Germany’s reputation as an engineering hub is undisputed, and its corporations invest heavily in research and development. In 2023 alone, they invested €90.4 billion in R&D, positioning the country among the world’s largest spenders on innovation, as per a recent study by Speedinvest and Bits&Pretzels.
Yet, a paradox impedes progress: over 85% of that investment remains within corporate boundaries, with limited engagement of startups in shaping the innovation ecosystem. The country’s cautious stance threatens its ability to ride the tidal wave of AI and deep tech advances.
Compared to leading U.S. tech giants that invest heavily in external innovation, Alphabet, Amazon, and Meta are directing nearly 30% of their R&D spending toward startups. At the same time, Germany’s industrial mainstays, such as Volkswagen and Bosch, confine almost 90% of their innovation spending to internal labs.
In a conversation with TFN, Ion Hauer, Principal at APEX Ventures, says: “Our market data suggests we are not at a single ‘tipping point’ but rather in a period of accelerated, sector-specific transition. The momentum is undeniable, but it’s not yet a universal, system-wide shift.
German Corporate Venture Capital (CVC) isn’t new; the nature of the investment is changing with more focus on Seed and Series A rounds, especially in deep tech areas like quantum computing, AI-driven material science, and industrial process automation.”
This divergence is reflected in investments and M&A volumes: U.S. firms spend, on average, 7.7% of their revenue on R&D, versus Germany’s 5.5%. Meanwhile, M&A deals are nearly double the size relative to GDP in the U.S.
Why pilots fail to scale
While Germany excels at piloting innovations, scaling remains elusive. Alexander Pöhler, founder of Assemblean, a manufacturer based in Paderborn, explains to TFN: “The biggest barrier is not at the beginning, but it appears after the first success. In Germany, there is a great deal of openness to testing new ideas in pilot projects. Startups are invited to present their solutions, and exciting proof-of-concepts often emerge. But as soon as it comes to integrating the innovation into the core business, things get stuck. Responsibilities are unclear, decision-making processes drag on, and the focus is on the risks.”
He adds, “Corporations, on the other hand, are geared toward security, compliance, and risk avoidance. Both have their value, but together they often result in good approaches ending up as ‘showcases,’ without any real business impact.”
Charlotte Goggin, Director at CIBC, elaborates on financial pitfalls: “Avoiding the pilot trap requires … securing budgets for scaling. The steering committee must grant conditional approval for the integration and rollout budgets, contingent on KPIs. The business unit should contribute to the budget and time.”
Robert Windesheim from Founders Fund adds: “Corporates are on edge, realising AI’s role in value capture … but traditional industries and conservative mindsets in Germany lag the U.S. Pilots fail because they’re treated like academic projects rather than business commitments. Money isn’t enough: deep cultural permission to innovate and collaborate is the real lever.”
Sebastian Heinz, CEO of HPB, a battery technology developer from Germany, points to structural and legal barriers: “The barriers are structural, not technical. Pilots are often preceded by exhaustive due diligence that demands core knowledge too early. Legal terms overload pilots with exclusivity, veto rights, and budget controls that block scaling. Financing schemes with dilution and rescue structures weaken startups. Without clear ownership and continuity, projects risk frequent changes. Innovation needs governance to secure time.”
On cultural change to unlock innovation dividends, Heinz emphasises: “Treat innovation as the only real wealth source. Use standard NDAs, milestone-based disclosures, and protect IP by default. Tie incentives to real deployments. Keep technology ownership with innovators and scale via licenses and partners.”
The path to a networked innovation ecosystem
Charlotte Goggin urges pragmatism: “The best way to avoid the pilot trap: always charge for your product. If you’re not charging, it signals that it cannot generate revenue.”
Marie Hélène Amériter of Speedinvest notes: “There is increasing corporate engagement, but the majority of AI pilots still don’t scale, indicating an early stage.”
Jessica Holzbach, founder of Pile and Penta, stresses autonomy: “I believe innovation happens when there is room for creativity. Corporates must step away from micro-management and trust startups while aligning on goals.”
Alexander Pöhler returns to mindset: “German culture demands perfection upfront, which stifles innovation. Innovation requires iterative learning and a willingness to fail. Embedding innovation in corporate DNA is key.”
Ion Hauer highlights structural enablers: “Changing KPIs and embedding innovation units like Siemens’ Next47 build networked innovation capacity. Physical proximity to startup hubs fosters cultural osmosis and drives scaling.”
The triple dividend: Innovation, growth, and resilience
Evidence from the joint report by Speedinvest and Bits & Pretzels demonstrates that corporations strategically collaborating with startups through Corporate Venture Capital and Venture Clienting achieve superior growth, profitability, and market valuation. For example, every additional year of corporate venture capital activity corresponds to an estimated 8.5% increase in price-to-sales multiples among German firms, highlighting the financial value of embracing open innovation.
The country’s path to reclaiming innovation leadership demands dismantling the fortress mentality and constructing a dynamic, partnership-driven ecosystem. Businesses that successfully merge deep internal R&D with nimble startup collaboration will best harness tomorrow’s technology waves.