German start-ups woo ueber-capitalists, California style

By Andy Goldberg May 6, 2011, 1:06 GMT

Palo Alto, California - It was a quintessential Silicon Valley moment. Whip-smart young tech entrepreneurs were pitching their dreams to high powered venture capitalists in swanky hotel rooms. In perfect English they talked company valuations and disruptive business models while looking out on redwood-covered mountains and quaffing local wines.

But the young dreamers weren't your typical billionaire wannabes from nearby Stanford University or Harvard. They were young businessmen from the former communist areas of eastern Germany. And they had come to fabled Silicon Valley to raise millions of dollars from the ueber-capitalist venture firms that funded the internet revolution. Karl Marx would probably not have approved.

'Eastern German Ingenuity Meets West Coast Capital' was the tagline of the event, which sought to showcase the business potential of young tech companies from the former East Germany to the kind of guys who launched companies like Intel, Google, Facebook and countless others. After a lull during the great recession US venture capitalists are quickly rebuilding steam: they invested 5.9 billion dollars in new companies in the first quarter of 2011.

Even with the current value of the dollar, that's a lot of money.

But Lars Koshin, who came to the event looking for between 5 million and 10 million dollars for his Berlin-based game company Neonga, said the California approach to business makes it easier for him to raise money here than back in Germany.

'The name tells all the difference,' said the 40-year-old entrepreneur 'In Germany we call it risk capital, here it's called venture capital. Here new companies are seen as opportunities. There they are a risk.'

Differences in the business environment were a main talking point of the evening. Everyone gave high marks to Germany's skilled and reliable labour force, its engineering expertise and technical institutes. But its spirit of entrepreneurship needed improving, noted Clemens von Bergmann from High-Tech Grunderfonds Management GmbH.

'There is no celebration of success,' he said.

Even the famous German devotion to perfectionism can backfire sometimes, said Ajit Nazre, a partner at the venture capital powerhouse Kleiner Perkins Caufield and Byers - which was an early investor in Google.

'The German engineer wants to be perfect,' he said, 'even if that means missing the market opportunity.'

Dr Juergen Friedrich, head of the government-sponsored Germany Trade and Invest, pointed out the traditional German aversion towards self-promotion - a vital skill in the ultra-competitive tech sector.

'There's no show-and-tell in German kindergartens,' he said, referring to the common practice of US toddlers standing before their class and presenting their favourite toys or other objects.

The result was summed up by Oliver Hanisch - who calls himself Germany's Silicon Valley 'accelerator.'

'Germans are great engineers,' he said. 'But they are lousy at marketing.'

That thesis was put to the test when the nine companies were given five minutes each to pitch themselves to the audience of venture capitalists. Just having a good business plan was not enough.

'They need to stand out from the noise,' said Andy Tsao, a venture capitalist at Silicon Valley Bank. 'We see so many pitches and we're only human after all.'

He gave high marks to Ingo Hinterding of CrowdPark, who was looking for between 6 million dollars and 8 million dollars for a game that allows people to bet virtual currency on any event. CrowdPark was already among the top ten fastest growing games on Facebook, and Tsao liked the social aspect of the game, its huge potential market and its underlying technology.

Other companies that piqued his interest were CustomerAlliance, which aggregates customer reviews of hotels, and NorthBit, a digital media distribution system which was the only company that claimed to be profitable.

Some companies found it harder to get through to the audience. Eins Se's plans for an sophisticated internet TV failed to convince people it could beat industry giants like Sony and Samsung, while Twoonix's presentation for a new business collaboration tool left a Stanford professor scratching his head and admitting, 'I still don't understand what it is you do.'

Not to worry. In true Silicon Valley style, Twoonix was given a second chance. Gregarious investor Randy Williams was the last man to take the microphone and he announced a generous offer. All nine German companies were invited to an event he was hosting the following night for his investment club called Keiretsu, an international group of wealthy individuals looking to invest and guide new companies.

There was only catch - a common one at these turbo-charged events: each presenter would have only 20 seconds to make their pitch.

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