By Shandy Lo
Two German entrepreneurs traveled almost 10,000 kilometers to Silicon Valley to find a backer for their startup idea. They tell us what’s so special about networking in the U.S. and why it’s not the same in Europe.
Every startup founder dreams of being successful and of attracting an investor. Aspiring entrepreneurs Jörg Bienert and Michael Hummel were prepared to go as far as Silicon Valley in pursuit of their dream, and managed to secure a million-dollar investment deal from Sun Microsystems co-founder, Vinod Khosla. Their company, ParStream, has developed a technology that delivers ultra-fast analytic results on big data.
Bienert and Hummel were able to spend three months in the nerve center of the IT world after winning a place on the German Silicon Valley Accelerator Program. This initiative, funded by the German Federal Ministry of Economics, aims to give German entrepreneurs the opportunity to build up business networks in Silicon Valley and, ideally, to find an investor. In this interview, Jörg Bienert talks about his experiences in Silicon Valley, explains the obstacles faced by startups in Germany, and points out the potential pitfalls.
SAP.info: What gave you the idea to set up ParStream?
Jörg Bienert: ParStream is actually a spin-off of our consulting company, empulse Gmbh. Back in 2008, we were commissioned to work on a tourism project that involved developing an online travel search engine. We had to analyze 14 billion datasets, but we couldn’t find a database technology that would help us do it. In the end, we developed our own algorithm and compression techniques and created a prototype with one billion datasets on a single server. And that’s where we got the idea for ParStream.
Why did you decide to apply for the German Silicon Valley Accelerator Program?
We’d been to Silicon Valley a few times before and we knew that networking was supremely important in the U.S. Things happen at a very different pace over there. When we heard about the program, we thought it would give us exactly the opportunity we needed to build up those all-important networks.
Was it always your intention to go to the U.S.? Did you consider Europe or Asia at all?
As far as we were concerned, the United States was really the only option, because Silicon Valley’s IT network and ecosystem are unique. There’s no better place to find customers and business partners.
How did you qualify for the program?
Basically, about forty startups turned up on a specific day to pitch their business ideas. Each one had a ten-minute slot. We were one of the six who were selected. Starting in June 2012, we then had six months in which to build up contacts in Silicon Valley and spend time with our coaches, honing our ideas and our business interview techniques.
What benefits does the program offer?
Being accepted to the program means that you are automatically provided with an office and a number of coaches. You have to pay for your travel, accommodation, and living costs yourself. Obviously, it’s very important to have a place to work, a roof over your head, and the infrastructure you need; in other words, a stable base from which to work. Another valuable component of the program is the coaching you receive, because it teaches you how to present your business case to a potential investor and makes you aware of all the aspects you need to consider. The most valuable element, however, are the networking opportunities that the program provides. It opens doors for you and gets you introductions to all kinds of people – including potential investors and venture capital companies. For me, these networking opportunities are what make Silicon Valley so unique. You get to meet the right people much more effectively and faster than you do in Europe.
Jörg Bienert, CEO of ParStream, talks about his startup experience and how to find success in Silicon Valley (Photo: private)
Who were your coaches?
Most of them were fellow Germans, but we also worked with Americans who had spent time in Germany. They all had an entrepreneurial background or had founded startups themselves.
Your stay in Silicon Valley was clearly a great success because you managed to secure an investment from Vinod Khosla. Was it as simple as it sounds?
The general rule of thumb is that it takes at least three to six months to find an investor. We attended 60 meetings with potential investors while we were in Silicon Valley. During the most intensive period, we had up to seven appointments scheduled every day.
What did you learn from the program?
What we found was that once our talks with one investor had reached a relatively advanced stage, other potential investors realized that we were an interesting option and that we would soon be “snapped up”. This speeded up the whole process significantly and gave it a momentum of its own. Inquiries started pouring in from all sides. What we learned from this is that you should never give investors the feeling that you’ve got plenty of time. You have to exert a certain amount of market pressure.
Networking is supremely important. It’s vital to talk with lots of people, because you sometimes discover new contacts purely by chance. It took us no time at all to build up a network that is at least as big as the one we have in Germany.
What difference has the investment made for you?
Well, our bank account is certainly looking pretty healthy (laughter). Seriously though, it gives us the foundation we need to plan accurately for the future and to investigate other avenues of investment. The fact that an American businessman has invested in us has also altered our image on the German market. We wouldn’t command the same degree of attention if our investor were German.
We’ll certainly use the capital to expand our business in Germany, but our main objective is to build up our U.S. business. Our development operations and company headquarters will remain in Cologne, Germany. After all, it’s the German “GmbH” that Vinod Khosla has invested in.
Would you say that startups in the United States have it easier than their counterparts in Europe?
Investors in Silicon Valley move faster than European investors, and business talks begin at a very early stage. That’s what the market thrives on. The process of investing in startups and entrepreneurships is part of daily business life in Silicon Valley and enjoys a much greater status than it does in Europe. The Americans are more willing to take risks; in Silicon Valley, particularly, you sense that there’s a very different spirit at work in the business community. When you add this to the high-speed communication and networking that is possible there, you get a very different momentum.
We held investment discussions in Germany too, but we soon realized that it made more sense for us to focus our efforts on the U.S., because things happen faster there and we need to establish our product on the U.S. market.
Would you say that Germany’s startup culture is off the pace?
American companies are more willing to take risks. They move faster. And they believe in new technologies. They are also more open to new business models. In the past, German companies have tended to invest in startups that copy a business model, so-called “copy cats”. Germans focus more on where and whether a model has already been successful. There are lots of German startups developing on a very high technological level, but it takes them longer than their American competitors to get their products to the market. So they end up being overtaken left and right by U.S. companies.
In Germany, it takes too long to arrange a business meeting with a partner or an investor. In the U.S., networking happens much faster. And you have to be prepared to follow the pace. For example, business partners expect you to respond to an e-mail inquiry within 24 hours.
What advice can you offer startups that want to try their luck in Silicon Valley?
They should be prepared to adjust to the way Americans do business and be sure to stick to the rules. We probably broke them on a couple of occasions. Never postpone appointments, always show up on time, adapt to the way communication takes place, and be straightforward.
Would you say that it is easier to found a startup in Germany today than it was three or four years ago?
Lots of investors in Germany are certainly prepared to take more of a risk than they were a few years ago. The reason is that the hurdles to investment are lower and less difficult to surmount. Cloud services, for example, have made the IT infrastructure much cheaper and more flexible: As long as you have a notebook and mobile data connections, you can work anywhere. And, thanks to the Internet and social networks, it has become much easier to find contacts and build up networks.
What are the typical mistakes that young entrepreneurs make?
They tend to devote too much time to the development phase, which means that by the time they take their product to the market, the market has gone. Also, they spend too long “cooking in their own juice” and fail to obtain feedback from outside. Startups should always be willing to learn. Another common mistake is omitting to conduct a market analysis.
What are your three “top tips” for startups?
First, build up a good network. You won’t get anywhere without one. Second, act fast. It’s very important to make and execute on decisions quickly. And third, stay in control. You should never assume that things will simply start happening just because you’ve made a few good contacts. You have to stay on the ball and show 150% commitment.