Economic potential of innovative start-ups by migrants in Germany

The fourth Migration Zoom Time, a digital version of the successful Migration Lunch Time event format, brought together a broad range of participants from the federal administration, politics, associations, civil society, media, academia, founders and the start-up community to discuss how the great potential of innovative start-ups by migrants can be better leveraged.

Dr. Susann Schäfer from the Institute of Geography at the Friedrich Schiller University in Jena presented challenges for innovative founders with migration experience based on the study ”Innovative Gründer:innen mit Migrationserfahrung in Deutschland” published in May. She also showed policy options to bring this resource to bear even better. Dr. Oliver Koppel, Senior Economist for Innovations and MINT, German Economic Institute, presented options to develop the study further based on the publication ”Migration hält Deutschlands stotternden Innovationsmotor am Laufen”. Then, Dr. Alexander Hirschfeld, Team Leader Research, German Start-ups Association, contributed his perspective. In doing so, he drew on the ”Migrant Founders Monitor”. As the third commentator, Sachiko Kayama, founder of tech start-up KARO Labs, shared her experience as a non-German founder in Germany. Afterwards, the discussion was opened to the entire group of participants.

Important results of the discussion were the following:

There are different approaches for the empirical recording of migrant founders. The study ”Innovative Gründer:innen mit Migrationserfahrung in Deutschland” defines the target group as persons with foreign citizenship who have founded a company that conducts research and development. Only three percent of innovative companies in Germany have a foreign (co-)founder, while their share of all start-ups is 17 percent. However, according to some estimates, this narrow focus underestimates the potential of innovative start-ups by migrants, as many also hold German citizenship. An alternative approach is to look at patent applications filed by people with a name from another language area, as the study ”Migration hält Deutschlands stotternden Innovationsmotor am Laufen” does. According to this study, the share of inventors with foreign roots residing in Germany in all patents developed in Germany rose steadily from 3.8 to 11.2 percent between 1994 and 2018. Another way to analyze the target group is chosen by the ”Migrant Founders Monitor”, which records first- and second-generation migrants through a survey. The survey results show that their share of all start-ups is 20 percent (whereas their share of all workers is 25 percent).

Migrant entrepreneurs are a heterogeneous group of people with different needs. Therefore, it is important to differentiate the target group in order to be able to specifically address the different groups of people at the level of policy-measures. The challenges in the start-up process are different for each subgroup. A distinction must be made between:

• Migrants who have grown up here. They generally have no problems with the German language, but may still experience discrimination.
• Foreign students in Germany. They are a group with a high affinity for start-ups, especially students in the natural sciences. To benefit from this potential, care must be taken to ensure that study and teaching capacities in STEM subjects are not reduced, but rather expanded.
• People who want to immigrate to Germany in order to start up a business here. Germany must offer attractive start-up ecosystems for this group, as many of them would otherwise start their business in other countries.

The (implicit) requirement of German language skills and often unclear bureaucratic structures pose challenges for many foreign founders. In addition, there is still room for improvement in establishing a so-called welcome culture in Germany. This is because prejudices or even discrimination as well as risk-averse financing structures, which tend to support German founders and products for the German market, stand in the way of successful foreign start-ups. In addition, Germany has deficits in terms of attractiveness in an international comparison, as it does not have a consistently good reputation as an immigration- and start-up-friendly country and the German-speaking market is significantly smaller than the English-speaking market.

On the one hand, the residence permit for foreign graduates of German universities is an important factor that enables potential founders to stay in Germany for one and a half years and to pursue their start-up idea. On the other hand, there are also obstacles posed by the German foreigners law that hinder the start-up activities of foreigners. For example, self-employed persons cannot benefit from the so-called accelerated procedure. This is provided by the Skilled Workers Immigration Act, e.g. for skilled workers with a university degree or vocational training who have a concrete job offer. There are also no special entry regulations for start-ups and innovative companies, as is the case in other countries such as the UK, France and the Netherlands. Due to the high complexity of the German foreigners law, it would be advisable for foreign founders to obtain legal advice from specialized advisory centers. In practice, it also happens that foreign founders are excluded from funding programs, because their residence permit does not have the required period of validity. For this reason, there are already projects that offer foreign founders employment that allows them to pursue their business idea.

To attract (innovative) founders from abroad, German start-up ecosystems must be attractive. Otherwise, there is a risk that these high-potential entrepreneurs will set up their companies in another country. In order to increase the attractiveness of Germany as a start-up location, inclusive funding and financing structures are a key necessity. Another factor is resolving the conflict between complex bureaucracy on the one hand and the dynamic world of start-ups, where decisions have to be made quickly, on the other. Digital structures and forms would help with this. In addition, the achievements of migrant founders need to be made more visible, e.g. by highlighting role models. Furthermore, there must be work opportunities for family members who move in with them and support for everyday tasks, such as finding a school. A concrete idea for increasing Germany's attractiveness would be that the business plan to be submitted by foreign founders to the relevant foreigners authority, which is checked by the local chamber of commerce and industry, can also be written in English. Moreover, the English business plans could be reviewed by a nationwide committee. This would ensure equal criteria and more fairness in the evaluation of business plans. Furthermore, consulting and support structures should be expanded and target group-oriented networking should be made possible. In this context, offers should also be created specifically for foreign female founders.

Video and presentation are only available in German.