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Germany’s stagnant economy dents investment in consumer start-ups

Funding increased to €7bn last year but it is a far cry from the 2021 peak of more than €17bn

Last year, as the German economy stagnated, an unlikely trend emerged among its start-ups: the amount of overall funding, year over year, increased by about €1bn, to €7bn. However, there were 12 per cent fewer funding rounds than in 2023, meaning the average deal size went up. 

“Most funding rounds above €20mn or €30mn are led by foreign investors,” who have not been as affected by the German recession, explains Thomas Prüver, author of EY’s Start-up Barometer for Germany report.
“I’d say 90 per cent plus.”

While there was an increase in funding in 2024, the €7bn in investment is still a far cry from the 2021 peak of more than €17bn, when money poured into high-profile consumer start-ups. “2021 was almost solely driven by huge funding rounds in B2C companies — quick commerce, ecommerce,” Prüver says. “Now, it turns out those business models are not that robust, and investors are reluctant to invest in them.”

Eric Weber, chief executive and founder of Leipzig-based incubator SpinLab, agrees: “You used to be able to raise millions with a nice slide deck. Now, if you don’t have traction, investors aren’t interested.”

As the German consumer has become more cost-sensitive and B2C start-ups have struggled to become profitable, investment has shifted away from B2C and towards B2B start-ups, often ones that have industrial and manufacturing applications. “Some say software eats the world, but hardware keeps it running,” Weber says, “and that is where Germany excels.”

This shift has favoured Bavaria, in southern Germany — a natural home for B2B start-ups because of its strong industrial base, according to Carsten Rudolph, of Bay Start-ups, a regional incubator based in Nuremberg. Berlin, meanwhile, has traditionally preferred consumer start-ups. Last year, for the first time, Bavaria narrowly overtook the capital region in terms of the total investment value.

These trends have converged in the case of Isar Aerospace, a Bavaria-based company founded in 2018. Isar is developing rockets that bring up to 1,000kg of cargo, such as satellites, to lower-earth orbit. Germany is well suited to compete in this niche market, largely because of its expertise in high-tech, automated precision manufacturing, according to Bulent Altan, Isar’s first angel investor and a former vice-president at SpaceX.

“It’s cheaper to operate in Germany than in Silicon Valley or Los Angeles,” he says. “If I think about SpaceX and the 100 hour work week, year after year after year — sure, that comes with a certain amount of efficiency. But it comes at the cost of lower employee loyalty and a much more competitive market, higher salaries and a certain amount of burnout culture.”

Isar was incubated by Munich-based start-up lab UnternehmerTUM and benefited from its vast partner network that includes the European Space Agency (ESA). “I often use Isar as an example of a smart collaboration between a young start-up and a traditional space agency,” says Géraldine Naja, the ESA’s director of commercialisation, industry and competitiveness.

Isar successfully leveraged the agency’s support, by securing significant contracts and, in turn, using them to attract further private funding, she explains. But they needn’t be dependent on the ESA long term: “I certainly hope that eventually Isar will become totally self-sustainable. It’s like raising kids — you support them, but eventually, they have to fly on their own.”

Across Germany, while large investment rounds increased last year, the decrease in small deals means that fewer start-ups are getting early-stage funding. “Not a good sign,” says EY’s Prüver, because “early-stage companies fuel the pipeline for later-stage funding.” This development has dissuaded young Germans from pursuing entrepreneurial projects, says Volker Hofmann, who runs Humboldt-Innovation, a subsidiary of Berlin’s eponymous university that aims to connect science with business. “Germany has lost 60 per cent of its founders in the past two decades. If we don’t reverse this, it won’t matter how much funding we have — we won’t have enough entrepreneurs to invest in.” 

“We need a new mindset,” Hofmann says, attributing the decline to Europe’s excessive bureaucracy and a cultural aversion to risk. “In Asia and the US, becoming an entrepreneur is seen as a great ambition. In Germany, we have too many barriers — legal, financial, and cultural — that discourage people from starting companies.”

Helmut Schönenberger, UnternehmerTUM co-founder and CEO, sees things in a more positive light, highlighting how far Germany’s start-up scene has matured since he co-founded the educational institution in 2002: “Twenty years ago, we stood outside [the university food hall] handing out flyers for a business plan course. Now, billionaires and global investors come to us.” Schönenberger agrees challenges exist, but points to how the start-up ecosystem can push for change at the city and state levels. UnternehmerTUM, he says, is proactive in working with the city of Munich when it comes to securing start-up visas, test site approvals and government-backed funding.

UnternehmerTUM topped the Financial Times-Statista 2025 ranking of Europe’s leading start-up hubs for the second year running.

Back in Berlin, Hofmann points out that Germany has multiple thriving start-up hubs. However, they are in effect siloed. He believes they need to collaborate more to compete internationally. “Our ecosystems in Germany are too fragmented. We don’t join our forces the way we should — whether it’s between universities, industries or even regions,” he says. “It’s not a competition between regions; it’s about making Germany and Europe better as a whole.”

Industrial strategy turns from green to battleship grey

Trump’s hard line on Ukraine and Nato poses difficult choices for the UK’s defence industry

When Sir Keir Starmer promised this week to “rebuild industry across this country” with public investment to “provide good, secure jobs and skills for the next generation”, he might have been talking of the drive for clean energy around which Labour built its economic manifesto.

The prime minister was not. His government is making a rapid transition from green to battleship grey by now placing defence at the heart of its approach to technology and manufacturing. As President Donald Trump forces Europe to protect itself with less US support, UK priorities have changed.

This was implied when Starmer announced a rise in defence spending to 2.5 per cent of GDP by 2027 and an ambition to reach 3 per cent in the next parliament. It became starkly evident last weekend when Rachel Reeves, the chancellor, said that the remit of the National Wealth Fund would be changed to let it invest in defence as well as its original green priorities.

Defence spending is a political and security imperative, and has similar attractions to clean energy as an industrial focus, particularly for an administration backed by trade unions. There are many manufacturing jobs in building nuclear submarines and fighter aircraft and making munitions, largely outside London and the south-east.

Defence also has the advantage of being straightforwardly linked to growth, rather than a transition. While investment in wind farms and nuclear energy creates jobs, limiting North Sea oil and gas exploration or trying to curb output of combustion engine vehicles risks the opposite.

There are 430,000 jobs in the aerospace, defence, security and space industries, where productivity is 42 per cent higher than the UK average. It could soon be on a growth trajectory of a kind not seen for decades. If defence spending reached 3 per cent of GDP, it would be “transformative”, says Malcolm Chalmers, deputy director-general of the Royal United Services Institute.

Leaving aside the ethics of weapons production, which deters some investors, there is plenty to like about defence as an industrial strategy. “I’m more optimistic than I’ve been for a decade,” says one industry veteran. But even before the money has arrived, hard questions loom for procurement and the sector.

First, how far should the UK tilt away from the US, not only in policy but in the degree to which industries are entwined? A prime example is BAE Systems, the UK’s biggest contractor, which builds nuclear submarines and parts of the Lockheed Martin F-35 fighter jet. BAE’s US subsidiary produced 44 per cent of its revenues last year, much more than its UK operations.

The US decision to suspend temporarily military support to Ukraine raises worries about whether it could in future disable the F-35 and other systems operated by Nato allies. The UK has joined Italy and Japan in developing (through BAE) a next-generation stealth fighter, but it would be difficult and prohibitively expensive to end its reliance on US military technology.

Second, is the Ministry of Defence capable of procuring weapons efficiently? The UK has suffered repeated budget overruns and there has historically been a fractious relationship between the MoD and its contractors. The government recently cited “over-exquisite design” and departmental hoarding of intellectual property as impediments to innovation as technology advances.

This raises a third question: should the UK keep focusing so heavily on highly bespoke, costly weapons systems or should it learn from experience in Ukraine and spend more on drones and new technology? It may need to shift resources to start-ups such as Anduril, the US drone maker with which it placed a £30mn order (through its UK arm) this month.

These questions have no clear answers. There will be awkward trade-offs between favouring incumbents or start-ups, picking partnerships with the US or within Europe, and insisting on complete sovereignty or saving money by buying from overseas. They will only get tougher.

The government has the comfort of an array of defence contractors, including BAE, Rolls-Royce, Babcock International and Thales UK. But it must rebuild its forces and replenish munitions while trying to expand. The UK’s share of global arms exports has fallen in the past decade, lagging behind the US, France, Germany and Italy.

There is much to reform and many choices in a volatile world. It is enough to make the energy transition look like a simple affair.

Station F: flying the flag for France tech and AI development

Of the Paris-based incubator’s 40 best-performing start-ups, 34 have artificial intelligence at the core of their business

The sight of OpenAI chief executive Sam Altman and French President Emmanuel Macron being mobbed by techies at Paris-based Station F recently was a reminder — if any were needed — of the business incubator’s powerful gravitational pull.

A former rail depot converted into a 34,000 sq metre workspace, the site was once more used to hosting rolling stock and a few pigeons than dignitaries and Big Tech executives. Today, visitors will be greeted instead by rooms scattered with Lego’s studded bricks and beanbag chairs, cargo-container meeting rooms and a Space Invaders games arcade.

The brainchild of billionaire Xavier Niel, Station F has become a honeypot for founders, investors and corporates since opening in 2017.

The incubator accepts 50 new start-ups every month, and more than 7,000 have called the place home at some point. Silicon Valley groups have also moved in. Amazon Web Services, Apple, Google and others host “mentorship” offices where founders can seek advice. Snap has a studio at the Paris hub where you can trial the social media company’s augmented reality glasses.

Station F start-ups raised more from investors in 2024 than the entire Italian tech scene did the year previously, director Roxanne Varza cheerfully notes. In fact, Station F companies have now raised more than €1bn — a sum equal to about 15 per cent of the total amount raised by start-ups annually in France — for three consecutive years. A sharp rise from the €250mn raised in 2017.

The best-known alumni are artificial intelligence company Hugging Face, now based in the US, and healthcare insurer Alan. Describing his Station F days, Hugging Face co-founder Thomas Wolf says, “It’s nice to have people around you who support and give you confidence because nothing you’re doing works in the beginning.

“When we eventually left Station F for an office in Paris, it was a lot less fancy. We were quite a bit more lonely: we missed belonging to a movement.”

AI at the core

That movement today is headed in the direction of AI. Of Station F’s 40 best-performing start-ups, 34 have the technology at the heart of their business. 

One of these companies is Entalpic, which is using generative AI to formulate and test chemical hypotheses, with the aim of replacing outdated industrial processes. Hugging Face’s Wolf is an investor, as is AI pioneer Yoshua Bengio. 

Among others there is .omics (pronounced dotomics), which uses AI to engineer plants to make them more resilient against pests, disease and climate shifts. There is also a pair of start-ups — Presti and finegrain — with a more prosaic but very useful job for AI: making it easier to edit photos online.

Arguably, for a hub that has acquired a strong business reputation, Station F should have produced more household names. But start-ups disappearing into larger companies count as a win too — some of this “exit” cash will recycle back into the ecosystem. Station F alumni acquired in 2024 include Sonio (bought by Samsung), Datakalab (Apple) and Quickwit (datadog). 

Station F is also investing in some of the companies it is helping to build. The hub vows to back up to 20 companies a year with cheques of €50,000-€100,000. The hub also offers indirect investment support by circulating a list of fundraising companies to 500 investors every month.

The future

Some wonder whether the hub — and France generally — will remain an attractive destination for entrepreneurs and investors after Macron’s term ends in 2027. The French president has promoted and backed the country’s tech industry and recently announced €109bn worth of investments in AI in France over the next few years.

But Station F’s appeal is arguably as much cultural as financial. La Felicità, run by the Big Mamma food group, is the sprawling restaurant attached to the incubator. What do the people building the future eat? Lots of pizza. They also attend karaoke sessions here on Tuesdays. “The restaurant has helped us so much — people come and they’re like, ‘wait, there’s a start-up hub here too?’,” says Varza.

New features — such as a bike repair shop — have kept hipster-levels high at Station F. “We have over 100 parking spaces but no one has ever asked for one. Everyone comes here by bike or scooter,” says Varza. The hub, which also rents apartments, plans to boost revenues further with a new hotel. 

China-born Yuting Jiang has just renewed her spot at the hub for another six months. The 28 year-old and her husband are developing a new social network that prioritises friendly debate. “Social networks are turning into computational propaganda,” Jiang says. “We want to see less polarisation and more nuance.”

Jiang pays €400 a month for her Station F residency. For this, she gets pitching experience, mentorship and introductions to investors, along with a 30 per cent discount at the restaurant. Most of all, she likes the cachet. “You get instant attention when you tell people you’re at Station F.”

Would $50 oil really be good for the US?

Bosses warn potential consumer benefits would be offset by squeezed domestic shale industry

Donald Trump’s administration has indicated a desire to see crude prices fall to $50 a barrel or lower but the benefit for US consumers risks throttling the same oil industry the president wants to expand.

On the campaign trail Trump repeatedly talked about very low gasoline prices of $1.87 a gallon — equivalent to about $20 a barrel for crude — as “a perfect place, an absolutely beautiful number”.

The debate over what oil price the US president is seeking has hardened in the past week after Peter Navarro, one of his trade advisers, suggested that if oil fell to $50 a barrel it would help tame inflation. 

Brent crude, the global benchmark, dropped to $68 a barrel last week, the lowest in three years, as the Opec+ producer group confirmed plans to gradually increase output.

Analysts warn that a much bigger decline could make it nearly impossible for the administration to meet another of its targets — expanding US energy production by 3mn barrels of oil or equivalent a day by 2028.

“Fifty dollars a barrel is going to hurt the United States more than benefit it, and it’s definitely not going to allow the US to produce more oil, which is something that Trump also wants to see,” said Claudio Galimberti, chief economist at Rystad Energy. “The two objectives are incompatible.”

The last time Brent was less than $50 a barrel was November 2020 during the coronavirus pandemic. US gasoline prices have not been as low as $1.87 a gallon since May 2020.

US energy secretary Chris Wright told reporters this week that the administration did not have a target price for crude oil. However, he reiterated earlier claims to the Financial Times that by loosening regulation and other barriers to production, US oil companies would be able to boost output, even at prices as low as $50.

The goal is “to encourage capital investment, make it easier to build infrastructure, and therefore lower the costs of people making decisions to drill oil and gas wells and grow supply”, he said. “More supply will lead to lower prices and more opportunities.”

The implications of low oil prices for the US economy have changed over the past decade due to the dramatic expansion of shale production. The US pumped more than 13mn barrels a day last year compared with 6mn in 2012, turning it into the world’s biggest oil producer and a net exporter.

Whereas lower oil prices were historically a boon for the US economy, today it would crimp revenues in the oil sector even as it reduced costs for consumers.

S&P Global Commodity Insights estimates that the average break-even price for US shale producers this year is $45 per barrel and many analysts and oil executives said too many US shale producers would be unprofitable at $50/b to grow US output.

Paul Horsnell, head of commodities research at Standard Chartered, said that $50 a barrel crude “would seem a bit of a pyrrhic victory”.

“Shale economics might still work in some small parts of the Delaware and Midland basins, but the rest, including Oklahoma, Rockies, Bakken, south Texas, would struggle to keep going,” he said.

In Dunn County in North Dakota’s Bakken basin, which receives much of its budget from a production tax on oil producers, 84 per cent of the population voted for Trump. “It’s counterintuitive,” said Tracy Dolezal, Dunn’s county commissioner. “We will see a slowdown in activity . . . that is going to have an impact on revenue.”

Trump’s announced tariffs on imports of crucial materials, including aluminium and steel, were also driving up costs for oil producers at the exact same time his administration was asking them to “drill baby drill”, noted Martijn Rats, global oil strategist at Morgan Stanley. “Those things drive break-even higher not lower,” he said.

Scott Sheffield, one of the pioneers of the US shale revolution, said $50 oil forced US shale producers to cut output, allowing other countries, particularly Opec members, to increase market share and raise prices at a later date.

“It’ll put Opec and Saudi Arabia into greater control by 2030, so they are able to increase market share significantly,” he said. “I really don’t think they have thought through the ramifications. It is good for the consumer but it’s going to be very bad for [US] energy.”

Trump is expected to continue his calls on Opec+ to increase production faster but the cartel would be unlikely to allow prices to fall as low as $50 a barrel without intervening.

“Fifty dollars per barrel would be a big problem for them,” Galimberti said, adding that Opec+, led by Saudi Arabia and Russia, had said it could pause and reverse the production increases at any time.

Saudi Arabia needs an oil price close to $100 a barrel to balance its budget, according to the IMF, while Russia is dependent on revenue from oil exports to fund its war in Ukraine.

Wright offered the industry his full support at the largest annual gathering of US oil executives in Houston this week. “We need more energy. Lots more energy,” he said.

The address received a rapturous reception, but in private, executives are far less convinced, concerned about unpredictable policymaking and the Trump administration’s apparent desire to crash the price of their product. 

At a dinner the night before attended by Wright and chief executives, one half of the room was cheering and the other half was silent, said one person who attended. “The people who don’t like it are just too frightened to speak out at the moment.”

Poland’s president urges US to move nuclear warheads to Polish territory

Call from Andrzej Duda aimed at deterring future Russian aggression likely to be viewed as highly provocative in Moscow

Poland’s president has called on the US to transfer nuclear weapons to Polish territory as a deterrent against future Russian aggression, a request that is likely to be perceived as highly provocative in Moscow.

Andrzej Duda said it was “obvious” that President Donald Trump could redeploy US nuclear warheads stored in western Europe or the US to Poland, a proposal the Polish leader said he recently discussed with Keith Kellogg, US special envoy for Ukraine.

“The borders of Nato moved east in 1999, so 26 years later there should also be a shift of the Nato infrastructure east. For me this is obvious,” Duda said in an interview with the Financial Times. “I think it’s not only that the time has come, but that it would be safer if those weapons were already here.”

Duda is hoping to revive a nuclear sharing project that he presented unsuccessfully to former president Joe Biden’s administration in 2022. Poland’s Communist regime hosted Soviet nuclear warheads during the cold war, but stocking such weapons again close to Russia’s borders — this time under US control — would be viewed as a serious threat by the Kremlin.

Duda said it was up to Trump to decide where to deploy US nuclear weapons, but recalled President Vladimir Putin’s announcement in 2023 that Russia would move tactical nuclear weapons to Belarus, Moscow’s ally in its invasion of Ukraine.

“Russia did not even hesitate when they were relocating their nuclear weapons into Belarus,” Duda said. “They didn’t ask anyone’s permission.”

Duda’s call to host nuclear weapons underscores growing anxiety in Poland — shared with other countries in its region — about Russia emerging reinforced from peace negotiations with Ukraine brokered by Trump.

Duda, who is also supreme commander of Poland’s armed forces, echoed Polish Prime Minister Donald Tusk in saying that the country could alternatively get better protection from President Emmanuel Macron’s idea to extend France’s “nuclear umbrella” to cover European allies. 

But Duda poured cold water on Tusk’s suggestion last week that Poland could develop its own nuclear arsenal. “In order to have our own nuclear capability, I think it would take decades,” the president said.

Duda also said he could not envisage Trump making a U-turn on the commitment he gave during their meeting last month about maintaining US troops in Poland.

“Concerns regarding the US taking back their military presence from Poland are not justified. We are a credible ally for the US and they also have their own strategic interests here,” he said.

The Polish president also said he did not consider Trump to be conducting pro-Moscow negotiations to force Kyiv to stop fighting. 

“This is not delicate diplomacy, this is a tough game, but in my opinion it’s not that President Trump is being only nice and gentle with Russia,” Duda said. “I think he’s applying instruments against Russia, even though it’s maybe not as loud and visible as those he’s using against Ukraine.”

“Nobody has managed so far to stop this war, so let’s give President Trump a chance.”

Last weekend Polish foreign minister Radosław Sikorski feuded with US secretary of state Marco Rubio and Trump’s ally Elon Musk on social media over Ukraine’s access to Musk’s Starlink satellite system, with Musk dismissing Sikorski as a “small man”. Tusk stepped in to call on Poland’s allies to show respect for weaker partners rather than arrogance.

Duda instead criticised Sikorski for a “completely unnecessary” intervention over Starlink. “You don’t discuss with the American administration on Twitter, you do that through diplomatic channels,” he said.

Duda, a nominee of the opposition Law and Justice (PiS) party, has been at loggerheads with Tusk’s coalition since they won parliamentary elections in 2023. He has repeatedly vetoed Tusk’s reform agenda with the help of PiS-appointed judges who pack the constitutional court. 

Asked if Trump’s administration could influence the Polish presidential election in May, Duda said he was “convinced that Poles will make their own decisions”. But he expressed concern about a contested election outcome, like that in Romania, given that judges will also need to validate the Polish results.

“There is no doubt that we’re currently dealing with a very serious constitutional crisis in Poland,” Duda said. “What has happened in Romania is very concerning and it doesn’t fulfil European democratic standards.”

Romania’s constitutional court has banned far-right candidate Călin Georgescu after annulling his first-round win following allegations that he benefited from an illegal campaign orchestrated by Moscow.

The Polish president accused the European Commission of turning a blind eye to Poland’s institutional conflict after allegedly taking “many actions” to get Tusk back into power in 2023.

“The European Commission is now pretending not to see this,” said Duda. “And do you know why? It’s because Prime Minister Tusk is a member of the same European party as most of the members of the European Commission, together with its president [Ursula von der Leyen].”

Smaller pilotless planes could be used to suppress defences before combat aircraft enter danger zones

UK defence champion BAE Systems is exploring opportunities to deepen collaboration with Japanese defence groups, including potential joint development of drones to fly alongside a next-generation fighter jet the two nations are building with Italy.

Rob Merryweather, group technology director, revealed the steps by the UK’s largest defence supplier at a Tokyo media briefing this week. They come at a time when global security has been rocked by US President Donald Trump’s threats to weaken long-standing alliances.

Merryweather highlighted the potential benefits of co-ordinating on the development of low-cost drones that would go alongside the multibillion-dollar Global Combat Air Programme under development with Japan and Italy.

“All of the nations who are engaged in GCAP have the same need for these autonomous collaborative programmes to work alongside that aircraft,” he said. “In terms of collaboration with Japan, I think we are at the early stages of conversations around that, but it is certainly an area where working with international partners is of interest to us.”

Merryweather did not mention any potential involvement by Italy but added that balancing the drones’ capabilities with those of the fighter jet would be “critical” to GCAP’s affordability and success.

Although the final cost of the combat aircraft has yet to be determined, the drones would cost about a tenth of GCAP, he said. The UK has so far committed just over £2bn towards the original programme.

The work on GCAP is focused solely on the jet and does not include drones.

While drones can be developed far more quickly than GCAP, the aspiration is for a fighter jet that will work seamlessly with drones and be fitted with advanced communication systems.

One of the ambitions, said Merryweather, would be for the drones to undertake risky manoeuvres to suppress air defences before the expensive fighter jet enters combat zones.

BAE, Italy’s Leonardo and a Japanese industrial consortium led by Mitsubishi Heavy Industries established the joint venture in December to oversee developing the fighter jet for a maiden flight by 2035.

The programme has gained newfound importance as Trump’s efforts to abruptly end Russia’s war with Ukraine have heightened European countries’ drive to bolster their own security.

A rival programme, the Future Combat Air System, is being developed by Airbus and France’s Dassault Aviation. Guillaume Faury, Airbus chief executive, earlier this year called for the two projects to work closely together given budgetary constraints and the importance of consolidating Europe’s fragmented market.

Faury cited drones and sensors as areas where companies could collaborate.

Japan is raising security spending towards 2 per cent of GDP, up from 1.6 per cent currently, as fears over the solidity of its alliance with the US have been stoked by Trump questioning the defence pact’s fairness last week.

Expectations of more security spending outside the US led Japanese defence stocks to surge last week, with Mitsubishi Heavy gaining 25 per cent. The company revealed concepts last year for two military drones that could potentially support GCAP, while BAE has also drawn up an idea.

The three GCAP partners have been discussing the potential involvement of Saudi Arabia as a partner providing financing and orders for the jet, despite reluctance in Tokyo about the kingdom’s role.

UK-Japan defence collaboration gained a further boost last month after the Asian nation’s Self-Defense Forces contracted the UK’s BMT to design a next-generation landing craft that shipbuilder Japan Marine United would construct.