Among the companies using an Internet or e commerce business model, three segments may be
identified: 15% of firms are offering products and services via the Internet in the B2B and B2C
e commerce sector, roughly 77% of all start ups are in the Internet related service sector
(multimedia, ISPs, and integrators), and only 6% are in the Internet technology sector
(infrastructure and software) (Krafft, 2000).
In the beginning of 2001, roughly 100 e commerce firms were listed on the stock exchange, most
of them in the so called new market (Neuer Markt) segment. Most of the 750 IPO candidates
at this time were venture capital backed, while about 14,000 small and medium sized start ups
with up to 50 employees were financed by their own funds or bank credits. The venture capital
investment boom started in 1998, about four years after the first wave of start ups. The formation
of private venture capital investment in young and risk afflicted start ups started late because
public subsidies for entrepreneurs are available in Germany relatively easily. The need for more
money to invest increased with the increasing new economy bubble and from this point on,
venture capital was needed (Krafft, 2000).
FIGURE 11 Start up Wave was Without Access to Venture Capital
1997: Opening of
. of 1000
Investm ent bo o m
lagging fo ur years behind
startup bo o m
Number of firms founded p.a. (a)
Number of firms backed by VC p.a. (b)
Source: Survey of 332 German VC firms, analysis of ~9,000 Internet/E Commerce start ups. (Krafft 2000)]
Projection based on ~9,000 identified startups
Projection based on 581 companies for which a VC investment could be identified. The year is determined by the
first VC s announcement to invest.
Regarding the start up profiles in the US and in Germany, significant differences are observable.
In comparison to US start up founders, German founders are younger (on average 30 years of
age in comparison to 40 years of age in the US). German founders have reached a higher
education level (74% university graduates or PhDs) in comparison to the US (50% postgraduate
study or degree) in 2000. These circumstances might provide a competitive advantage in
Germany when the business cycle and the accompanying interest in e commerce regenerate
themselves in the future (Krafft, 2000).