International VCs have German startups in their sights
Normally this does not happen. In the pre-seed or seed rounds, there is regularly one main investor and the remaining parts of the funding are usually replenished by a variety of business angels and/or investment clubs.
In this particular case, it was special circumstances that led to an immensely successful round: Qdrant Solutions GmbH was founded only 1.5 years ago, but deals with an incredibly exciting and relevant business field. The company’s software is an open source vector database and vector search engine. In the currently highly sought-after field of artificial intelligence, vectors help to find and make available unstructured content such as texts, images or videos. OpenAI, the company behind ChatGPT, recommends Qdrant, among others, for searching via vectors. — Another reason may be the main investor, which has a successful track record for technology investments. This led to a pull effect, as other outside investors had also seen a factual validation of the idea and the business case.
The financing round was implemented within six weeks from term sheet to signing. This spoke to the desire of all parties to spend relatively little time on legal details and more time on economic development. Another weighty indication of a great development of the company. If the artificial intelligence market develops anywhere near as predicted, we’re talking about a company that could be a unicorn in two to four years.
This round of funding also highlights a trend that began with the end of cheap money in Q3 2022, namely that VC investors are, on the whole, even more careful about the nature of the investment. Therefore, the broad mass of startups will have a harder time getting funding, but the promising startups will be courted even more in return. The start-ups that we at GreenGate experience from our daily work, especially from the start-up strongholds of Munich and Berlin, have extremely interesting technology products and business models that will be good for the German economy in the medium to long term.
The world has become smaller and solutions from technology companies that work in Germany can work all over the world. In this area, there are neither language barriers nor obstacles due to national borders. In this respect, international money can be attracted more easily. Why there are no German VC funds that enter the later financing rounds with “deep pockets” can hardly be answered unequivocally.
In my opinion, it is also due to the difficulty of the exit via IPO. If you listen to older market participants, the experience of the bankruptcy of the Neuer Markt at the turn of the millennium was probably formative and significantly reduced the willingness to set up a German technology exchange (similar to Nasdaq). Fortunately, politicians have seen this gap and, among other things, have set up the DeepTech & Climate Fund with a volume of one billion euros. While this provides hope, it does not replace the need for private funds. The fact that there are companies for such a technology exchange is sufficiently well known and is also continuously validated; for example, the recent strategic license agreement between Tubulis GmbH from Martinsried and Bristol Myers Squibb with a volume of up to one billion US dollars speaks for itself.
The HealthCare sector in Germany is incredibly exciting. However, start-ups in this area are being made unnecessarily difficult. Flagship companies such as Wellster Healthtech Group, Virtonomy, Perfood, Sanity Group, and even Mushlabs have extremely good business models, but cannot focus exclusively on patients and must expend considerable effort to comply with regulatory requirements. It’s perfectly clear that different rules must apply in the health tech sector than for a streaming service, for example, and no one doubts that.
But in order to really improve people’s health and make Germany a beacon of medical care in the future, various basic elements of the healthcare system would have to change. As an outsider, I see little willingness to do this. One or two pharmaceutical companies would rather see a significant movement toward more research and development and less administration.