Germany: Share of migrant-led startups on the rise despite continued challenges
By Benjamin Bathke Published on : 2022/09/15
Close to one in four start-up founders in Germany have a migration background, according to a study. This underscores the importance of migrants as an economic force. But key challenges, especially in the areas of collaboration, financing and growth, continue to hold many of them back. The list of successful migrant-led German start-ups is long: Auto1, Delivery Hero, ResearchGate, Gorillas, Omio, GetYourGuide -- and of course vaccine-producing medical start-up BioNTech, whose Turkish-born founders' remarkable, improbable achievement in 2020 -- the COVID-19 vaccine -- highlighted the promise and potential of migrant entrepreneurship. However, 'people with a migration background'* aren't just as equally inclined to launch a business as those without such a background; studies have also shown that they are a boon for the economy for creating jobs, among other things: According to a 2020 Bertelsmann Foundation study, businesses founded by migrants in Germany had created a total of nearly 2.3 million jobs by 2018. According to a study by the German Startups Association and the Friedrich Naumann Foundation, a German foundation championing liberal and libertarian politics, people with a migration background make up 22% of all founders in Germany, up from 20% in 2021. The increase shows that migrant founders are a "driving force behind economic innovation in Germany," according to the study. Migrant Founders Monitor report For the second year in a row, the Migrant Founders Monitor** examined the role people with a migration background play in Germany's start-up scene. This year's edition identified 394 founders with a migration background -- 59% first-generation and 43% second-generation immigrants --, suggesting that having an enterprising spirit tends to be particularly pronounced among migrants. Moreover, the organization found that migrants often think in bigger terms, are more highly qualified and more willing to take risks than the average self-employed person. According to the Friedrich Naumann Foundation, this year's edition focused on first-generation founders, as their "distinct characteristics and special challenges are most evident." Here are some of the findings of the study:
22% migrant founders: More than one in five new start-ups launched in Germany have a migrant founder. Berlin and North-Rhine Westphalia (NRW), Germany's most populous state, have by far the highest shares with 21.1% and 22,9%, respectively.
Highly-qualified minds: Germany continues to be popular among qualified first-generation founders -- more than nine in ten of them (and almost 85% of those born in Germany) have an academic background, nearly half of them in a STEM field or economics. In the entire start-up scene, 85% have a tertiary degree.
Internationality: Almost 50% of migrant founders hail from eastern Europe and southern Asia. In terms of nationality, entrepreneurs from Russia, India and Poland make up the biggest groups among first-generation migrant founders.
Students-turned-entrepreneurs: Almost two thirds of first-generation migrant founders completed their studies in Germany -- which means they have been living there for a longer period, which can come as an advantage when founding a company.
Diversity: Start-ups by first-generation migrant founders are particularly diverse: More than half of their employees come from abroad. The corresponding numbers for second-generation migrants' start-ups and start-ups in general are 68% and 72%, respectively.
Thinking globally: Migrants start-ups' international focus is their "unique selling point": 75% of first-generation founders say they want to expand their start-up to other markets. This is an important impulse since German start-ups tend to be happy with the relatively large German market.
High-flying aspirations: Migrant founders, especially those born outside of Germany, have higher-than-average ambitions when it comes to the so-called exit, or selling of the company. Exits are said to spur growth in the start-up ecosystem.
Hurdles and challenges In spite of these encouraging tendencies, many migrant founders continue to face certain structural barriers. According to the Migrant Founders Monitor, they are especially high in the areas of collaboration, financing and growth.
Collaboration: First-generation migrant-led start-ups lag behind the average start-up when it comes to cooperating with other such companies, established businesses and scientific institutions. More than one in three first-generation migrant founders consider this their greatest challenge.
Raising capital: 43% of first-generation migrant founders say they have difficulties in securing funding -- compared to 36% of all start-ups. Especially first-generation migrant founders still have a hard time accessing all three primary financing options: Business angel funds, venture capital and government subsidies. This is a key reason why larger financing rounds are less common for start-ups of migrant founders, which is problematic given first-generation migrant founders' above-average ambitions.
Growth: First-generation migrant founders continue to perform poorly when it comes to their number of employees. "This is clearly at odds with the enormous potential in terms of expertise and mindset," according to the study.
Racism: More than half of all first-generation migrant founders who studied abroad reported experiences of racism as start-up founders. Less than 17% of second-generation migrant founders said the same. The problem was worst when dealing with authorities and government offices, the study said.
Red tape and language: Bureaucratic hurdles, especially after launching start-up, were cited as a major problem for many migrant founders not born in Germany. Moreover, 21% of them said language barriers were a challenge when starting a company.
Other major challenges: According to the study, cultural differences as well as getting international qualifications and academic degrees recognized were also significant hurdles.
* Roughly a quarter of Germany's population (25.9%) are so-called "people with a migration background" ("Menschen mit Migrationshintergrund"), a term politicians and academics have argued about for years. A person is considered to have a migration background if they, or at least one of their parents, was born without German citizenship.** According to the German Startups Association, the underlying database of the Migrant Founders Monitor is the German Startup Monitor (GSM), a survey among German start-ups with over 2,000 participants. The GSM focuses on so-called opportunity start-ups -- founders hoping to capitalize on a business opportunity -- rather than so-called necessity start-ups, which refers to people taking up self-employment out of necessity or lack of better income alternatives