The start-up scene in the United States vs. Germany
26 MAR 2018
When it comes to realizing innovative business models, the United States is still the Eldorado for the start-up scene. Former start-ups such as Uber and Airbnb are impressively demonstrating this with a good idea and billions in profits.
Symbol of innovation
It is the year 1976: In Los Altos, a northern California suburb, two geeks work day and night in the garage of the childhood home of Steve Jobs. This garage, in which Steve Jobs and Steve Wozniak tinkered, is considered the birthplace of the Apple computer and is a protected historic site today. With a market capitalization of nearly US$ 900 billion, the company of the same name is today the most valuable firm that ever existed.
Not very many locations embody the start-up spirit of the United States as much as the meanwhile legendary garage of 2066 Crist Drive, Los Altos, California. Due to many other visionary founders and revolutionary inventions, the valley in which the town is located has become a symbol of innovation and the epicenter of digital transformation. Besides Apple, Silicon Valley is home to further billion-dollar businesses such as Google, eBay and Amazon. And the local start-up scene remains extremely dynamic.
The American dream is alive
For many start-ups, framework conditions still make the United States the best springboard when it comes to getting a new business off the ground. One of the indicators of this is the fact that considerably more venture capital is entrusted to young companies in the United States. According to a study by PwC, start-ups in the United States were able to raise the equivalent of more than € 58 billion in 2017. Early on, digital business models rely in particular on this type of financing from investors. In order for this to pay off, the business has to be scaled up quickly, which calls for capital.
By contrast, money is not that easy to come by in Germany. According to a KPMG study commissioned by the German federal association of German start-ups, young founders only raised venture capital totaling € 2.1 billion in the first half of 2017.
No risk, no fun
A lack of venture capital may be one reason. However, cultural differences also explain the gap between the start-up scene in the United States and Germany. Whereas Germans tend to prefer stability and security, people in the United States attach greater importance to self-responsibility and risk-taking – true to something once said by Teddy Roosevelt: “It is hard to fail, but it is worse never to have tried to succeed.” This mentality is not least how the United States has maneuvered itself to the top of many markets - especially in the digital economy.
The greater longing for security in Germany is also reflected by our bureaucracy. It sets very high hurdles for founders. Only briefly after the starting gun for the idea is fired, founders begin to stall a few meters from the starting line since the German legislator demands share capital of € 25,000 to register a German limited liability corporation (GmbH). Founding a company in a garage – as was the case with Apple – would not even be possible in Germany with our workplace regulations. And stricter employment protection laws make it difficult for young companies in particular to adapt to the flexible market environment.
A start-up scene with potential
Nevertheless, in an international comparison (excluding the United States), the German start-up scene has a great deal to be proud of. For example, in recent years Berlin has morphed into the leading start-up hub in the European Union. In addition to a rising start-up rate – especially in the field of digital technologies – more and more established companies are opening start-up offices in Berlin in order to inhale the creative mindset of the capital city and thus become more innovative.
And incidentally, in some respects Germany also offers start-ups advantages. For instance, we have one of the most reliable legal systems in the world as well as a comparatively simple blue card system to "import” qualified workers. In the Global Innovation Index 2017, with which Cornell University, INSEAD and the World Intellectual Property Organization (WIPO) compare the innovative performance of more than 100 economies, Germany takes ninth place – and is thus only five places behind the United States.
At Merck KGaA, Darmstadt, Germany, we are also actively supporting young entrepreneurs in order to boost the start-up spirit. For instance, with the Merck KGaA, Darmstadt, Germany Accelerator, we support start-ups that complement our business fields, providing them with individual coaching, general financial contributions as well as enabling to use our lab infrastructure. Why? Because we know that every innovative idea could become the next big thing.