Florian Bogenschütz, Managing Director of Wayra Germany.
© obs/wayra Germany

Scaling in Turbulent Times: Being Successful as a Startup in 2022

2022 has started turbulently – like the two years before it – due, among other things, to the coronavirus pandemic. So far, the startup landscape in Germany has navigated through the uncertain times quite well. But will things continue that way? Florian Bogenschütz, CEO of Wayra Germany, the Telefónica open innovation hub, explains which business models are promising in 2022, particularly in the field of telecommunication and 5G, as well as which investment models have good prospects apart from ‘classic’ venture capital.

If you look at the capital raised in 2021, startups in Germany made it through the last twelve months pretty well: According to the EY Startup Barometer Germany published in January 2022, more money was pumped into German startups last year than ever before. The total value of all investments in young German companies more than tripled in 2021 compared to the previous year, amounting to 17.4 billion euros, as shown by the report.

Higher initial valuations and more diversity

Different developments can be observed in 2022. It looks as if the initial valuations of startups will continue to rise. At the same time, critical reflection on the topic of venture capital is increasing. Many founders are asking themselves the question: Do I even need venture capital, or can I bootstrap – or work with other resources, like family offices or strategic investors? More and more founders want the freedom to be able to build and lead their business as they see fit. They want to have the option to learn, to pivot and to not just strive for the highest possible valuation according to the 0 to 1 approach of major venture capitalists. Many startups would now prefer to remain very realistic about their scaling. There is also more of a focus on improved profitability instead of being dependent on venture capital for years.

The importance of the venture client model is growing

The return to revenue as the core of successful business activities is continuing to gain in significance as is the venture client model. Instead of amassing the largest possible investments, more and more startups want to quickly live off their own revenue, try their products out in the real world and solve real problems faced by their customers – which makes the venture client model a brilliant option.

Many corporations want to work closely with young companies in order to find innovative solutions to problems as well as new business and sales opportunities. Participation in the form of venture capital, however, is relatively indirect and complicated. It’s much faster and easier for a corporation to become the startup’s pioneering customer. This not only makes it possible to solve problems faced by the corporation, but to also try out a startup’s products and services directly and to optimize them, if needed, while the young company generates revenue at the same time. The venture client model offers an excellent alternative to venture capital, especially when independence is of great importance to a startup.

One success story in the venture client field is the startup Galactify. Galactify provides software to optimally manage and keep track of complex projects and their progress. As a participant in Wayra, the open innovation hub of Telefónica, Galactify was given the opportunity to get the telecommunication corporation on board as a customer in order to put their software to use in a very short period of time and test the waters with a large corporation. Their scaling has been carried out based on real revenue – sustainably and with great success.

5G business models and suitable use cases are the future

When looking at business models in tech, developments in the field of 5G are particularly interesting: Telecommunication companies are currently investing a lot of time and effort in building 5G networks, but often lack use cases for their practical utilization. This is why they are urgently looking for concrete applications in order to benefit from the new networks. Due to the extremely competitive situation, some magazines and TV programs and other business models that had been tried out by telecommunication companies in the past are now taking a backseat.

Founders are concentrating on core processes

What has become apparent in the startup scene is that founders are also focusing more intensely when designing their processes: There is a growing tendency to outsource functions that aren’t part of their core business, including finance, HR, logistics and sales. This allows executives and employees to concentrate on other tasks.

Last but not least, the importance of diversity is continuing to grow. The value and great significance of diverse teams is indisputable and increasingly becoming a reality in companies of all sizes, including startups. It’s a highly welcome development that is long overdue – even though there’s still quite a lot of catching up to do when it comes to aspects of diversity, particularly in terms of investment and the distribution of venture capital. For example, the FAZ reported about the unequal distribution of investor funds last year: Just one aspect exposed by the Female Founders Monitor 2021 is that men are 60 percent more likely than women to receive venture capital for similar business models. A possible cause of the problem: 96 percent of venture capital firms are led by men, according to the study. Improving these circumstances and ensuring equal opportunities in the distribution of investor funds is a key issue for the startup scene to work on this year.

In summary: The startup economy in Germany has proven to be robust even under the difficult conditions of the past few years, investors still trust in the innovative strength of the young companies and are investing an increasing amount of money in them. That being said, venture capital isn’t the only way to succeed: More and more founders are realizing the value of early relationships with customers, for example through a venture client model, as well as the freedom provided by bootstrapping and early self-generated revenue. Things are looking particularly promising for innovative products and services in the field of 5G, which could attract attention even from major customers – and thus achieve impressive results in a very short period of time. If founders, customers and investors also deliberately address the topic of diversity, then the starting conditions look positive for young companies in Germany – and we can expect to see even more exciting success stories in 2022.