Over there: Germans flock to Silicon Valley

FRANKFURT -- A new group of European immigrants has landed in the U.S.

FRANKFURT -- A new group of European immigrants has landed in the U.S., but unlike the huddled masses of past generations, these modern-day dream seekers are highly educated IT professionals heading to Silicon Valley to start companies.

Frustrated by the lack of venture capital, bureaucratic hassles, and high taxes back home, a handful of German entrepreneurs have decided that they have to make it here, in the U.S., before they can make it over there -- or anywhere.

In addition to possible venture money, a West Coast address offers the startups access to a seasoned labor force and a vast network of strategic partners unmatched by anything back in the Old World.

"The entrepreneurs come to Silicon Valley to tap into the network of VCs but also the vast business network of technology companies, suppliers, lawyers, bankers etc.," said Rick Hoskins, president of Axis Capital Partners Inc., a Berkeley firm that invests in European startups. "In a world where speed and information reign supreme, these networks are critical. Silicon Valley is a key link."

VC headaches

Stephan Schambach, the 27-year-old German founder of Intershop Communications, a provider of electronic commerce software, would agree. He found there were practically no funds in his homeland earmarked for technology -- most investments were directed toward biotechnology or well-established companies.

"There are very few venture capital companies specializing in IT in Germany," said Roberto Zicarri, a computer science professor who also runs LogOn Technology Transfer GmbH, a high-tech marketing firm in Frankfurt. "Banks here don't want to take risk, and a startup IT company is a risk from their perspective."

Started in 1992, Intershop was one of the first East German high-tech companies to receive venture capital of any kind, but Schambach quickly came to regret the arrangement.

In exchange for just a $1 million investment, funds that were desperately needed at the time, Schambach had to surrender 30 percent of his company -- a sacrifice few Silicon Valley startups would have made for such a small investment.

Intershop, which recently convinced Deutsche Telekom AG to use its software in a $25 million deal, is now valued at $100 million and could go public within two years. It was named by one magazine among its "Hot 100" high-tech companies.

Like Schambach, Dirk Bartels, 36, founded his company in Germany but quickly saw he needed to be where the action is. After opening a San Mateo office, five-year old Poet Software landed $11 million from a U.S. backer. The developer of object database management systems has since moved its headquarters across the Atlantic and expanded to 120 employees.

Better tax laws

Bartels also benefits from U.S. tax laws that are more business-friendly. In Germany, corporate taxes can eat up to 60 percent of a company's net profit. But more importantly, the San Mateo location enabled Bartels to lure management talent unavailable in Germany -- veterans from Novell, Informix, and Lotus who had the marketing expertise to help him sell his product.

"The biggest problem [in Germany] is still finding good managers or management teams who are fed up with their old companies, and decide to build a business around a better idea," said Hoskins. Tapping the entrepreneur mentality