How do tech entrepreneurs value their startups?

Setting up a business in the USA - perspectives from the scene

From Dr. Gerrit Rößler, Program Manager at the German Science and Innovation House

 

Silicon Valley beckons: For many German startups, the innovation landscape in the USA is a role model. The leap to global market leader without going through the USA still seems difficult. Fast and uncomplicated market entry, flexible and easily accessible financing options as well as experienced and internationally active mentors form an infrastructure that opens up many opportunities, especially for young founders. But the American innovation scene does not live up to its reputation in all areas; the scene in Germany is often even one step ahead of it.

 

“Yes to risk” as a start-up culture

The “Can Do” mentality of Americans is legendary. This is also evident in the innovation landscape, which shows a high willingness to take risks and a high density of venture capital firms and banks, private investors and business angels, hubs and mentor networks. Based on the much invoked American mentality, in which the failure of a start-up is seen as an opportunity to learn and grow and not as a failure, the USA offers a playground for young scientists with ideas and ambitions to develop new products and start a business own company. Especially in the second round of financing (after the start-up financing), US tax law offers many advantages for investors and venture capitalists. Sometimes this leads to investors getting more involved in corporate management or pushing for an exit earlier than is generally the case in Germany.

The USA is characterized by a close and flexible combination of academic and industrial research and innovation: Universities often perform both basic research and applied contract research for industry, federal agencies or ministries. In return, state institutions such as the National Science Foundation (NSF), the National Institutes of Health (NIH), NASA, the NSA or the Department of Energy award funds for applied projects that repeatedly lead to spin-outs. The funding amounts in this area are substantial: the research and development budget of the Department of Defense alone amounted to 72 billion US dollars in the 2016 financial year. Universities are also very successful in introducing their own students and graduates to spin-offs and imparting a start-up mentality to them. Accelerators and incubators, which allocate their own substantial start-up capital, are particularly well established at the top universities.

 

Startup metropolitan areas as innovation locations

The innovation centers of the USA are in the San Francisco Bay Area (UC Berkeley, Stanford, Silicon Valley), Boston (MIT, Harvard, various incubators and accelerators) and New York City. San Francisco plays an important role here, especially in the area of ​​digitization and the “Internet of Things”, while Boston is a leader in medical technology. Through its connection to federal politics, which helps shape the framework for innovation and research, Washington D.C. a crucial role for the innovation scene. As a result, lobby firms, think tanks and law firms are increasingly joined by social innovation startups and small non-profit companies. Regions with good universities and research centers, which have lower wage and living costs, are also being strengthened to compete with the established research and innovation locations. These include Austin, Houston and Dallas in Texas, Atlanta with Georgia Tech in Georgia, Portland and Seattle in Oregon and Washington in the northwest and the “Research Triangle” in North Carolina.

 

Spotlight New York and its "German Bubble"

After the financial crisis of 2008, New York created the infrastructure and framework conditions to become an innovation powerhouse. Although it lagged Boston and the Bay Area by several decades, it has now developed into the second most important innovation location in the USA and the most important for startups in the B-to-B sector. The focus in New York is on FinTech, Fashion, Artificial Intelligence and Machine Learning, Media, Virtual / Augmented / Mixed Reality and Smart City. The City and State of New York have developed innovative public-private partnership models to accelerate the implementation of research results from universities in new technologies. Examples of this are the NYC Media Lab, the Grand Central Tech Hub, the Urban X Incubator, the VR / AR Center that is being created and a planned incubator for medical technology. New York City, the largest university location in the USA due to the number of students alone, is characterized by a particularly dense network of research, innovation and economic structures. Four large universities or higher education systems (NYU, Columbia, CUNY, SUNY) and many smaller, partly scientifically specialized universities (e.g. Cornell Tech NYC, Rockefeller, Sloan Kettering) are a magnet for young innovative talents from all over the world. The university's own entrepreneurship programs such as NYU Tandon Future Labs support talents from among its own students or attract research-related startups to the university.

 

Is the USA still a paradise for founders?

If the tech industry was still optimistic at the beginning of the Trump era, the mood is increasingly changing. This is due not least to the extremely changed political context in the USA. Although the financial markets, which were heavily regulated in the wake of the financial crisis, were relaxed and the regulations in the area of ​​environmental and consumer protection from the Obama era were reversed, the sometimes unpredictable advances in immigration and education policy make it difficult to recruit the necessary top talent for startups and small companies and hold. A latent to explicit hostility towards science on the part of the president and some influential cabinet members does the rest to ensure that young professionals from abroad approach the USA with caution. Leading tech companies are already sounding the alarm: They are defying politics and are already talking about an imminent brain drain. The reforms and investments in infrastructure promised during the election campaign - from public transport to broadband internet to housing construction - are a long time coming. In terms of the so-called soft factors, such as health insurance, parental leave and cost of living, US policy does not promise any improvement at the moment.

 

About the author

Dr. Gerrit Rößler is Program Manager at the German Science and Innovation House (DWIH), the network partner for research-related innovations. The DWIH deals with the research and innovation of all relevant German actors: universities, non-university research institutions and the economy. At events and delegation trips with political representatives from the USA and Germany, the dialogue and exchange with politics is intensified. The work of the DWIH should give innovations visibility and impetus for new collaborations.

 

INSIDE is the magazine ofFederal Association of German Startups e.V. (Startup Association). The Startup Association is the representative and voice of startups in Germany and is committed to creating a framework that is friendly to founders. In dialogue with decision-makers in politics, he develops proposals that promote a culture of independence and lower the hurdles for business start-ups. The startup association promotes innovative entrepreneurship and carries the startup mentality into society. As a network, it connects founders, startups and their friends with one another.

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