I've always defended Germany and venture capital here. Yet, it's always been a bit behind and slow to adapt and I think it may be completely missing the boat (again). Further, the damage may be irreparable if the VC's don't adapt quickly. While the US goes in one direction, Germany seems to be going in another. This all became evident to me from the amount of noise (positive) you hear about two very specific funding options in the US: AngelList and Kickstarter. Hence I thought I'd share my thoughts.
I may be a bit alarmist but I spent the past 12 years as a VC watching the segment establish itself. I think it's come a long way and I'm quite proud to have been part of that evolution. Yet, the writing's very clearly on the wall. Multiple funds that set up shop in the late 90’s have finally withered away (it takes ten years until a fund stops running on fumes and goes away). A few of the early players such as Earlybird, Target and Wellington remain (keep fighting the fight guys....fist-thump!!!) but that's about it. A few have shown up in the past couple of years such as HTGF, Hasso Plattner Ventures, some corporates and so on (welcome, please be around in 10 years). Unfortunately, I still wouldn't say that there's a solid base of German VC's established. Ask any entrepreneur where they send their business plan first and it's usually a UK based fund (Index, Accel, Balderton) or even a US investor (USV, Redpoint, Kleiner, etc.).The German VC's remain Plan B.
Meanwhile, what have the hungry young players done? Well, look no further than Rocket Internet, Team Europe or HackFWD for example. Former entrepreneurs in Germany all started incubators instead of funds. Sure, they eventually ended up starting funds too (Rocket and Team Europe) but that's a normal evolution and smart. I think it's a shame that the majority of things coming out of these shops are copy-cats but still, they're taking advantage of the opportunity, executing like mad. Like it or not, it's working for most of them and it's the opportunity which you can milk fastest. Please stop reading now if you think VC, incubation, accelerators or what-not are about warm-fuzzy-change-the-world-together motives! It's about making money first and foremost.
So, back to the original topic: If you look to the US, who's doing the most innovative stuff in the financing space? In my opinion, it's AngelList and Kickstarter. It's absolutely amazing how far these two vehicles for fundraising have come in only two year's time. They've completely thrown the model on its head and are working. You can hardly follow anyone in the space on Twitter without hearing about AngelList or Kickstarter repeatedly. Further, look how quickly they are able to get companies funded and up-and-running. This is the future of early-stage financing and an evolution of activites such as Y-Combinator. Actually, a large VC fund, USV, is backing Kickstarter and since 2009!!! How's that for noticing the tide of change!
Germany though???.....................you hear that???..............it's a big, fat sucking sound of nothing-ness. Kickstarter? Nothing like it that I have heard of yet. AngelList, nope, nothing local. All the smart angels from Germany are on AngelList anyway. Boat missed? Hell yeah! So, what to do about it? Well, if the VC’s were listening to me (they probably aren’t) I’d recommend that a couple of them get together and throw some money in a pot to get a Kickstarter like platform started. Further, it would make sense that someone localizes AngelList for Germany. I don’t think it makes much sense to create another, German-specific AngelList but get someone on the ground representing it here. Figure out a way to partner and get it working here fast. (By the way, those of you who piled into SeedCamp, great....but you can't all bet on one horse and Index beat you there anyway!)
This will generate the dealflow down the road (just like Kickstarter) that gets you the innovative start-ups you need to fund and grows the ecosystem. I’ve already written once about how Germany doesn’t have an Old Boy’s Network and I think this is a ripe opportunity to kick things into gear. Get together, start some seed financing initiatives and copy what’s worth copying: the financing models which grow innovation instead of the start-ups themselves.
Update: one point which may not be clear in the above post and I realized after reading a Tweet is that I am talking about coming up with creative, new financing initiatives. Kickstarter and AngelList are already two years or more into their evolution. They are not something new. They simply are something that's been missed as an opportunity here in Germany for the past two years. You can come up with your own innovative ideas on how to finance early stage businesses without copying. Yet, Germany hasn't historically been highly innovative on the venture model end of the spectrum. Therefore, do what you can with what you have.