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European Hardware Startup Landscape for 2019

Twenty years or so ago, while I was a young lad studying polymer engineering at MIT, it seemed that the industry involving high-volume production of innovative consumer products could be summarized as follows: 

  • Hardware start-up companies were created and financed in the USA
  • Products are manufactured in China 
  • Companies presented their products every year at the CES (Consumer Electronics Show) in Las Vegas. 

Europeans were dealing with the creation of a European community (including a unified currency and a free movement of people across countries), producing great wine and sitting down at a table to eat for 2h13min on an average a day (at least in France, according to the latest statistics). All the while, the Americans continued to take advantage of advances in manufacturing and in the electronic field. 

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(This is of course not a complete picture, but the view someone based in Europe or North America would have when involved with this industry.)

Fast forward to 2019, the data reveals that even though a lot of investment is still happening in the USA, the rate of change in investment is greater in Europe. This becomes evident when you realize that, encouraged by La French Tech association, there were more French start-ups in Las Vegas than American ones (I guess all these paper-napkin sketches drawn during two hours a day of creative brainstorming stimulated by a glass of great wine are starting to pay off!). There were also good representations of the Italian and Dutch startups for as well.  

Unsurprisingly, French startups were also present in a majority at Vivatech in Paris (another place where hardware startups have the opportunity to gather and present their innovative products). And again at the IFA in Berlin, the French hardware startups were the majority (see Figure 1 below). While one can expect the French to be present, we could have expected the IFA to be more of a display of German creativity and innovation. 

Screen Shot 2019-12-09 at 3.55.44 PMFigure 1. Pareto of the number of hardware startups present at IFA 2019

Of course, there is a political decision to position France as another "Innovation Nation". But I kept wondering why so few German hardware startups are present at these consumer hardware shows. My educated guess is that the following four causes are at play: 

  1. While all start-ups need money (and hardware start-ups need a lot of it), there are different places where this money can be found. Investors, VC funds, and government can be some places, and this requires high visibility (i.e. presence at fairs and shows). However, when one develops a product for industry (B2B), the customers can also act as a source of funds. It seems that more teams chose to develop solutions for their local manufacturing industries in Germany than in other countries. As a result, these teams do not need to increase their visibility in consumer shows. In addition, the initial customer/investor sometimes requires the exclusivity of the invention for themselves and therefore prevents the startup from advertising elsewhere. A second reason for their lack of visibility.
  2. More German teams are choosing to develop a product for an affluent, niche consumer base. Such products, because of their price position, would most likely not be produced or marketed in mass quantities. There is no need for them to increase their visibility via a stand at the CES/Vivatech/IFA. One could even argue that making the product visible at these shows would lower the feeling of "exclusivity" these brands are aiming for
  3. There seems to be a lot more German Hardware start-ups developing modules and elements to be used by other inventors in their products (i.e. specialty lidar for vehicles). These products are often developed close to research centers and universities. They enable consumer products, but are not visible to the end customer. Such companies are more of a resource to others, and are more likely to be found in trade fairs for developers and makers. Again, not at the CES/Vivatech/IFA.
  4. Exiting via an IPO is difficult in Germany. Surprisingly, less than 10% of the German population owns stock (this number actually went down in the past few years). This contrasts with about 50% of Americans and with more than 70% of the people of Sweden. This decreases the chances of a successful IPO and explains why some German companies chose to go to the Stockholm Stock Exchange for example. But this of course creates other challenges. And although most entrepreneurs start a company because they identify a problem they want to solve, the future challenges associated with going public in Germany are certainly not encouraging.

These four reasons may not be the only ones as to why less German companies are exhibiting at the CES, Vivatech and IFA, but they certainly play a significant role. They also explain why – as an expert in New Product Introduction (NPI) and in manufacturing, focused on helping teams go from prototype to mass production – I find my list of customers and leads disproportionately in France and in Great Britain. 

Do you agree? Send your comments or thoughts to help@dragoninnovation.com

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