Undeniably the German VC market has thrived in 21st century, but during its second decade, it started to lag behind both its benchmarks, globally and locally in the EU. The shortcomings are evident in the fields of big data, biotech, electric automobiles, and renewable energy where it is far behind its global challengers especially China and the US. The situation is exacerbated for German industry especially in manufacturing and robotics industry, which are still considered as the spine of Germany industry. Pre-covid statistics indicate, the amount of VC investments barely made 0.035% of the German GDP, ten time less than that of US share of venture capital investments with respect to its GDP. Despite VC investments were 2.2x more in 2019 as five years earlier, however, this significant growth was slightly smaller than UK, and France.
Compared to the US, German VC market is still young and differs significantly form US venture capital market due to institutional and legal differences. In terms of geographical location of the VC activities and integration of different players like educational and research institutions into start-up environment, both US and Germany are on the same track. In Germany most of the VC activities are clustered along the Rhine and some big cities like Berlin, Munich etc. While for the US, most of the VC activities are clustered in major tech hubs like Silicon Valley, Boston, Carolina, or California. The success of VC industry in US is due to the stronger collaboration of private VC firms investing long term, big funds in the initial stages of the start-up and robust IPOs market to gain higher returns at exit.
This lack of private VC investments in initial stages of start-up, the risk averse behavior of investors as well as entrepreneurs led to the slow development of VC in Europe, specifically in Germany. Moreover, in Germany, the labor market for recruiting managers for startups is illiquid and the entrepreneurs have less industry experience comparative to US entrepreneurs. The managerial hiring in the US is highly liquid, startups are founded by entrepreneurs who have worked for big tech giants, more transient to make shifts, have superior industry experiences, and have more realistic business plans.