Germany’s €90B R&D Investment Falls Short Without Startup Partnerships

Germany has invested €90.4 billion in research and development (R&D) in 2023, yet a significant portion of this funding remains isolated within corporate structures, limiting collaboration with startups. A recent study by Speedinvest and Bits&Pretzels highlights this paradox, noting that over 85% of R&D investment is retained internally by corporations. As the global landscape shifts towards advanced technologies like artificial intelligence (AI) and deep tech, this insular approach poses a risk to Germany’s competitive edge.

In contrast, leading tech companies in the United States, such as Alphabet, Amazon, and Meta, allocate nearly 30% of their R&D budgets to startups, driving external innovation. German industrial giants, including Volkswagen and Bosch, are far more conservative, with approximately 90% of their innovation spending directed towards internal laboratories. This difference in strategy raises concerns about Germany’s ability to adapt and thrive in rapidly evolving technological environments.

Challenges in Scaling Innovations

Despite Germany’s strengths in initiating innovative projects, scaling these initiatives presents a significant challenge. Alexander Pöhler, founder of Assemblean, a manufacturing firm based in Paderborn, explains that the primary obstacles arise after initial successes. While companies are open to pilot projects and experimentation, integrating these innovations into core operations becomes problematic. “Responsibilities are unclear, decision-making processes drag on, and the focus is on the risks,” Pöhler states.

The corporate culture in Germany, which prioritizes security and compliance, often results in innovative projects being reduced to mere showcases rather than actual business applications. Charlotte Goggin, Director at CIBC, emphasizes the need for securing budgets for scaling successful pilots, suggesting that the steering committee must conditionally approve integration and rollout budgets based on key performance indicators.

As startups struggle to gain traction, Robert Windesheim from Founders Fund notes that traditional industries in Germany are lagging behind their U.S. counterparts. “Pilots fail because they are treated like academic projects rather than business commitments,” Windesheim asserts. “Money isn’t enough; deep cultural permission to innovate and collaborate is the real lever.”

Transforming the Innovation Landscape

Structural and legal barriers also hinder the progress of pilot projects. Sebastian Heinz, CEO of HPB, a German battery technology developer, points out that exhaustive due diligence often precedes pilots, creating an environment that demands core knowledge too early. He advocates for a cultural shift where innovation is treated as a crucial source of wealth, recommending the use of standard non-disclosure agreements (NDAs) and milestone-based disclosures.

To truly unlock the potential of innovation, experts suggest that corporations must step away from micromanagement and allow startups the autonomy to explore creative solutions. As Jessica Holzbach, founder of Pile and Penta, puts it, “Innovation happens when there is room for creativity.”

Furthermore, Ion Hauer from APEX Ventures notes the importance of restructuring key performance indicators (KPIs) and embedding innovation units within companies. These adjustments can help foster a more integrated innovation ecosystem, enabling physical proximity to startup hubs to encourage collaboration and scaling.

The findings from the joint report by Speedinvest and Bits&Pretzels underline that corporations that strategically engage with startups through Corporate Venture Capital and Venture Clienting are likely to achieve better growth and profitability. The report suggests that every additional year of corporate venture capital activity correlates with an estimated 8.5% increase in price-to-sales multiples among German firms, underscoring the financial benefits of embracing open innovation.

Germany stands at a crossroads, with the opportunity to transform its innovation landscape by dismantling insular practices and fostering dynamic partnerships with startups. Companies that successfully integrate internal R&D with collaborative approaches will be best positioned to harness the technological advancements of the future.