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07 June 2016

The U.S. meets Germany meets Brazil – Differences in startup investment cultures

When you are in the Silicon Valley as a startup researcher from Berlin, you cannot help but compare those innovative hubs. Lately, however, I increasingly exchanged with founders and lawyers from Brazil about their economy as well as their startup growth. I could not help but wonder what the U.S., Germany, and Brazil might be able to learn from each other. 

Silicon Valley founders seldom doubt they will win investors over

The Silicon Valley is shaped by a positive attitude to financing, even when it comes to early stage investments. Venture capitalists, angel investors, and incubators are competing about who is going to both find and support the next startup unicorn. Various early stage startups stated otherwise, holding that it took them at least six months to lock in their first angels. They never doubted that they would eventually be able to persuade investors, though. American angels and angel pools are a lot about people who know each other, for instance, through being alumni from a similar university like Harvard, Stanford, or the MIT (Massachusetts Institute of Technology). Since those ties have been fostered for many years, they are strong and shaped by mutual trust. Their longevity indeed lives from many generations of successful alumni that identify with their alma mater. Along with that identification comes a seemingly natural bond to alumni of all generations. This underlines the theory of strong ties (Granovetter, 1973; Burt, 1997) as much as it explains many angel investments of early stage startups all over the U.S. At the meantime, the American legal system makes founding firms comparably cheaper and easier. Additionally, tech companies like Facebook with a valuation of $ 350 billion and more than 20 % of the world’s population signed up, show that taking risks pays off.

Berlin is embarking the journey of early stage investments

In comparison, Germany is only about to grow comparably strong networks. While German universities, and business schools in particular, fall behind when it comes to their generations of graduates, we still see how those networks impact and shape the startup scene of Berlin and Germany. Alumni from schools such as the WHU in Vallendar, the University of Munich, or the Zeppelin University in Friedrichshafen come to mind. The presence of Rocket Internet at various of their events, e.g. the IdeaLab!, cannot be denied. At the same time, German angel investors seldom fail to mention that they invested upon “a friend’s recommendation” or together with a pool of angels they had “made investments with before”. Angel investments are often about pooling interests as well as money. Apparently, the numbers of angel investors and pools grows. It also seems to be getting easier to persuade angels, incubators, or venture capitalists about early stage investments. Changing regulations like tax advantages, new public (e.g., Coparion with a volume of €220 Million) and private funds (e.g., Point Nine with €100 Million), and a general awareness of the innovative boosts startups provide, certainly support those advancements. It seems like Germany is growing into taking the risk of early stage investments.

Sao Paolo could re-accelerate its early startup growth

In contrast, Brazil is a lot more about corporate firms that set up incentivized funds. Those are usually set up to acquire and/or incorporate late stage startups, but less so to fund early stage startups. Before 2015/2016 B2C-startups for delivery services or online retail have been growing., for instance, became the leading online wine retailer in Brazil. The startup launched in 2008 and built up a customer base of 14 million within only one year.

The  success of those user-centred startups was also ascribed to centres like Sao Paolo or Rio de Janeiro that created many novel needs through an increase in both gentrification and urbanization. Yet, their struggling economy along with the high inflation rate put a sudden hold to their economic growth. Instead of investing and consuming, people hold on to their savings. They wait and watch what is happening in politics. This might also explain why the angel scene, that was only about to emerge before, has not grown further. Put differently, early stage startups “have a hard time finding investment”. Notably, Brazil lacks both an angel scene and incubators. The remaining options for early stage investment are either banks or international investors. Brazil is still dominated by few, strongly interconnected banks, though. Loans with up to 20 % interest rates are expensive. Additionally, the sources of public funds as well as the question of how the government provides for those funds is another reason for their economic crisis. At the same time, Brazil has very strict investment regulations. Accordingly, Brazilian startups are less interesting to investors from abroad and if they would be, they had to invest in expensive, international legal counsel.

It seems that the U.S. with a focus on the Silicon Valley is still ahead of many startup hubs when it comes to investments due to investor density and networks, legal structures, and the money available. At the meantime, Germany seems to be catching up with regards to an increasingly networked investor scene, changes in regulations, and new funds being set up. Lastly, Brazil, one of the strongest economies in South America, falls behind when it comes to foster startup growth.

Taken together, looking ‘left and right’, Germany can learn a lot from the U.S. and from collaborating with it when it comes to fostering startup growth. In fact, the increase of US investments in German startups show that collaboration has already started. At the same time, those learning processes might be beneficial to countries like Brazil. Since Brazil expects its economy to steady in later 2016, the insights gathered could advance their very own innovativeness in the long-term.

This post is part of a weekly series of articles by doctoral canditates of the Alexander von Humboldt Institute for Internet and Society. It does not necessarily represent the view of the Institute itself. For more information about the topics of these articles and asssociated research projects, please contact


  • Burt, R. S. (1997). The contingent value of social capital. Administrative Science Quarterly, 339-365.
  • Granovetter, M. S. (1973), The strength of weak ties, American Journal of Sociology, 1360-1380.

This post represents the view of the author and does not necessarily represent the view of the institute itself. For more information about the topics of these articles and associated research projects, please contact

Martina Dopfer

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