Analysis: The funding gap between the UK and Germany is smaller than you might think

When I was in Berlin recently, one of the things that struck me most was how little desire people in the Berlin startup scene had to compete with London. However, one thing that everyone in Berlin felt resigned to (including their venture capitalists) was that as things stand, Berlin and Germany have no chance competing for capital against London and the UK.

With signs that the funding gap between the two could become smaller as more funds become alert to the opportunities that exist in Berlin and Germany, I crunched the funding data from our proprietary dataset from the first half of 2015 to see how big the gap currently is.

Let's start with how much venture capital each country raised in total in the first half of 2015:

When it comes to total amount, the UK have a clear advantage over Germany in terms of venture capital raised in the first half of the year, raising a total of €490 million more. This came from a total of 106 deals that we tracked, compared to 99 for Germany. Germany is renowned for keeping a lot of their funding rounds undisclosed, so this is clearly having an effect on this total, and in reality the gap is likely to be closer. So, what if we discount all of the undisclosed deals from the total number of deals?

As Germany had 40 undisclosed deals compared to the UK's 4, you can see what a dramatic effect this has on the numbers, with the average round size of disclosed deals in Germany way ahead of the UK's (€20 million vs. €16.27 million).

However, despite this demonstrating that perhaps the totals are closer than we would imagine due to the amount of undisclosed deals Germany has, it should be noted that most of the time undisclosed deals are at the lower end of the scale. If we give the undisclosed deals an amount of €1 million each, then average round sizes between the two would look more like this:

This is likely to be a far more accurate picture of what the average round size looks like in each country so far in 2015. Germany are clearly still behind the UK when it comes to total amount raised and the average round size, but how do they compete when it comes to the bigger late-stage money?

Actually, pretty well, as Germany saw 6 of Europe's 20 largest funding rounds in 2014, compared to the UK's 3. And what about in 2015 so far?

The UK edged out Germany in the amount of Europe's 20 largest funding rounds in the first half of 2015, but if you total the two up, then since January 1st 2014, Germany has raised 12 of Europe's 40 largest funding rounds compared to the UK's 11, demonstrating that when it comes to late-stage money, Germany are more than capable of competing with the UK. When you break down the funding by quarter in 2015, then another data point arises that is of interest:

In Q1, Germany more than matched the total amount of capital the UK raised (€682.1M vs €684.65M) and it was actually only in Q2 that they fell behind, with a €498.9 million gap emerging. One of the reasons for this was OneWeb's monster €435 million round, which had a huge impact on the UK's Q2 total. With the gap practically non-existent in Q1, and only one big deal the significant difference in Q2, there isn't too much of a difference in terms of capital being raised between the two countries.

Of course, Germany had big rounds themselves, so saying if it wasn't for OneWeb's round then there would be no gap is not a fair assumption to make, however if you account for the fact that Germany have a high number of undisclosed deals and their ability to raise large later-stage money, then the funding gap between the UK and Germany is certainly smaller than the general perception.

Of course, six months is a small amount of time to measure something like this, and we shouldn't draw too many grand conclusions from this. However, it's interesting to note that the general perception is that Germany is still miles behind when it comes to attracting capital, yet the numbers, at least from this year so far, do not support that.

Further reading:

Europe raised €3.47 billion in venture capital in Q2

European VC funds raised more than €2 billion in Q2 2015, an increase of 30% compared to last year

Lakestar to announce Lakestar II, a new €350 million fund focused on early-stage investing in Europe

Immediate and unflitered impressions of Berlin's startup scene

An interview with Pawel Chudzinski of Point Nine Capital, the SaaS-focused VC firm from Berlin

Featured Image: Ruskpp/Shutterstock