The Venture Capital Divide: Germany and the United States in the Post-War Era

Abstract

This paper analyzes and explains the disparate paths of development among venture capital organizations in the United States and Germany over the post-World War II period, contrasting the early emergence and burgeoning of the sector in the U.S. with the lagging development in Germany. The paucity of venture capital in Germany throughout the latter half of the 20th century is often seen as a result of that country’s system of large, powerful universal banks and small, inactive capital markets. Lack of acceptance may additionally appear to result from cultural or social differences that make Germans suspicious or skeptical of such risk taking and disdainful of the capitalistic drive it represents. I argue instead that a complex of political, social, and economic factors — many dating back to institutions put into place in the 19th century — explains the evolution of venture capital over the post-war era. These factors differed radically between the US and Germany and produced divergent outcomes for venture capital institutions a century later. I emphasize the crucial role of the available pool of qualified, potential entrepreneurs and the incentives that either drove or hindered high-technology venturing, particularly during the middle of the twentieth century.