Germans don’t do tech startups—more access to capital might change that

German tech entrepreneurs may soon have their moment
German tech entrepreneurs may soon have their moment
Image: Reuters
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Everyone wants the next Silicon Valley in their backyard, from Scotland to Russia and places in between (except, perhaps, people who live in San Fransisco).

That includes Germany, an industrial power with a large, well-trained labor force and long history of high-tech manufacturing. Yet the nation has still not produced many technology unicorns. There are reasons to want to emulate Silicon Valley’s culture; fast-growing firms can account for a large share of job growth and makes for a more dynamic economy. But pulling off that magic innovative culture has proven difficult for Germany, which is not, by most measures, a thriving environment for entrepreneurship.

Werner Hoyer hopes things are changing. A native German (and one-time member of the Scorpions), Hoyer is head of the European Investment Bank (EIB) a bank owned by European Union member states that engages in small-business lending to support entrepreneurship, mostly in Europe. In an interview, he claims small technology firms in western Germany are taking root, but they remain constrained by a lack of access to finance. There is not much of a venture capital industry, Hoyer says, and “banks are too risk-averse.”

Traditionally, lack of capital has been cited as a major hurdle to slow entrepreneurship all over Europe at both the seed and growth stage. It has kept tech firms out of the big leagues and made them ripe for acquisition. For example, Booking.com, originally a Dutch company, was acquired by Priceline, an American company, in 2005, just as it was taking off. Gillian Tans, who runs Booking.com (but not the parent company), told Bloomberg the sale was necessary because it was desperate for money to keep growing. “Maybe if at that time there would have been more funding available, Booking would have made different choices.”

Now, the need to offer domestic finance is more pressing, Hoyer says, since Chinese venture capital firms have been stepping up to fill the void. “Do we really want to sell all our entire activities on the high-tech front to China?” he asked.

Between efforts from the EIB and outside investors, German and other European entrepreneurs now have more access to capital. According to Bloomberg, last year 3,500 European companies received a combined $19 billion in venture investment. Still, entrepreneurship is not thriving: The OECD estimates new enterprise creation has been fairly flat in Germany for the past 10 years.

The hope for Hoyer is more capital will finally jumpstart Germany’s entrepreneurial zeal and produce a counterweight to Silicon Valley. But other factors may keep Germany from becoming a technology hub. Hoyer says there is more shame attached to failure in Germany than in the US. Most successful startup founders in the US are serial entrepreneurs who get it right on their second or third try.

Access to data is also an issue. Many technology firms require data on their users to improve their products, make money, and gain market share, but privacy laws in Europe make that more difficult. Success in technology will require finding another business model.

Culture may change, and Hoyer is hopeful it will. Indeed there signs the culture for entrepreneurship may be changing. Surveys of entrepreneurship in Germany suggest more openness to entrepreneurship and perception of opportunity, even if it is still short of other countries.