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Start-ups are more than just employers – they are innovation and growth centers of our technologized world. Start-ups fulfill an important role in competitive economic systems. Every start-up competes with established companies for market share and thus strengthens competition per se. Time and again, however, particularly innovative start-ups stand out, which succeed in redefining entire markets with new business models or products. Those are the Yahoos’, Mircosofts’, Apples’, Amazons’ or Gorillaz’ of this world. Wait a second… did I just list five-billion-dollar start-ups with four of them originating out of the US and just one out of Germany? Well, that wasn’t a coincidence.

The Culture of Entrepreneurship

The question is: what makes USA or even Israel to founding nations for start-ups and what makes Europe, in particular Germany, lag behind? It could be “Entrepreneurial Spirit”.

This relation describes the level of so-called entrepreneurial spirit in different (mid-) western cities. What we in Germany call our “Start-up Hotspot” is still a little point of relative insignificance in comparison to Silicon Valley or Tel Aviv. The cultural differences are a big factor for or against a well nurtured breeding ground in respect to start-up activity.

At first, values, social norms and traditions can influence the acceptance of a start-up culture. Germany for example is known for its reservation towards a “second chance”-culture. You fail and you will have a harder time the second try. In Silicon Valley every failed company is carried around like a badge: “I have failed and learned! My second venture is more likely to survive!”

Secondly, regulatory hurdles within a country can either help start-ups or place stones in their way. The countries that have a thriving start-up scene also have much more “help from above”, although that might also just entail “less interference from above”.

Entrepreneurial Personality Traits

Besides the right entrepreneurial spirit, suitable norms and values and a beneficial regulatory environment, there needs to be the right founding material within the population of a region: Entrepreneurs. To be an entrepreneur at heart, you need to have certain personality traits:

  1. Striving for autonomy
  2. Striving for profit
  3. Risk tolerance
  4. Social Capital (family, friends, role models)
  5. Trust and trustworthiness
  6. Optimism

Societies that are producing a lot of those personalities are statistically the countries with most of the entrepreneurial activity. Those people are deciding to “do their own thing” mostly due to four guiding motives:

  1. To earn a living because jobs are rare.
  2. To reach a high standard of living.
  3. To continue a family tradition.
  4. To change the world.

Total early-stage entrepreneurial activity (TEA)

The Global Entrepreneurship Monitor is showing some interesting findings regarding the global activity of founders. This graph is showing the results of the question: “Are you expecting to start a business in the next three years?” (% of adults aged 18–64 agree)

On the other side we are also having data on the actual entrepreneurial activity in the respective regions:

Those findings are showing that Europe has a lot of potential: there is room for improvement, but several European countries are starting to wake up. In Germany the start-up scene is growing but statistically, we are still far behind most of the rest.

Five reasons why Entrepreneurs are important for a Market Economy

  1. Entrepreneurship Accelerates Economic Growth
  2. Entrepreneurship Promotes Innovation
  3. Entrepreneurship Can Promote Social Changes
  4. Entrepreneurship Promotes Research and Industrial Development
  5. Entrepreneurship Develops and Improves Existing Enterprises

Just to name a few benefits of entrepreneurial activity. Regions that have less start-up fire heating up the economic landscape are more likely to have deficiencies in those areas; and Germany is a good example for this.

Here, traditional companies are still taking up a tremendous space of the total economy compared to innovative start-ups – this might have been beneficial in an age of industrialization but is now getting in our way in the new age of information technologies.

Why we are struggling – and how to stop

In the EU numbers from 2020 revealed that there are 2877 public companies compared to 4407 in the US. France, the second largest economy in Europe, has the same amount of companies like the much smaller Israel. While the US has Amazon, Apple, Google, Facebook and Tesla, Germany has SAP – a 50-year-old software company.

There are several reasons for all this, but some are more significant than others: there is not enough venture capital in Europe and young companies are seeking funds in the US where markets are flooded with early-stage investments. The complexity of going public is also a hurdle for growth companies. In a situation like this, the stock exchange is more and more a playground for a handful of big players where even the stock exchange operators are profitable companies: they are benefitting more from big companies than from small, young ones. Moreover, the current low-interest environment makes debt also cheaper than equity capital.

Now it is on YOU to support innovation

… and possibly get rich in doing so. We are entering the age of the retail investor where the financial industry gets more and more democratized due to businesses like us, Aescuvest. Now it is time to be wide awake while the big players are counting their money. We all can invest in start-ups nowadays!

It takes less than 15 minutes to invest in a start-up as a completely new investor with Aescuvest.

If you haven’t done so: make sure to see our latest investment opportunities and make your decision, which venture you want to support and be a part of.

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