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Center for Entrepreneurial Studies EUROPEAN BUSINESS SCHOOL Oestrich-Winkel, February 2001

C URRENT E MPLOYMENT AND A DDITIONAL D EMAND WITH I NTERNET /E-C OMMERCE S TARTUPS IN G ERMANY Presentation Material Accompanying the Discussion Paper. Center for Entrepreneurial Studies EUROPEAN BUSINESS SCHOOL Oestrich-Winkel, February 2001. KEY RESULTS OF THIS STUDY.

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Center for Entrepreneurial Studies EUROPEAN BUSINESS SCHOOL Oestrich-Winkel, February 2001

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  1. CURRENT EMPLOYMENT AND ADDITIONAL DEMAND WITH INTERNET/E-COMMERCE STARTUPS IN GERMANYPresentation MaterialAccompanying the Discussion Paper Center for Entrepreneurial Studies EUROPEAN BUSINESS SCHOOL Oestrich-Winkel, February 2001

  2. KEY RESULTS OF THIS STUDY • 1. Internet/E-Commerce startups in Germany currently occupy about 180-200,000 permanent and 60-70,000 non-permanent employees • 2. To meet their ambitious growth targets, startups plan to recruit an additional 100,000 permanent employees in 2001 • 3. Currently, the labour market does not meet the demand for talent. The potential for employment will therefore not be fully utilized. Further emphasis needs to be placed on training and education programmes • 4. The 2,000 startups financed by risk capital carry an increased risk of failure, due to a higher share of innovative business concepts and the currently unfavourable capital market environment • 5. With continuing market growth, employment at startups and further demand for talent can be seen as secure, even with higher expected rates of failure • Even in a "worst case" szenario(1) an additional 25,000 employees would be needed (1) Assumptions: No new companies are founded. 20% of risk capital funded startups and 10% of other companies are failing in 2001.The remaining companies realize only half of the planned growth. Established companies are not recruiting employees set free by failing startups.

  3. CURRENT EMPLOYMENT AND ADDITIONAL DEMAND FOR TALENTInternet/E-Commerce Startups in Germany Not risk capital funded Risk capitalfunded(1) Total Share of RC funded Active startups 12,850 2,000 14,850 13.5% Company founders 22,800 MA 5,200 MA 28,000 MA 18.6% Permanent employees in Germany 89,600 MA 61,200 MA 150,800 MA 40.6% Permanent employees abroad 7,500 MA 21,250 MA 28,750 MA 73.9% Non-permanent employees 53,050 MA 13,800 MA 66,850 MA 20.6% Additional demand in 2001 (recruiting target) 43,700 MA 57,000 MA 100,700 MA 56.6% Permanent employees with estab-lished firms & foreign companies - - 88,400 MA - (1) Funded by venture capital firms, business angels and strategic investors Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses, own estimates and projections

  4. AVERAGE EMPLOYMENT PER STARTUPInternet/E-Commerce Startups in Germany Not risk capital funded Risk capitalfunded(1) Total Relation to RC funded Founders 1.9 3.1 2.1 1 : 1.6 Permanent employees in Germany 5.5 MA 27.8 MA 10.2 MA 1 : 5.1 Permanent employees abroad 8.7 MA 25.6 MA 19.8 MA 1 : 2.9 Share of companies with activites abroad 6.7% 41.5% 11.4% 1 : 6.2 Non-permanent employees 4.1 MA 6.9 MA 4.7 MA 1 : 1.7 Additional demand in 2001 (recruiting target) 4.4 MA 21.6 MA 6.8 MA 1 : 4.9 (1) Funded by venture capital firms, business angels and strategic investors Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses, own estimates and projections

  5. CONTENT • Founders and founder teams • Current employment in the segment • Additional demand for talent in 2001 • Sources for recruiting • Spatial structures • Appendix: Definitions and background

  6. FOUNDERS AND FOUNDER TEAMSKey Results of the Analysis • Internet/E-Commerce startups are mostly founded by teams • Only 41% were established by single founders • Large teams can consist of 10 or more founders, on average the number is 2.1 founders per venture • Main driver for team size is the new venture's growth orientation • 3.1 founders for risk capital funded startups(1) versus 1.9 for startups not funded with risk capital • Single founders in only 14.4% of cases versus 45.3% (no risk capital) • Ventures with larger teams in general show higher growth expectations and higher average revenues • About 28,000 individuals in Germany have founded Internet/E-Commerce startups(2) • 74% founded service companies, 16% E-Commerce companies and 7% technology firms (1) Funded by venture capital firms, business angels and strategic investors (2) Without spin-offs or companies arising from mergers or acquisitions

  7. RISK CAPITAL FUNDED VENTURES WERE FOUNDED BY LARGER TEAMS Question: "How many individuals did the original founder team consist of?"(1) No risk capital Risk capital (VCs, BAs, strat. Investors) Size of founder teams Size of founder teams 2 3 0,1% 1 2 0,1% 1 0 2 3 6 7 18 24 43 36 96 45 289 64 379 31 Σ=837 Ø=1,9(2) Σ=215 Ø=3,1(2) (1) If new investors become involved, some startups are set up under a new name and with an enlarged founder team. The question refers to the original team's size (2) To calculate averages for "10 and more" a number of 12 founders was assumed Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  8. THE VENTURE'S BUSINESS MODEL IS OF LITTLE RELEVANCE FOR TEAM SIZE Question: "How many individuals did the original founder team consist of?" No risk capital Risk capital (VCs, BAs, strat. Investors) Avg.: 1.9 Avg.: 3.1 Nav.&information 43 Nav.&information 14 B2C transaction 62 B2C transaction 21 B2B transaction 27 B2B transaction 34 EC services 57 EC services 11 Multimedia firms 430 Multimedia firms 47 ISPs ISPs 77 15 Integrators Integrators 57 9 28 19 Spec. services Spec. services Software Software 40 34 Infrastructure 7 Infrastructur 8 Σ=828 Σ=212 Remark: Averages were calculated from all responses and were not adjusted for different participation rates Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  9. Nav.&information B2C transaction B2B transaction EC services Multimedia firms ISPs Integrators Spec. services Software Infrastructure Others NEARLY THREE QUARTERS OF 28,000 FOUNDERS HAVE CHOSEN SERVICE CONCEPTS AS BUSINESS MODEL Total number of founders by business model(1) E-Commerce companies Service providers Technologyproviders (1) Founders of active companies only. According to own projections about 2,200 companies founded by 4,200 individuals already failed or were closed Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses, own estimates and projections

  10. COMPANIES FOUNDED BY LARGER TEAMS ALSO SHOW STRONGER GROWTH ORIENTATION Question: "What is your company's growth expectation (from 2000 to 2001)?" Risk capital (VCs, BAs, strat. Investors) No risk capital Growth expectation Growth expectation 167 89 >100% >100% 50-100% 168 50-100% 33 10-50% 230 10-50% 27 0-10% 72 0-10% 5 27 2 No growth No growth Negative growth Negative growth 9 1 Σ=673 Σ=157 Av. number of founders Av. number of founders Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  11. GROWTH-ORIENTATION OF LARGER FOUNDER TEAMS ALSO LEADS TO HIGHER REVENUES(1) Question: "Which revenue category does your company fall into (expectation for 2000)?" Revenues (in DEM) Revenues (in DEM) No risk capital Risk capital (VCs, BAs, strat. Investors) 12 6 >100 M >100 M 0 2 50-100 M 50-100 M 8 8 10-50 M 10-50 M 21 24 5-10 M 5-10 M 104 43 1-5 M 1-5 M 77 9 0,5-1,0 M 0,5-1,0 M 163 34 100-500 K 100-500 K 50-100 K 94 50-100 K 13 10-50 K 109 10-50 K 8 72 9 <10 K <10 K Σ=660 Av. number of founders Σ=156 Av. number of founders (1) A pattern can be seen only for companies not funded with risk capital. The size of the original founder team seems to be less relevant for risk capital funded startups Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  12. CONTENT • Founders and founder teams • Current employment in the segment • Additional demand for talent in 2001 • Sources for recruiting • Spatial structures • Appendix: Definitions and background

  13. CURRENT EMPLOYMENT IN THE SEGMENTKey Results of the Analysis • About 14,850 active startups founded in Germany occupy • 151,000 permanent employees at home, • 29,000 permanent employees abroad and • an additional 67,000 non-permanent employees • The number of employees is significantly larger in risk capital funded companies • 27.8 permanent employees in Germany and 25.6 abroad compared to 5.5 and 8.7 employees in companies without risk capital funding(1) • The difference is smaller for non-permanent employees: 6.9 compared to 4.1 employees • Risk capital funded ventures therefore account for a large share of employment in the segment analysed • 41% of permanent employees in Germany and 74% of those abroad • Besides the chances to participate in the success of new ventures these employees also carry an increased risk of losing their jobs • About 80-100,000 permanent employees in established firms and foreign companies in Germany can also be included in the segment's total employment figure (1) Figures for employees abroad only relate to companies with locations in foreign countries

  14. ON AVERAGE, STARTUPS OCCUPY ONLY FEW EMPLOYEES Two Sources: Ø Analysis = 10.1 Employees, Ø Survey = 10.5 Employees Permanent employees in Germany 30.6 Legend 28.6 Analysis n=8,988 Survey n=886 22.8 Business model 17.8 17.1 16.7 16.0 15.5 15.3 14.1 14.3 12.8 10.6 10.6 10.1 9.5 8.9 6.7 6.5 5.4 Navigation/information(fin. by ads) B2Ctransaction B2Btransaction E-Com. service providers Multimediafirms Internetservice provider Inte-grators Specializedservice providers Software(manuf.) Infra structure (manuf.) #Analysis(1) #Survey(2) 488 46 855 70 128 49 117 59 5,104 401 1,384 89 218 57 193 39 458 63 43 13 (1) Number of employees as of July 2000. Taken from publicly available sources (Web sites, databases, newsfeeds) and projected to total startups (2) Survey responses relate to November 2000 Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses, analysis of ~9,000 startups from public sources, own projections

  15. RISK CAPITAL FUNDED VENTURES OCCUPY FIVE TIMES MORE EMPLOYEES Question: "How many permanent employees does your company occupy in Germany?" No risk capital Risk capital (VCs, BAs, strat. Investors) Avg.: 5.5 Avg.: 27.8 Nav.&information 33 Nav.&information 13 B2C transaction 48 B2C transaction 22 B2B transaction 22 B2B transaction 27 EC services 48 EC services 11 Multimedia firms 356 Multimedia firms 45 ISPs ISPs 73 16 Integrators Integrators 49 8 20 19 Spec. services Spec. services Software Software 32 31 Infrastructure 7 Infrastructure 6 Σ=688 Σ=198 Remark: Averages were calculated from all responses and were not adjusted for different participation rates Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  16. ONLY A SMALL SHARE OF COMPANIES IS ACTIVE ABROAD MAINTAINING OWN LOCATIONS OR OFFICES Question: "How many permanent employees does your company occupy abroad?" No risk capital Risk capital (VCs, BAs, strat. Investors) Avg.: 8.7 Avg.: 25.6 Nav.&information 2 Nav.&information 2 B2C transaction 4 B2C transaction 8 B2B transaction 4 B2B transaction 11 EC services 1 EC services 5 Multimedia firms 8 Multimedia firms 7 ISPs ISPs 2 2 Integrators Integrators 2 3 3 5 Spec. services Spec. services Software Software 2 10 Infrastructure 1 Infrastructure 2 Σ=29 Σ=55 Remark: This analysis includes only companies with own locations or offices abroad Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  17. STARTUPS OFFER A LARGE NUMBER OF NON-PERMANENT JOBSIn Relation, Their Importance is Higher for Companies Without Risk Capital Question: "How many additional non-permanent employees does your company occupy currently?" No risk capital Risk capital (VCs, BAs, strat. Investors) Avg.: 4.1 Avg.: 6.9 Nav.&information 33 Nav.&information 13 B2C transaction 48 B2C transaction 22 B2B transaction 23 B2B transaction 27 EC services 47 EC services 11 Multimedia firms 354 Multimedia firms 45 ISPs ISPs 72 13 Integrators Integrators 47 8 20 18 Spec. services Spec. services Software Software 31 29 Infrastructure 6 Infrastructure 6 Σ=681 Σ=192 Remark: Averages were calculated from all responses and were not adjusted for different participation rates Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  18. Nav.&information B2C transaction B2B transaction EC services Multimedia firms ISPs Integrators Spec. services Software Infrastructure Others SERVICE CATEGORIES ACCOUNT FOR THE LARGEST SHARE OF EMPLOYMENT IN THE SEGMENT Total employment with startups by business model 12.860 19.520 9.730 3.110 89.800 34.000 27.580 10.030 30.980 Permanent employees in Germany Permanent employees abroad Non-permanent employees(1) 3.120 5.670 (1) Remark: Non-permanent employees are mostly working project-related or part-time. They can not be compared directly to permanent employees Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  19. Nav.&information B2C transaction B2B transaction EC services Multimedia firms ISPs Integrators Spec. services Software Infrastructure Others ESTABLISHED FIRMS AND FOREIGN COMPANIES OCCUPY AN ADDITIONAL 80-100,000 EMPLOYEES IN GERMANY Permanent employees with established firms and foreign companies by business model Σ=88,400 Source: Analysis of 2,100 established Internet/E-Commerce firms and 540 foreign companies, own estimates and projections

  20. CONTENT • Founders and founder teams • Current employment in the segment • Additional demand for talent in 2001 • Sources for recruiting • Spatial structures • Appendix: Definitions and background

  21. ADDITIONAL DEMAND FOR TALENT IN 2001Key Results of the Analysis • The survey participants still expect a high demand for qualified employees • 16% want to double the number of employees, 56% plan double-digit growth • At least 26% expect not to hire additional employees in 2001 • The planned growth is in the size order of current employment • Risk capital funded ventures plan to occupy 21.6 additional employees • Companies without risk capital funding plan to hire 4.4 employees in 2001 • To meet their targets, startups alone need to hire an additional 100,000 qualified employees during the next 12 months of 2001(1) • The current situation on the job market will not allow this number to be met • Even with moderate assumptions an additional 20-30,000 jobs with established firms and foreign companies will need to be filled in 2001 besides the startup's demand (1) Remark: This gross demand does not take company closings and the current situation on the job market into account

  22. GERMAN INTERNET/E-COMMERCE STARTUPS EXPECT HIGH EMPLOYMENT GROWTH IN 2001 Question: "How many permanent employees do you plan to hire during the next 12 months?"(1) Expected employment growth n = 880 16.1 % 21.5 % 34.8 % (2) 2.2 % 25.5 % Number of startups (1) The responses are related to total permanent employees in Germany and abroad (including founders) (2) Small numbers of employees lead to growth rates above 10%, even with only one new employee Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  23. ESPECIALLY RISK CAPITAL FUNDED STARTUPS PLAN TO HIRE A LARGE NUMBER OF ADDITIONAL EMPLOYEES Question: " How many permanent employees do you plan to hire during the next 12 months?" No risk capital Risk capital (VCs, BAs, strat. Investors) Avg.: 4.4 Avg.: 21.6 Nav.&information 33 Nav.&information 12 B2C transaction 47 B2C transaction 22 B2B transaction 23 B2B transaction 27 EC services 48 EC services 11 Multimedia firms 350 Multimedia firms 44 ISPs ISPs 74 15 Integrators Integrators 47 8 20 18 Spec. services Spec. services Software Software 32 31 Infrastructure 7 Infrastructure 6 Σ=681 Σ=194 Remark: These figures also include companies planning not to hire additional employees in 2001 Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  24. CONTENT • Founders and founder teams • Current employment in the segment • Additional demand for talent in 2001 • Sources for recruiting • Spatial structures • Appendix: Definitions and background

  25. SOURCES FOR RECRUITINGKey Results of the Analysis • The participating startups seem to follow different recruiting strategies • Risk capital funded ventures prefer graduates from universities and research institutes. They offer attractive jobs for these candidates • Companies without risk capital funding usually can not offer the same attractive conditions. They prefer to hire individuals that were previously self-employed • Enticing potential employees away from other Internet companies is the second most important source for both types of ventures • 63% of risk capital funded and 49% of other ventures see this source for recruiting als "Important" or "Very important" Surveyed companies do not seem to get familiar with recruiting former employees of established industry companies • Only 2% of companies without risk capital funding see this source as "Very important", 7% ranked it as "Important"

  26. ENTICING EMPLOYEES AWAY FROM OTHER INTERNET COMPANIES IS THE SECOND MOST IMPORTANT SOURCE Question: "How important are the following sources for recruiting new employees for your company?" No risk capital Risk capital (VCs, BAs, strat. Investors) Very important So/so Not important Completely unimportant Very important So/so Not important Completely unimportant Important Important Sources for recruiting (Rank) Sources for recruiting (Rank) From universities and research institutes From self- employment 2.34 2.18 From other Internet companies From other Internet companies 2.73 2.25 From college, training, other education From self- employment 2.81 2.50 From universities and research institutes From college, training, other education 2.92 2.75 From established industry firms From established industry firms 3.84 2.94 Ranking (1) Ranking (1) (1) Average evaluation from 1= Very important, 2=Important, 3=So/so, 4=Not important, 5=Completely unimportant Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  27. CONTENT • Founders and founder teams • Current employment in the segment • Additional demand for talent in 2001 • Sources for recruiting • Spatial structures • Appendix: Definitions and background

  28. SPATIAL STRUCTURESKey Results of the Analysis • The local job market is of high importance for the participating startups • Nearly 60% of all hired individuals come from the same city or the surroundings (up to 20 km distant) • The willingness to move to a new location for work seems to be relatively high for the mostly young, well-educated employees • Especially risk capital funded ventures prefer metropolitan areas with a larger pool of talent and entrepreneurial expertise • About 72-76% of risk capital funded ventures are located in cities with more than 100,000 inhabitants, but only 53% of those not funded • Startups in larger cities seem to find better conditions for growing and winning new employees • With 7.6 permanent employees in larger and 2.6-4.1 employees in smaller cities this trend also shows with companies not funded with risk capital

  29. LOCAL LABOUR MARKET IS OF HIGH IMPORTANCE56% resp. 61% of Employees Come From the Same City Question: "What percentage of employees does your company recruit in the same city or up to a distance of 20 km?" No risk capital Risk capital (VCs, BAs, strat. Investors) Share Share Σ=748 Ø=56%(1) Σ=217 Ø=61%(1) Share of participating firms Share of participating firms (1) To calculate average values the mean of each category was used Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  30. ESPECIALLY RISK CAPITAL FUNDED VENTURES PREFER METROPOLITAN AREAS AS LOCATIONS Number of startups 857 83 126 97 Share of startups Size category of the city <10,000 inhabitants 10-20,000 inhabitants 20-50,000 inhabitants 50-100,000 inhabitants >100,000 inhabitants Type of funding Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses, list of cities taken from Regiograph 5.0 (MACON)

  31. FOUNDER TEAMS IN METROPOLITAN AREAS ARE SLIGHTLY LARGER THAN IN SMALL CITIES Question: "How many individuals did the original founder team consist of?" Risk capital (VCs, BAs, strat. Investors) No risk capital Size category Size category >100,000 inhabitants >100,000 inhabitants 428 128 50-100,000 inhabitants 50-100,000 inhabitants 61 17 111 12 20-50,000 inh. 20-50,000 inh. 87 10 10-20,000 inh. 10-20,000 inh. <10,000 inh. <10,000 inh. 125 16 Σ=812 Σ=183 Size of founder team Size of founder team Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  32. STARTUPS IN METROPOLITAN AREAS SEEM TO GROW FASTER AND FIND EMPLOYEES MORE EASILY Question: "How many permanent employees does your company occupy in Germany?" Risk capital (VCs, BAs, strat. Investors) No risk capital Size category Size category >100.000 inhabitants >100.000 inhabitants 428 128 50-100.000 inhabitants 50-100.000 inhabitants 61 17 111 12 20-50.000 inh. 20-50.000 inh. 87 10 10-20.000 inh. 10-20.000 inh. <10.000 inh. <10.000 inh. 125 16 Σ=812 Σ=183 Number of employees Number of employees Remark: This effect is not caused by differences in the age of participating companies Source: Survey with 8,989 Internet/E-Commerce startups, analysis of 1,178 valid responses

  33. CONTENT • Founders and founder teams • Current employment in the segment • Additional demand for talent in 2001 • Sources for recruiting • Spatial structures • Appendix: Definitions and background

  34. SEGMENTATION USED FOR INTERNET/E-COMMERCE BUSINESS MODELS Product and services via the Internet (E-Commerce) Internet-related services (Internet) Internet technology (Internet) Internet users Information Infrastructure Internet service providers (ISPs) Navigation Content • BinTec Communications AG • Tixi.com GmbH • PolyTrax Information Technology AG • Teledis AG • Web.de AG • Endemann!! AG • Hurra.com GmbH • Allesklar AG • C2day AG • Urbia.com AG • Gatrixx AG • Ciao.comAG • ISION Internet AG • Cybernet AG • Strato Medien AG • Schlund &Partner AG Multimedia firms • Kabel New Media AG • Pixelpark AG • I-D Media AG • WWL Internet AG Transaction Integrators Software B2C B2B • Intershop Communi-cations AG • Brokat AG • living systems AG • Hyperwave Information Management GmbH • Articon Information Systems AG • GFT Technologies AG • GEDYS Internet Products AG • Avinci AG • Ricardo.deAG • Artnet.comAG • Vitago.de AG • Buecher.de AG • goindustry. com AG • Newtron AG • DCI AG • Web2CAD AG Specialized service providers • Webmiles AG • DocCheck GmbH • Webvertising AG • Link4Link GmbH Proximity to Internet users and customers Competence in marketing & sales Technological competence Remark: Company names were used for illustration purposes only

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