Germany’s Vice Chancellor and Economics Minister Philipp Rösler is currently leading a tour of 100 founders, managers and journalists to San Francisco for German Valley Week with the stated aim of “building a bridge” between startup scenes in Germany and the US. Natascha Wegelin, co-founder of social flat-sharing platform noknok, which is supported by YOU IS NOW, is among those on the trip, and she revealed some of the issues that have been raised so far.
Amidst the very interesting trips to companies like Jimdo, Google, Facebook, Mozilla and SAP and meeting a veritable who’s who of Silicon Valley VCs, there was only one topic dominating every discussion we held; namely, the differences between German and the US startup scenes.
Why do so few American VCs invest in German companies and why is Berlin not more like Silicon Valley?
Several outstanding entrepreneurs and investors including Bernhard Gold from T-Ventures, Marc Andreessen, Andy von Bechtolsheim and the management of Blumberg Capital were among those painting a complex picture of this issue. Some of the key points raised have included:
Germany does not have the ideal size to encourage people to think big. Founders in countries with a smaller domestic market such as Israel have to think global from the very beginning to even reach a relevant market size while the US is a huge market in itself. Germany, meanwhile, is stuck somewhere in between. A German company can reach a reasonable size just by operating in the German market. That’s why founders tend to confine themselves to thinking within the German boarders – while others strive to conquer the world.
Secondly, US venture capitalists invest in outstanding teams and tremendous growth potential while their German counterparts tend to focus on reaching break-even as quickly as possible. Marc Andreessen explained how the pattern in Silicon Valley is to grow as fast as you can. For this you need strong investment. Becoming profitable too quickly stops investment and therefore growth. The result is that you will have a good company but not a game-changing one.
Thirdly, because not as much money has been invested in Germany yet, no huge exists have taken place. Therefore, there is very little money in the ecosystem that can be reinvested – a vicious circle.
Other points include the belief that the really awesome ideas end up in Silicon Valley eventually meaning American investors simply do not need to go anywhere else, and the effect Germany’s regulations and bureaucracy have on scaring international investors away.
So what can we do to help Berlin become more like Silicon Valley and, even more importantly, get US investors to reach into their pockets and invest in German companies? Of course there are factors which politics can and needs to change such as greater incentives for VCs and founders, free trade agreements, less tax and legal regulations. But as it’s not a good idea to wait on this, we as true entrepreneurs should go ahead and just do it ourselves.
Here is what we should do:
Think big and sell yourself better. Germans tend to be too pessimistic. Work on your pitch over and over again. Think in big dimensions and set up a plan to conquer the world!
Focus on growth, not on break-even. Grow as fast as you can in the first two years, then worry about break-even.
Have a smart founding team with an outstanding engineer and one person who is able to be a great CEO. Marc Andreessen for example looks for product makers who are entrepreneurs and who can become a CEO.
Keep your R&D in Germany but open an office in Silicon Valley to do marketing and sales and to be close to your investor(s). They won’t come to you; you need to go to them.
Innovate, don’t copy. Invent technologies that have the potential to change the world.
The bottom line is that right now, American VCs do not feel the need to look at German startups because they won’t miss out if they don’t.
To change that, we need some exceptional companies with big exits so that Silicon Valley investors do miss out, see the potential and invest in German startups. This is something no politician will be able to influence – but which we can, and indeed are.