Not only is tax optimization practically a national sport ("Volkssport"), I'd even gander to say that it's more popular than football (soccer for my American friends) in this country. After almost twenty years in Germany, I have to admit that I have spoken of nothing more than all the possible ways to save on taxes. It may be the crowd I hang with but to be honest, it really isn't. It's everyone, from lowly wage slave through to management. Most importantly though, I say this without any ill will. I am not alluding to illegal tax evasion when I speak of avoiding taxes. I'm referring to all the legal ways of decreasing your tax brunt: rental properties, funds, trusts and whatnot.
Nevertheless, this is not a post about taxes. It's a post about how to boost the start up segment in Germany which I was reminded of after reading this somewhat unrelated but similar post. There is continued discourse about lacking capital (at times in the early stage, then Series A, then growth and back again!) Further, we hear about the poor quality of the investors who are already active. Finally, we're reminded that international investors want to invest on their own doorstep instead of coming to Germany. All somewhat true but not the biggest problem in my eyes when it comes to venture capital in Germany.
If you want to make VC and early stage investing sexy in this country, you have to attach a tax benefit to it. Just as in the past solar, ship and media funds received the necessary kick from this benefit, so too should venture funds. It's not a solve-all solution nor is it sustainable for extended periods of time. Yet, if you simply imagine the amount of capital inflow triggered by this you can also clearly see the boost it would give the local VC economy. You would have more funds on the ground and due to competition, they would simply have to get better. No, not all would survive and initially you'd have a swing to one extreme but eventually it would equal out. Ultimately you'd have a sustainable segment funding companies sufficiently to also build sustainable businesses.
There's a huge problem in this country when it comes to funds and their ability to survive. Even if you are good, you are already competing against rest-of-world funds and I hate to say it...other regions are simply more attractive for the LP's (investors in the venture funds). Yet, without an inflow of capital fast, Germany will continue to lag other regions because VC's are constantly in fundraising and it's a never-ending battle against time and the cash wall that exists when management fees run out.
Just like all the start-ups who end up raising far less than their competitors in the US and elsewhere, so too the VC's remain under-capitalized and focused on survival instead of investing. Incubators and corporate venture activities are not going to revitalize the venture segment. They enrich it and allow for other ways of starting up but without a solid layer of VC's with enough funding, it's a never-ending story about catching up.