

Furthermore, there is one single criterion for the size of a location: How much risk capital could be acquired locally? Dear friends of EY that isn't very impressive. That is why we have asked ourselves the question - why do we have all the German and European start-up monitors and ranking lists on Gründerszene. The reason is very simple. Venture capitalists evaluate start-ups by these indexes. If a city is not listed as one of the top 15 European cities, it will frequently be ignored in investment rounds. If we look at Europe as a whole, overall start-up investments fell from seven billion to 6.4 billion euros in 2015 according to EY. However, investment rounds have increased by 40% to 1,113.

This indicates precisely the opposite of the published study: More financing rounds mean more attention by investors. Unicorns (start-ups with a volume of more than one billion US dollars) such as Spotify in Sweden or Rocket Internet with their large capital requirements make it difficult to compare locations. Within one year – as happened in 2015 – Spotify can take Stockholm to the top position by acquiring a large volume of risk capital – and allow it to slip down to the bottom of the list a year later.

Investors are not impressed by CAGR

The German start-up monitor (DSM) and the European start-up monitor operate in a more sophisticated way. The DSM authors for example question approximately 1,000 start-ups every year and apply a number of criteria. This monitor also includes criteria such as the age of the founders, gender and co-operation.

Gründerszene evaluates individual companies in their sales performance: "CAGR (compound annual growth rate) represents the average annual growth of a value to be examined, in this case sales revenue. For the purpose of calculation, the value of the previous year is divided by the initial value. The nth root is subtracted from the result. The average growth rate for sales revenues from 2012 to 2014 is calculated with the following formula = (sales 2014/sales 2012)(1/2)". This value is likewise calculated by Ernst & Young.

We do not believe that professional investors are seriously influenced by this one value in their decision on a risky investment.