Why German Venture Capital doesn’t take off

Sand hill

In Ger­many there are 4 (four) VC com­pa­nies with con­sid­er­able funds with­in the range of EUR 100 mil­lion or above. Tak­ing into account that Ger­many is one of the biggest economies world­wide this fact is a short­com­ing, to say the least. 

Why is that?

One pos­si­ble answer you’ll find watch­ing this talk with Marc Andreessen. Marc describes the “Amer­i­can Way of fund­ing a Start-up” as “fund it, scale it, and then look for a busi­ness model”. Now — call a Ger­man VC, show him your pow­er­point and explain the Andreessen strat­e­gy to him. Or quote Face­book’s Peter Thiel by say­ing: “We’re also focused on get­ting the prod­uct right,” says Thiel. “Get­ting ads right—that’s not the top user demand.” Unless you aren’t Marc or Peter him­self or you have sold a com­pa­ny suc­cess­ful­ly before — the VC will throw you out.

In other words: invent the next face­book or twit­ter (don’t take this lit­er­al­ly — I mean the next big thing) and no sin­gle Ger­man VC will fund you — promised. Maybe it’s unfair to limit this to Ger­man VCs — the rea­son for Loic LeMeur with Seesmic to move from Paris to San Fran­cis­co or Jajah to move from Aus­tria to Sil­i­con Val­ley were the same — they felt hav­ing scal­able busi­ness­es — but they lacked a busi­ness model at that peri­od. This did not pre­vent US-VCs from fund­ing.

Haven’t Euro­pean VCs read Tal­ib’s Black Swan? Do they think inside the box — are they trapped in induc­tion? Is there a lack of vision? Or is it — plain­ly spo­ken — too risky to invest into a face­book or twit­ter in its first months? 

9 Replies to “Why German Venture Capital doesn’t take off”

  1. jeb says:

    Inter­est­ing post, Michael. Times are out of joint. Maybe VCs are not the only ones miss­ing lack vision.

  2. Thanks, jeb. You’re right — we expe­ri­ence tough times. But I do not think that ‘tough times’ explain the lit­tle impact VCs have in Ger­many or Europe. Au con­traire — not to invest in a cri­sis should be evi­dence of inca­pac­i­ty, should­n’t it?

  3. Michael Reuter says:

    thanks, Loic. Yep — I ignored Welling­ton, one of the four Ger­man VCs with big funds. There are excep­tions 😉

  4. Margaret says:

    Then, tak­ing the infor­ma­tion pre­sent­ed in total, 25% of Ger­man VCs with major cap­i­tal will invest in unproven inno­va­tion. I doubt very seri­ous­ly that 25% of U.S. VCs with sig­nif­i­cant cap­i­tal would invest in an early stage, unproven, for­ward look­ing busi­ness (if I am mis­tak­en, point me in the right direc­tion, I have a ven­ture to fund). There­fore, the big issue is the low num­ber of VCs with sig­nif­i­cant funds in Ger­many, not their approach to risk.

  5. Michael Reuter says:

    Mar­garet, what do you mean by say­ing “I doubt very seri­ous­ly that 25% of U.S. VCs with sig­nif­i­cant cap­i­tal would invest in an early stage, unproven, for­ward look­ing busi­ness”? What is a proven busi­ness?
    Hon­est­ly — to fund a proven busi­ness I don’t need VCs — I talk with my banker (admit­ted­ly not these days 😉 or I fund it with my free cash flow. Don’t you see VCs as risk tak­ers?

  6. good post, I am not sure Seesmic is the next big idea, but note it has been fund­ed also by German/European VC Welling­ton 🙂

  7. Michael,
    I’m afraid you’re mix­ing dif­fer­ent con­cepts: the fact that an investor would ask for a busi­ness model is not nec­es­sar­i­ly an expla­na­tion for dif­fer­ent pat­terns of devel­op­ment for Euro­pean ven­ture investors. Intol­er­ance for fail­ure is per­haps the weak­est points in the Euro­pean way of doing and that’s where you have a point. Not too sure about your inter­pre­ta­tion of Tale­b’s analy­sis in the Black Swan if I may… Read­ing care­ful­ly Tale­b’s works you will see that he ques­tions suc­cess based on large ini­tial sam­ples where suc­cess is as much the prod­uct of ran­dom­ness as it is a mat­ter of skill. Fur­ther­more Taleb insists on the idea of math­e­mat­i­cal expec­ta­tion of return as opposed to deci­sion mak­ing based mere­ly on prob­a­bil­i­ty of occur­rence of one event or sce­nario. IMHO the US ven­ture model is in stark con­trast with Tale­b’s take and the Euro­pean one prob­a­bly much clos­er.
    I’d also like to offer anoth­er per­spec­tive which has to do with time spans: if you take long peri­ods of time I doubt the US model is always ade­quate in par­tic­u­lar because it does not seem to care much about side-effects, col­lat­er­al dam­age, waste, social impacts, human impacts, envi­ron­men­tal cost as it tries to boost the devel­op­ment of young com­pa­nies. Europe has a tra­di­tion of com­pa­nies grow­ing steadi­ly for 8–10 or more gen­er­a­tions in the same fam­i­ly and I believe it is pos­si­ble to prove that they deliv­er more value in the econ­o­my than “Blade Run­ner” com­pa­nies, i.e. those that “shine twice as bright but live half as long”… In fact you might want to take a look at Bo Burling­ham’s Small Giants if you haven’t done so already…
    Thanks for your post, which gave me great food for thought!

  8. Michael Reuter says:

    Alex,
    thank you very much for your thought­ful com­ment. So we appar­ent­ly agree on this:
    »Intol­er­ance for fail­ure is per­haps the weak­est points in the Euro­pean way of doing«
    Per­haps we inter­prete Tale­b’s stream of thoughts dif­fer­ent­ly: My expe­ri­ence is that Ger­man investors are try­ing to ratio­nal­ize what can­not be ratio­nal­ized by oper­a­tional­iz­ing cri­te­ria only with­in the ‘nor­mal dis­tri­b­u­tion curve’. They ignore “Extrem­is­tan”.
    I appre­ci­ate your ‘long peri­ods approach’ — yet I feel unsafe to assert a gen­er­al ‘US single-mindedness’ vs a ‘Euro­pean holis­tic per­spec­tive’ — if I sum­ma­rize your take cor­rect­ly. This is what we Euro­peans often adorn our­selves with. But is it more than anect­do­tal evi­dence?

  9. This is prob­a­bly true. The top VC names in Europe are prob­a­bly not com­pa­ra­ble to the KPCB and Sequoia Cap in US, more like the sec­ond
    Lian Pheng, Man­ag­ing Part­ner, Gingko Cap­i­tal (lianpheng@gingkovc.com) has wide­ly pub­lished on top-tier jour­nals and pub­li­ca­tions on insid­er secrets to fund-raising from ven­ture cap­i­tal­ists, entre­pre­neur­ial finance and start­up val­u­a­tions. See 99 Insid­er Secrets to Start­up Financ­ing (www.gingkocapital.com)

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