Venture investing in Germany

Deutsche Bank recently commented on the new venture grants available in Germany. No doubt, Germany is way behind the s-curve when it comes to venture investing. But what do you expect from an economy and society that is known for its conservative approach to…everything?

To be clear, we are in favour of venture investing as a means of creating new companies that have the potential to be big, one day. We agree with the authors of the Deutsche Bank report that it is not necessarily a question of How Many but rather a question of Quality. Having said that we advocate that there also needs to be a critical mass of start-ups in general before the How Many questions makes a difference. An market equilibrium overall needs to be established that can also absorb failures without stigmatising failing teams.

The US venture market has dealt with that under a ‘contingent contract’ basis. That is, teams get together to work on an idea and only if they manage to attract investment they will fully form. If not the team members move on. It is not unusual to see different teams iterating on a number of ideas, de facto having failed with a prior idea, to see a new company and team emerging.

The US model allows for energetic entrepreneurs to test the market without being held absolutely accountable for ideas that failed to attract funding at that time in history. It often does not mean that the idea was not valid (agreed, sometimes that is the case!), but it may be that the idea was too early for the market and other variables had to come into focus first before an idea has enough substance and a network that enables a faster adaption rate (Think of creating Apps before the iPhone even existed).

It is that clustering of capabilities on the one hand and the network effect (+ structure/regulation) of the local market on the other that allows for ideas and people to come together. Regrettably the latter too often walk away too early and do not give it enough time and chances to see the fruition of their own ideas. But who can truly afford waiting? It is that ‘idle’ time that appears to bug investors. It appears that the question that is forming in investors/society’s mind is “What, you still have not secured funding?” therefore you must be a failure. Regrettably that is utter nonsense. In fact, Germany would do good to overcome that attitude to venture investing as the venture market is required to create exactly that, the next big thing. The benefits of only company making it and the impact it has on people in that region or country is difficult to price in terms of future market capitalization. But surely we can agree that the position momentum may inspire other aspiring entrepreneurs to try too?

We suggest that Venture Investing is the only way to capture the potential upside when good ideas take off. Not every company can be the next Google or Youtube. Even smaller start-ups value as part of the value chain may make a difference later on when other things may fall into their place.

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