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A growing political voice for German startups

The German startup sector pales in size and clout to the industries that traditionally steer the economy, from carmakers to steel producers. Yet what they lack for in size, startups make up for in promise.

By applying innovations to modern business practices, startups have disrupted once settled markets and helped larger, more established German firms move toward high-tech, digitized solutions. Now startups want a firmer foothold in the political conversation. But to what end?

Less than three weeks before Germany's parliamentary election, a panel discussion sponsored by Stanford University and held this week at one of Berlin's startup incubators offered a glimpse into the discussion. From reducing bureaucracy to encouraging digital education and supporting later-stage startup growth, panelists questioned how much government support was needed by a sector that, to this point, has grown with very little of it.

For Travis Todd, the co-founder and CEO of the incubator, Silicon Allee, the issue comes down to keeping Germany a more attractive base for entrepreneurs and a competitor against growing startup hubs elsewhere in Europe.

"I think that if we don't step up our game and push for more political involvement, we're going to lose talent," Todd said.

Startups are firms younger than 10 years old, built on innovative or high-tech business models and aimed at high growth, according to the German Startup Monitor, an annual report on the sector by the Federal Association of Startups. In 2016, more than 3,000 startups across Germany employed roughly 14,500 employees, according to the Monitor. Investment during the year totaled 1.1 billion euros (then about $1.2 billion).

Berlin is the sector's hub in Germany, with accelerated growth in the past few years. Major domestic and international firms like Google, Siemens and Samsung have all opened startup accelerators - platforms aimed at funding startup ideas - in the city in recent months. Success stories are visible across Germany, however, and include Bonn-based Deutsche Post DHL, which purchased electric vehicle manufacturer StreetScooter in 2014 for its own mail delivery fleet - and is now selling the vehicles worldwide.

Watch video 04:21

German startups sound the alarm

Getting around the paperwork

The dynamism that drives startups can run headlong into Germany bureaucracy, panelists said. Multiple state and federal agencies require registration and paperwork at the outset; communication is often done by paper and post; and most forms remain in German, despite an industry in which 30 percent of the employees come from abroad. Starting a business can turn into a hassle, startup advocates say; closing one down is a nightmare.

Maren Jasper-Winter, a member of Berlin's parliament from the business-friendly Free Democratic Party, said entrepreneurs should be excused from paperwork such as registration for the first year of their business.

"Business is fast, and if it's lasting a very long time, maybe you leave Berlin and go elsewhere," she said.

Or is the burden of bureaucracy overblown? Uwe Horstmann, a founding partner of venture capital firm Project A Ventures, which oversees 260 million euros in investment capital aimed at high-tech firms, argues that an entrepreneur with a strong idea isn't likely to be dissuaded by paperwork. Startups are better off pushing for more selective help from the government, such as support for more established startups, he argued.

"The good people will probably start their companies anyway," Horstmann said. "So we should really think about how can we help the very few really good companies grow fast as opposed to trying to turn everyone into an entrepreneur."

An election focused on stability

German leaders have gradually turned toward the issue of digitalization and the need to prepare an economy built heavily on manufacturing for a future of automation. Federal support for research into automation and the changes it will bring to the German labor force are part of the government's "Industry 4.0" project. A planned 100-billion-euro broadband network expansion will boost internet speeds across the country. And a minister of digitalization could be named in the next government.

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Startup companies move into bank territory

Yet digitalization has been a small part of an election focused more on stability than change. The topic barely came up during the recent debate between leading candidates Chancellor Angela Merkel, a Christian Democrat, and Social Democrat Martin Schulz, panelists noted. An emphasis on digital education remains rare in schools. Many family-owned manufacturers still look skeptically toward the startup sector, meanwhile.

"It's very, very clear to see that digitalization still has not really arrived as the central driver and change-point for our society," said Geraldine de Bastion, a political consultant who specializes in the topic.

The startup sector's political goals will therefore depend on how Germany's political and cultural attitudes toward digitalization evolve, the panel concluded. Can an established German economy force itself to change ahead of the future? Will parents, politicians and teachers recognize the importance of digital education? And can data privacy concerns and walls between data sharing be balanced with growing machine learning in industry?

Perhaps most importantly, can Germany stomach the disruption caused by growing digitalization and automation?

"This is the biggest thing for Germany," Bastion said. "I think there's hardly a country around the world that's going to be as psychologically affected by this as we are, where labor and income is detached from one another in the future, basically."

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A US startup in Berlin looks to home

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