A wave of uncertainty: Startup insolvencies in Germany in 2024 and the challenges for 2025 – Image: Xpert.Digital
Innovation brake: The dramatic consequences of bankruptcies in the startup sector
The year 2024 marks a turning point in the German economic landscape, particularly for young and innovative companies. A worrying increase in insolvencies has become evident, hitting the startup sector especially hard. The number of young companies that had to file for insolvency this year reached a new alarming high of 336 cases. This figure exceeds the already concerning figure from the previous year by a significant 17 percent and is a full 85 percent higher than the 2022 level. This development is not merely an abstract statistical figure, but is manifested in concrete cases that are attracting public attention. Names like the ambitious charging station provider Numbat and the forward-looking air taxi developer Volocopter exemplify the failure of promising business models under the current economic conditions. Their fate illustrates the fragility that even innovative and future-oriented companies face when economic headwinds become too strong.
The current wave of bankruptcies is not an isolated event that can be viewed in isolation. Rather, it is a symptom of deeper problems and the result of a complex interplay of various economic factors that have intensified in recent months and years.
The multifaceted causes of the wave of bankruptcies
The reasons for this worrying trend are multifaceted and intertwined. It is not a single cause, but rather a combination of factors that reinforce each other and increasingly complicate the economic situation for many companies.
A key factor is the persistently high interest rates. The European Central Bank (ECB) has been gradually raising key interest rates in its fight against inflation. This measure, aimed at curbing price increases, has significant consequences for businesses. Higher interest rates considerably increase the cost of borrowing. This affects not only investments in new projects and expansions but also the refinancing of existing loans. Young companies and startups, in particular, which often rely on debt financing, are under pressure. The higher financing costs reduce their margins and make it more difficult for them to operate profitably. For established companies, higher interest rates mean that planned investments may have to be postponed or even canceled, which in turn impairs the growth potential of the entire economy.
Added to this is the general economic weakness. Global economic growth has slowed, and Germany, as a strongly export-oriented nation, is also feeling the effects. Declining demand from abroad, geopolitical uncertainties, and trade conflicts are weighing on the German economy. These macroeconomic factors are creating a difficult environment for companies, as they are receiving fewer orders and finding it harder to sell their products and services. Furthermore, uncertainty about future economic developments is leading to a reluctance to invest and consume, which is exacerbating the situation.
Consumer restraint is another important factor. Faced with high inflation and rising energy prices, many consumers are uncertain and holding onto their money. They are limiting their spending on non-essential goods and services, which directly impacts the sales of many businesses, particularly in retail and hospitality. This reluctance to spend intensifies the downward pressure on the economy and contributes to the strained financial situation of many companies.
A specific problem that particularly affects startups is the difficulty in securing follow-on funding. Many young companies rely on venture capital in their early stages to finance their growth. However, in an uncertain economic environment, investors have become more cautious and are hesitant to make new investments. For startups, this means that funding for the next growth phase is at risk. If follow-on funding fails to materialize, even promising business models can become unstable and may be forced to file for bankruptcy. The dependence on external capital and the volatility of the investment climate thus pose a significant challenge for the startup scene.
The drastically increased costs for energy and labor should not be underestimated. Energy prices have risen sharply in recent years, particularly due to the war in Ukraine. This puts a strain on energy-intensive industries and increases production costs for many companies. At the same time, there is a shortage of skilled workers in many sectors, leading to rising wages and salaries. These increased personnel costs further erode company margins. The combination of high energy and labor costs puts many companies, especially those with low profit margins, under enormous pressure.
The bleak outlook for 2025
The current situation is already worrying, and forecasts for the coming year indicate no imminent improvement. Experts warn of a further worsening of the situation and expect a continued rise in the number of bankruptcies.
Creditreform, a credit rating agency, predicts a further increase in corporate insolvencies for 2025. This assessment is based on an analysis of current economic trends and the expectation that the aforementioned risk factors will persist into the coming year.
The credit agency Crif is even more specific, predicting up to 26,000 insolvencies in 2025. This would represent a considerable increase of 16.3 percent compared to the already high level of 2024. This figure illustrates the extent of the crisis and the challenges facing the German economy.
Insolvency researchers are even warning of a possible approach to the peak levels of 2009 and 2010, when over 32,000 companies went bankrupt as a result of the global financial crisis. This grim forecast underscores the seriousness of the situation and the need to combat the causes of the wave of insolvencies and implement targeted measures to support businesses. Should these fears materialize, Germany would be facing one of the largest waves of insolvencies since World War II.
Affected industries and the far-reaching consequences
The wave of bankruptcies is affecting all sectors, but some are being hit particularly hard. The heterogeneity of the affected industries shows that this is a problem for society as a whole and not just an isolated phenomenon in individual economic sectors.
The construction industry is particularly hard hit. Increased material costs, especially for steel, wood, and insulation, coupled with high interest rates on construction loans, are putting the sector under immense pressure. Numerous construction projects are being postponed or canceled, leading to a lack of orders and, consequently, bankruptcies among construction companies and suppliers. The situation is further exacerbated by the shortage of skilled workers, which is driving up labor costs.
Retailers are also suffering from consumer restraint and increased operating costs. Brick-and-mortar stores, in particular, are under pressure as more and more customers shop online. Competition from online retailers and the need to adapt to changing consumer habits pose significant challenges for many businesses.
Business-related services are also heavily affected by the wave of insolvencies. These include, for example, advertising agencies, consulting firms, and IT service providers. When companies run into financial difficulties, they often cut back on these services first, leading to a decline in orders and subsequently to insolvencies in this sector.
The manufacturing sector is also experiencing a significant increase in insolvencies. High energy prices, rising raw material costs, and declining foreign demand are putting a strain on many industrial companies. Energy-intensive sectors such as the chemical and metal industries are particularly affected. The need to invest in new technologies and more environmentally friendly production methods is further exacerbating the financial situation of many companies.
The startup scene is suffering particularly from the difficult financing situation. As already mentioned, young companies are heavily reliant on venture capital. Investor reluctance and the increasingly difficult conditions for follow-on financing mean that many startups no longer have sufficient funds to further develop their business models and grow. The high number of startup insolvencies in 2024 is a warning sign for Germany as a hub of innovation.
The effects of the wave of bankruptcies are severe and extend far beyond the companies affected
The estimated damage for 2024 amounts to an immense 56 billion euros. This sum includes not only the direct losses of creditors, but also the indirect costs resulting from job losses and disruptions to economic cycles.
Around 320,000 jobs were affected by or at risk of insolvency in 2024. The loss of jobs not only has serious consequences for the affected employees and their families, but also puts a strain on social security systems and the regional economy. Furthermore, the fear of job loss can further dampen consumer spending and thus exacerbate the economic situation.
The current wave of insolvencies ruthlessly exposes the structural weaknesses of the German economy. Dependence on fossil fuels, the shortage of skilled workers, bureaucracy, and sluggish digitalization are just some of the challenges that are hindering Germany's competitiveness. This wave of insolvencies is therefore also a wake-up call to address these structural problems and improve the framework conditions for businesses.
Strategies in times of crisis: How companies can prepare themselves
Given the uncertain economic situation, companies, especially startups, must rethink their strategies and prepare for a challenging business environment. It is essential to strengthen the resilience of their business models and proactively implement measures to manage the crisis as effectively as possible.
Strict cost control is essential at this stage. Companies must carefully examine their expenditures and reduce unnecessary costs. This can be achieved, for example, by optimizing processes, reducing travel expenses, or renegotiating contracts with suppliers.
Securing liquidity is the top priority. Companies should optimize their receivables management to collect payments quickly. Reviewing inventory levels and reducing capital tied up in stock can also contribute to securing liquidity. Early exploration of financing alternatives and maintaining relationships with banks and investors are equally crucial.
Adapting the business model may be necessary in some cases to respond to changing market conditions. This could mean, for example, developing new business areas, creating new products and services, or focusing on more profitable segments. Innovation and flexibility are of great importance in times of crisis.
Customer relationship management is more important than ever. In a challenging market environment, it is crucial to retain existing customers and strengthen their loyalty. Good customer service and close communication can help increase customer retention.
Employee motivation and retention also play a crucial role. Especially in times of crisis, it is important to have a strong team that works together to overcome challenges. Open communication and involving employees in decision-making can help strengthen their commitment.
The way out of the crisis: Necessary measures and long-term perspectives
Without significant improvements in the economic environment and targeted support measures, a turnaround in the near future is unlikely. A package of measures at various levels is needed to put the German economy back on a stable growth path and to stem the wave of bankruptcies.
The ECB's monetary policy plays a crucial role. A moderate adjustment of interest rate policy could help relieve pressure on companies without neglecting the fight against inflation. The challenge lies in finding a balance between curbing inflation and supporting the economy.
The federal government's fiscal policy is also called upon to act. Targeted relief measures for companies, such as tax breaks or subsidy programs, could help reduce the financial burden and stimulate investment. Investments in future-oriented sectors like renewable energies and digitalization are also crucial to securing Germany's long-term competitiveness.
Bureaucracy must be reduced to relieve the burden on businesses and improve the conditions for starting a business. Complex approval processes and excessive regulations stifle innovation and create unnecessary costs. A leaner administration and simpler processes could increase Germany's attractiveness as a business location.
Promoting innovation and research is essential to securing the long-term competitiveness of the German economy. Investments in new technologies and support for research institutions are crucial for creating future-proof jobs and unlocking new growth potential.
Strengthening the European single market and reducing trade barriers could help improve the export opportunities for German companies and reduce their dependence on individual markets. Closer cooperation within the European Union is more important than ever in these challenging times.
The current wave of insolvencies is a clear signal that the German economy is facing major challenges. Joint efforts by politics, business, and society are needed to combat the root causes of the crisis and pave the way for a sustainable and resilient economy. Overcoming these challenges will be crucial for Germany's future prosperity.
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