The dominance of Berlin as a startup hotspot is crumbling: startups from Bavaria are profiting from booming industries - and are overtaking investors when it comes to money.

Fierce competition for the startup capital of Berlin: Startups from Bavaria are attracting more and more investor capital – and are outperforming the once undisputed capital. In the first half of the year, Bavarian growth companies raised almost €2.1 billion in venture capital, significantly more than startups from Berlin (€1.5 billion), according to a study by the consulting firm EY.

Bavarian start-ups are benefiting from the boom in armaments and artificial intelligence (AI), writes EY, referring to a "changing of the guard." According to the report, of the total venture capital for German start-ups, which rose by a third to €4.6 billion in the first half of the year, almost half of all venture capital for German start-ups flowed to Bavaria.

While growth companies in the Free State of Bavaria were able to almost quadruple their funding within a year, Berlin saw an increase of 41 percent; in North Rhine-Westphalia and Baden-Württemberg, there were declines. Venture capital, which funds and corporations use to invest in startups, is crucial for growth in the startup sector.

Bavaria was already narrowly ahead of Berlin in 2024, and now the lead is becoming clear, EY summarizes. "The startup ecosystem in Germany has changed significantly in the past two years, and the balance is shifting," says EY partner Thomas Prüver.

Bavaria also leads the way in the largest financing rounds, with large cash injections for the AI company Helsing (€600 million) and the Kempten-based battery storage provider Green Flexibility (€400 million). This was followed by the defense company Quantum Systems and the financial platform Scalable Capital. Only the software company Amboss from Berlin made it into the top five, according to the study, which is based on the Crunchbase database and figures from startups and investors.

Although Berlin remains clearly ahead of Bavaria (76) with 132 financing rounds and continues to lead in online commerce, investors are currently focusing on defense, AI, and energy technologies—where the Free State is doing well.

In addition, the startup location benefits from Bavaria's economic strength, says Prüver. "This is especially helpful when it comes to offering one's own services, applications, or products to traditional industries, such as automotive, mechanical engineering, or medical technology, or finding cooperation partners and investors here."

The study also shows that the startup industry is recovering from its crisis following the end of the coronavirus boom. With a total of €4.6 billion in venture capital nationwide, German startups recorded the third-best first half of the year since 2015, according to EY. The number of financing rounds and large deals exceeding €100 million also increased. The startup industry experienced a hard landing after the record year of 2021, but as a whole, it "appears to have emerged from this phase stronger."