Is there a bubble? It depends who you ask. Will it burst? Opinions differ. Speculative bubble posts are as common as articles saying that Berlin is over.

The data is in and Q1 is tied for the highest number of investments (54 for Q1, which is exactly the same as Q4 2015). In terms of amount invested, however, it was the lowest quarter out of the previous five. Surprisingly, this might not be cause for concern. Let’s take a deeper look in this 2016 Q1 Berlin Startup Funding Report.

The number of rounds continues to increase quarter over quarter. Q1 2016 saw exactly double the number of funding announcements of Q1 2014. The breakdown by stage has remained fairly constant. In Q1 2016, half of all rounds were seed rounds, compared with 54% in all of 2015. Series A rounds accounted for 18.5% this quarter, compared to 23.2% last year. We saw slightly more Series B rounds: 13% compared to 9% last year. Series D+ rounds dropped to 3%, though they accounted for 5.7% last year.  

While the amount of startups announcing investment continues to rise, the total amount of funding is declining. Out of the 54 startups who announced funding, 53% of them disclosed how much funding they received. This is consistent with previous quarters. The total amount raised in Q1 2016 was $222M.

So wtf is going on?

In Q1 and Q2 of 2015, the majority went to food-related startups. For instance, in Q1 last year, Rocket paid $309M for new Delivery Hero shares, and another $259M for a stake sold by existing investors. That same quarter HelloFresh, another Rocket Internet company, raised a $126M round. In Q2, Delivery Hero saw another $100+M round, as did FoodPanda. This year we are not seeing similar mega-rounds. This is consistent with global trends. As valuations are slashed by mutual funds, investors are finally starting to come to terms with the fact that these valuations might just be… bullshit.

Also, each mega-round last year involved Rocket Internet, which has its own troubles with several large investment in negative territory. In December, they posted an operating loss of €1B, €400M more than the previous year, while revenue rose nearly 70% to €2.4B over the same period. Chief Executive Oliver Samwer vowed to limit losses, pointing to large cash reserves and better conditions ahead, but their stock continues to slide.

When it comes to the size of seed rounds, the average amount raised is on the rise. In 2015 the average seed round was $1.06M, and in Q1 2016 the average went up to $1.48M. Average Series A took a slight dip from $6.52M to 4.71M, average Series B went up, and there wasn’t enough data to make an accurate comparison when it came to Series C and D, as there were only two companies that announced those funding rounds, respectively.

Top Ten Funding Rounds

Rocket Internet’s Spotcap, an online credit lending platform for small businesses, announced a $34.4M Series B round. It was led by Finstar Financial Group from Russia, in participation with existing investor Holtzbrinck Ventures.

Rocket Internet’s Lamudi, the real estate classifieds in emerging markets, raised an $18M round from Rocket’s usual suspects: Asia Pacific Internet Group, Holtzbrinck Ventures and Tengelmann Ventures.

Movinga, another moving startup secured a $25M Series B funding. Led by Index Ventures,  previous investors including Earlybird VC, Heilemann Ventures, and Global Founders Capital participated.

Rocket Internet’s Home24 announced a $22.8M addition to their Series D round. The round consists of funding from new and previous investors, but further details were not disclosed.

Marley Spoon, the cook-at-home food delivery service closed a $17M Series B round. The round comes from new investors including QD Ventures, Kreos Capital, and existing investors, including Lakestar.

Friendsurance, the peer to peer Insurtech platform, closed a $15.3M Series B round. The round was led by Hong Kong-based Horizons Ventures.

Payleven, a fintech startup similar to Square, announced a $10M Series D round from a new investor, Seventure Partners, and several existing investors including Holtzbrinck Ventures, ru-Net, B Cinque, New Enterprise Associates (NEA) and MePay.

Mambu, a SaaS banking platform, raised an $8.6M Series B round  led by Acton Capital Partners and CommerzVentures, with participation from existing investors.

Watchmaster, a platform for secondhand luxury watches raised an $8M Series B round. Cherry Ventures led the round with participation from other investors including Piton Capital. Angel investors Robert Gentz and David Schneider also joined this round.

B2B travel startup, Distribusion Technologies raised a $6.77M Series A round from Northzone, Creandum, HR Ventures and returning investor Frühphasenfonds Brandenburg.

What is up with SoundCloud?

Startup darling SoundCloud is having a roller coaster of a year. The $222M that they raised in Q1 does not include a debt round of $35M, which was reported in Q1 2016. First, I do not think debt funding should count in a report about the state of venture capital, and second, the debt round actually took place in 2015. I’ve included it in the total number of rounds, but left it out  when reviewing the sheer volume of money invested here. Their ups and downs have included numerous layoffs, rumors of a sale to Twitter, the aforementioned round of debt financing, a landmark deal with Universal, and the announcement of a $44M loss. The latest news seems more promising. Earlier this week SoundCloud announced a licensing deal with Sony, and previously announced the hiring of Alison Moore as its chief revenue officer. Fingers crossed that she gets things under control.

Funding Trends That Should End

Food delivery services. Just fucking stop. Oddly, Berlin VCs don’t agree with me. Marley Spoon and Gegessenwirdimmer.de, another artisanal food delivery site, announced rounds this quarter. In fact, well-respected serial entrepreneur Christophe Maire decided to put all of the startups he has invested in into one holding: The Atlantic Food Labs. Maire started the holding in July of last year, but Gruenderszene reported on it in Q1 of this year.

Berlinspiration

While we are still seeing investments in non-disruptive industries like food or moving, Q1 showed a greater diversity among companies securing funding. Software and ecommerce companies still dominate, naturally, but Fintech, Medtech, Hardware, and Mobility startups are seeing more action.

Among the recent trends that I find the most exciting:

• VR:  Berliners, famous for creativity, are claiming territory in the burgeoning VR landscape.  Metaphysics VR, which focuses on VR for fine art, raised a small seed round. Another Berlin-based VR startup, Splash captures a 360 degree videos on your mobile in seconds, and enables you to share it to any social network & view it in VR. Last quarter, they pitched and won at the SXSW accelerator.

• Chinese VC’s: I’ve previously written about the influx of American VCs, but this quarter, I spotted two investments led by Chinese firms. Medigo announced a $3.5M round led by CL Ventures, a prominent venture capital firm in China. Horizons Ventures, a private investment arm of Hong Kong business magnate Li Ka-Shing, pumped $15 million into its second investment round in German insurance technology startup Friendsurance. It will be interesting to see how investors from Asia engage with the Berlin ecosystem. 

Don’t Panic

The investment landscape is changing, but that is not an automatic cause for alarm. VCs are raising more money than ever before, both in the US and Europe (more on that next week). Investors seek sustainable startups with a clear path to revenue, which Berlin founders have always emphasized more than their American counterparts. Berlin is still capturing interest from VCs around the globe and a broad array of new startups are still being funded. Even without mega-rounds from Rocket, the Berlin ecosystem is strong and continually discovering new strengths.

I’m back with my Berlin Startup Funding Q3 Report, and I’m super excited to debut a new report format! I partnered with the wonderful Videopath team to create the above interactive video. If you are looking to improve your engagement and up the ante on content marketing – check them out.

In Q3, 40 startups announced funding rounds and only half disclosed actual numbers. Total funding was significantly lower than the previous two quarters at $232M raised, compared to $461M in Q2 and a staggering $869M in Q1.

The primary reason is a single mega-round (HelloFresh) rather than the multiple mega-rounds of previous quarters. Investment by funding stages has remained consistent. 52% of Q3 funding rounds were seed rounds, in line with 48% for Q1 and 53% in Q2.  This trend differs from the pattern in the rest of the world, where seed funding deals have steadily declined. The average seed round amount has also remained constant. In Q1/Q2 the average Berlin seed round was $1M  and in Q3 we saw that number increase slightly.

Series A deals have held steady over the last three quarters, at 25% of total funding, but the average amount declined. In Q1/Q2 of this year, the average Series A round was $10.8M. This quarter, 70% of startups that reported raising a Series A round disclosed a figure, for an average of $6.5M. Later stage deals declined in both Q2 and Q3, as have average later stage funding amounts. The average D+ size round in Q1 and Q2 was $132M, whereas in Q3 we only saw one D+ round for $84.7M.

There are two other rounds worth noting that I did not include. In early July, Bloomberg reported that Berlin-based Auto1Group raised a $100M round earlier in the year, for a $1B valuation. This will be included in my 2015 year-end report, but was not cited in the Q3 numbers, since the round took place in the previous quarter. Zencap, a fintech company, announced that Victoria Park Capital will invest up to €230M in loans originated by Zencap over a three year period under an exclusive agreement. This figure was also left out since it is a partnership, rather than a traditional investment, but kudos to Zencap. Following this announcement, Zencap was acquired by Funding Circle in October.

Top Funding Rounds

The only startup to raise a mega-round was Rocket Internet’s HelloFresh which reported a $84.7M Series F round in September in preparation for their IPO. At the end of October HelloFresh announced plans to go public on the Frankfurt Stock Exchange. A week later, the IPO was pulled. The Financial Times cited investor scepticism over the company’s €2.6B valuation. For an in-depth look at HelloFresh’s operating metrics, check out this post.

SavingGlobal, the fintech company, raised at $22M Series B round led led by Palo Alto-based Ribbit Capital and London’s Index Ventures.

Babbel, the language learning app, announced a $22M Series C round led by Scottish Equity Partners (SEP) and supported by existing investors Reed Elsevier Ventures, Nokia Growth Partners (NGP), and VC Fonds Technology Berlin managed by IBB Bet.

Lesara, an ecommerce company raised a $16.73M Series B round led by Northzone. Vorwerk Ventures is on board as co-investor, while existing investor Mangrove Capital also participated in this round.

Moviepilot, an entertainment-focused website built around reader contributions, announced a $16M Series B round led by French publishing group Webedia.

Vaniday, Rocket Internet’s beauty e-commerce company, raised a $15.97M Series A from Rocket and others.

GoButler, an SMS concierge service, raised a $8M Series A round led byGeneral Catalyst Partners. Lakestar, Rocket Internet’s Global Founders Capital, Slow Ventures, BoxGroup, Ashton Kutcher and Guy Oseary’s Sound Ventures, and Cherry Ventures also joined.  *A note about GoButler – company was started in Berlin by former Rocket guys. According to their website they have offices in Berlin and NY. They are listed in Crunchbase as NY, but I included them.

Conichi, a travel startup, secured a $7.9M seed round from Hotel portal HRS.

HomeToGo, a travel ecommerce company, raised a $6.7M Series A led by DN Capital, and Acton Capital Partners.

Zeotap, the self described world’s most trusted platform for actionable premium data from telecom operators, announced a $6.4M Series A from Capnamic Ventures, Iris Capital, and angels.

Other rounds that did not make the list due to withholding the actual amount include Book A Tiger, the cleaning service. They announced a seven-digit round from current investor Avala Capital. Ekomi, the feedback company, announced an undisclosed investment from Goldman Sachs prompting IPO speculation. Goldman has also invested in FoodPanda and Mister Spex this year.

Now for the fun stuff… Other standouts included a seed round for UnderCovers, an app for couples who like to try out new things in bed. Crowd favorite, Dubsmash, the messaging and lip syncing app made popular by Jimmy Fallon raised a $5.5M Series A led by Index Ventures. Other investors to join the round include Lowercase Capital, ENIAC Ventures, Sunstone Capital, Raine Ventures and King Digital Entertainment CEO Riccardo Zacconi.

Exciting VC News

In Q3, several VCs, including a few Berlin based firms, also made fundraising announcements.

Gruenderszene reported in July that Earlybird Capital announced plans to raise a sixth round of at least €150M.

WirtschaftsWoche reported that Rocket Internet has plans to raise a $1.1B round for late-stage startups creatively called the Rocket Internet Growth Fund.

Q3 also saw interesting international investments. Fred Wilson of Union Square Ventures published a blog post about European Startups. He notes that over the last six years, roughly 25% of Union Square Ventures investments have been in Europe, but this year his team has made nine investments to date (a few have not yet been announced) and four of them have been in Europe (45%).

Despite the lackluster quarter in terms of sheer numbers, 2015 has been an insanely good year. We have less than one month left of Q4, but the figures already look promising. Thus far, we have Get Your Guide with 50M in a Series C round, Adjust with a Series D of 17M, Reyaler and Nestpick raising a $11M series A, respectively, and crowd fav Clue picking up a $7M Series A round.
For more about which startups raised rounds in Q3 and a look ahead (as we are two months into Q4), check out the video above.

At the end of Q2 Berlin startups reported over $460M USD in funding, bringing the total capital raised in the first half of the year to $1.33B, easily surpassing the $1.1B raised in 2014.

For comparison, 2014 investment was 140% over 2013, and the numbers just keep growing. This has cemented Berlin’s status as a top tech hub outside of the US. In fact, during Q1, Berlin outraised London by $184M. I have not yet seen a London Q2 funding analysis.

In the last quarter, we saw slightly fewer reported rounds than Q1 (43 vs 49), and slightly smaller rounds across seed and venture deals, though still significantly higher totals than 2014. On the other hand, Q2 also brought interesting international investors, plus a highly publicized acquisition of 6wunderkinder, an IPO announcement, and a great deal of future IPO speculation. Let’s recap the highlights of Q2 Berlin startup funding and look at companies to watch during the second half of the year:

Q2 Berlin Funding Roundup

As in previous quarters, Ecommerce (37%), followed by software startups (18.6%), are receiving the most funding. Fintech, which I predicted would grow this year, accounted for 11% of all investments, as did Mobile. Edtech and Green/Energy companies accounts for 4.7% each. We saw one investment in biotech and one in gaming.

Average funding for Q2 2015, dropped slightly (less mega-rounds than in Q1) but 2015 average funding for every size of round continues to be higher than 2014, with the exception of seed rounds which are neck and neck at about $1M.

The ten startups that raised the most funding in Q2 include some of the usual suspects: Home24, Rocket Internet’s answer to Ikea, announced Series D funding of $131M. UK investment firm Baillie Gifford led the round with an investment of $98.5M, securing about 9.55% of the shares in Home24. $32.8M were invested by existing shareholders including Rocket Internet SE.

In June, Delivery Hero announced a $110M investment from pre-IPO investors which valued the company at $3.1B. I wrote about this extensively, and why they should IPO in the US on TechCrunch last month.

Foodpanda, Rocket Internet’s food delivery marketplace, announced a $100M funding round  led by Goldman Sachs. Existing investors, including Rocket Internet, also participated. Foodpanda has raised over $310M since its launch in 2012.

Lendico, Rocket Internet’s P2P Lending Service, raised $21.9M from Rocket Internet, Access Industries, HV Holtzbrinck Ventures and a new investor.

Berlin’s photo marketplace EyeEm announced an $18M investment led by Thiel’s New York-based Valar Ventures. EyeEm’s previous investors Earlybird Ventures, Passion Capital, Wellington Partners, Atlantic Labs and Open Ocean Capital, also participated in the round.

Smava, a peer-to-peer lending platform, raised $16M led by Phenomen Ventures, along with current investors Earlybird and Neuhaus Partners.

Atheneum Partners reported a $10.8M round led by Vogel Business Media, who paid approximately $7M for one-third of the company. They were joined by Jens Odewald who acquired  2% of the outstanding shares.

Number26, the third Fintech company to make the top ten list this quarter raised a $10.6M Series A round led by Peter Thiel’s Valar Ventures, Swiss entrepreneur Daniel S. Aegerter, and previous investors Earlybird and Redalpine.

Omeicos Therapeutics, a biopharmaceutical company developing first-in-class small molecule therapeutics, announced a $6.57M Series A round. Participating in the round were Vesalius Biocapital, VC Fonds Technologie Berlin, Hightech Gruenderfonds, and KfW Group.

Thermondo, which sells heaters and has developed software that displays every step in the installation process, announced a $6.4M Series B round. Rocket Internet and Holtzbrinck Venture are joining as new investors, together with previous investors Grey Crop, IBB Beteiligungsgesellschaft, and the power company E.ON.

US Investors of Interest

With higher rounds, we are seeing more American investors entering the Berlin startup scene.

I’m most excited about the interest from Peter Thiel and Goldman Sachs. If you’ve read this blog before, you know that I cite Mr. Thiel’s talks in Berlin as insightful observations of our ecosystem needs. In 2013, he shared that Berlin needed some big exits to establish itself as viable on the international stage. A year later Rocket and Zalando lived up to that prediction by successfully going public on the Frankfurt Stock Exchange. In 2014, on a book tour, he told the Financial Times  that investors prefer to invest in London companies because people “just work harder . . . They just work less hard in Berlin.” Europe, he said, was a “slacker with low expectations”. Thiel has invested in two London startups (Transferwise and Deepmind) and  appears to have changed his mind about underachieving Berlin. In Q2, his Valar Ventures invested $10M into EyeEm’s $18M round and led a $10.6M investment round for Berlin’s Number26.

Goldman Sachs has been heavily investing in startups for years. Between 2009 and 2013, Goldman participated in 63 disclosed investment deals worth nearly $4B, Inc.com reports. Goldman Sachs is interesting for Berlin because the bank prefers late-stage (large) investments, which everyone can agree are difficult to find here. So far this year, Goldman Sachs led a $40M funding round for Mister Spex and also FoodPanda’s $110M round in Q2. These higher, later stage rounds just might be a game changer for the Berlin ecosystem. I look forward to reporting still more Berlin investments from them in future posts.

The Acquisition of 6Wunderkinder

While there were several acquisitions in Q2, Microsoft’s purchase of 6Wunderkinder was definitely the most exciting from a press standpoint. The Wall Street Journal reported the deal in the range between $100M and $200M.

Why is this one so special? This is neither the largest nor the most surprising acquisition we’ve seen. Several recent exits hovered in the hundreds of millions of dollars territory, including Sociomantic’s $200M exit to dunnhumby Ltd. and Quandoo’s $219M acquisition by Japan’s Recruit Holdings. 6Wunderkinder was one of the first Berlin startups to attract US press, talent, and investor attention. It was Sequoia Capital’s first (and as far as I know only) Berlin investment, and was picked up by the NYT, the WSJ, and Bloomberg. They acquisition helps to discredit Thiel’s slacker portrayal of Berlin and install our city on the radar of even more serious international players.

Other acquisitions worth noting include ProSiebenSat.1’s purchase of Adtech startup RapidApe and Rocket Internet’s acquisition of Classpass clone Somuchmore. The terms of both deals remain undisclosed.

An Announced IPO and then a No Go

One positive effect of finishing this quarter’s report a bit late: Yesterday, Berlin’s sole pending startup IPO was cancelled.

In June, German Startups Group began pre-marketing a $79M Frankfurt Entry Standard IPO. The main comparison was Rocket Internet, although German Startups is considerably smaller. The company aimed for $79M in primary proceeds, which would be used to purchase equity in start-ups. There was a greenshoe provision, size yet to be decided, which will be a combination of primary and secondary from shareholders. The deal is Reg S and was expected to follow a two-plus-two schedule, with the lack of a US roadshow offering greater flexibility for accelerating. A two-plus-two approach would have put the beginning of roadshows at around July 1 and pricing at around July 15.

Reuters reports that GSG places the blame on market volatility. “In light of this environment, the management sees no chance of listing the company on the stock exchange at a fair price and generating the desired oversubscription.”

Stay tuned for an entire post on the topic tomorrow.

Where to Watch in Q3

In addition to Delivery Hero’s announcement of a pre-IPO round, Bloomberg reported that HelloFresh, a food delivery startup backed by Rocket Internet SE and Insight Venture Partners, is considering an initial public offering this year.

Investments, companies, funders, volatility. All are growing including the forecast for even bigger deals and strong investment winds blowing toward the other side of the Atlantic.

We’ve already set records in the first half of the year. Look for the next two quarters to quicken the pace.