@Nicolas_Colin
Post
To clarify, I think the difference between the US and any European country, from a tech company-building perspective, is as follows:
1️⃣ The US runs a huge trade deficit with the rest of the world, which creates a mirror effect: much of the world’s capital ends up in dollars and wants to be invested in the US. The corollary is that any company that's in the US and raises in dollars becomes a magnet for capital. This, not the notaries, explains why US companies have an easier time raising funds than German ones.
2️⃣ The current techno-economic paradigm, the one of semiconductors, computing and networks, has a feature familiar from software economics: you need very high up-front investment to reach scale and start generating effectively unlimited returns at near-zero marginal cost. This rewards any ecosystem where risk seed capital is abundant. In other words, it rewards the US, and Silicon Valley in particular.
3️⃣ It obviously helps that an entire segment of the financial services industry, venture capital, has emerged since 1979 to channel part of that abundant capital towards innovative companies. In fact, that may be Silicon Valley’s main contribution to the American company-building machine: the flywheel through which it attracts talent, which can then raise capital relatively easily, which in turn attracts more talent.
4️⃣ More specifically, US venture capital is funded by what I call the “overflow mechanism”: domestic capital, such as endowments and pension funds, is crowded out of safe assets by foreign capital and has to move up the risk curve to find proper returns. Sure, favorable regulation and a degree of home bias reinforce this effect: it is easier for a US LP to fund a US GP. Still, the end result is that a fully functioning venture capital industry exists at scale only in the US, and it is a by-product of the US acting as a magnet for foreign capital.
5️⃣ The US has plenty of legal and regulatory problems comparable to those damned German notaries and the mandatory role they play in forming companies. But everyone ignores the US problems because capital is abundant, making it possible to pay lawyers to deal with all that and leave founders largely unbothered. Note that the US stands out as the country with the most lawyers per capita in the world. It’s not even close.
6️⃣ America’s advantage will disappear if one of two things happens:
(i) The trade deficit disappears, leading to a reversal of capital flows. That would also essentially mean that the dollar ceases to be a reserve currency and Americans have to pay more for less, that is, a hit to their living standards; or
(ii) We shift to a new techno-economic paradigm, one that does not reward massive up-front investment as much as semiconductors, computing and networks do. That would typically happen if the next paradigm has more in common with industrial and manufacturing economics than with software economics... and it definitely looks as though we’re heading that way.
7️⃣ So perhaps the mistake is to assume that Germany is bad at building companies simply because it is less well suited to the current paradigm. If the US trade deficit eventually unwinds and capital starts flowing back towards Europe, while the next techno-economic paradigm rewards industrial depth, manufacturing capability and the ability to turn capital into physical assets rather than software-like returns, German founders may find themselves with the home advantage. I'm 100% sure the notaries will still be there, but they will matter a lot less.
Cc @christianmiele @MangesiusH @patrickc @michaelxpettis
Quoted post by Nicolas Colin (@Nicolas\_Colin) Agreed.
France doesn’t have notaries reading documents aloud for hours, yet it has not done any better than Germany at building iconic tech companies.
What’s crazy is that the experience of sitting through notary meetings in Germany, Austria and other countries inspired the whole ill-designed 28th regime. Talk about killing a fly with a hammer.
Explanation
Nicolas Colin is arguing against the standard explanation for why Europe—especially Germany—produces fewer giant technology companies than the US. The usual story is that Europe loses because incorporation is bureaucratic, regulation is cumbersome, German founders have to sit through absurd notary procedures, etc. Colin’s claim is much more structural: those frictions are real, but they are small compared with the US advantage of having an extraordinary amount of risk capital available. Colin is a former French official and co-founder of the European startup organization The Family; much of his recent thinking combines startup economics with Carlota Perez’s theory of successive “techno-economic paradigms.” ([The Family][1])
The key causal chain he wants you to see is:
US as destination for world savings → lots of dollar assets/capital in the US → domestic investors pushed toward somewhat riskier investments → enormous VC industry → startups can raise huge amounts → talented people move there because funding exists → their arrival creates more fundable startups → repeat.
The first step is easiest to misunderstand. A country’s current-account deficit and its net capital inflow are accounting counterparts: if the US buys more from the rest of the world than it earns from selling to it, foreigners ultimately acquire additional claims on US assets. But Colin is making a stronger causal claim than the accounting identity: global savers actively want dollar assets, so capital flows into the US and the US trade deficit is partly the consequence. That view is strongly associated with economist Michael Pettis, whom Colin tags. Pettis argues that excess foreign savings seeking US assets can force the corresponding US current-account deficit rather than merely financing a deficit independently created by profligate American consumers. This causal direction is debated; the identity itself is not. ([Carnegie Endowment][2])
His “overflow mechanism” is then: suppose foreign investors disproportionately want relatively safe US assets—Treasuries, high-grade securities, etc. Their demand makes those assets expensive and their yields lower. US pension funds, university endowments and other institutions still need returns, so some capital migrates farther out on the risk spectrum into private equity and VC. Colin therefore sees American VC not merely as clever Silicon Valley culture but as the downstream plumbing of the global monetary system.
The reference to “since 1979” is specific. A US Labor Department reinterpretation of ERISA’s prudent-investor rules made it much clearer that pension funds could invest in venture funds as part of a diversified portfolio. Pension-fund commitments to VC then increased enormously. So Colin is not claiming capital flows alone mechanically created VC; regulation helped build the conduit through which the capital could reach startups. ([SEC][3])
His “techno-economic paradigm” comes from Carlota Perez. Colin calls the present one the age of “semiconductors, computing and networks.” Its characteristic business economics are unusually friendly to venture capital: spend enormous amounts upfront developing chips/software/networks and acquiring users, then potentially serve the next million customers at very low incremental cost. That creates extreme winner-take-most returns, making abundant speculative capital unusually valuable. ([Drift Signal][4])
The surprising part is his conclusion: Germany may not be generically bad at capitalism; it may simply have the wrong comparative advantages for this particular technological era. Colin thinks the next paradigm may revolve more around electricity, batteries, grids, robotics, factories and other physical infrastructure. Those require manufacturing competence, industrial supply chains and turning capital into physical plant—not just financing software firms until network effects kick in. In that world, Germany’s existing industrial depth could matter more and Silicon Valley-style VC abundance somewhat less. This is a thesis, not an established forecast; Colin himself explicitly presents this broader framework as a practical model rather than settled economic truth. ([Drift Signal][5])
The “28th regime” jab is aimed at the EU’s new EU Inc. proposal: an optional EU-wide corporate form meant to sit alongside the 27 national systems and make incorporation fast and digital. ([European Commission][6]) Colin thinks its proponents diagnosed a secondary problem as the central one. His joke is that abolishing a three-hour German notary meeting might make founders happier, but it does not manufacture the gigantic pool of capital that makes the American startup machine work.
[1]: https://www.thefamily.co/about?utm_source=chatgpt.com "Building Ambitious Startups | The Family" [2]: https://carnegieendowment.org/china-financial-markets/2018/08/the-us-trade-deficit-isnt-caused-by-low-american-savings?utm_source=chatgpt.com "The U.S. Trade Deficit Isn’t Caused by Low American Savings | Carnegie Endowment for International Peace" [3]: https://www.sec.gov/files/rules/final/2013/33-9415.pdf?utm_source=chatgpt.com "of this standard as to whether pension funds could invest in venture capital and start-up companies. In 1979, the Department clarified its interpretation of this standard by indicating that portfolio diversification is a factor in determining whether an investment is prudent, which indicated that pension funds would not be precluded from making investments in VC funds.¹³¹ Following this regulatory change, the VC industry experienced substantial growth: VC commitments increased from $218 million in 1978 (of which pension funds supplied approximately 15%) to $3 billion in 1988 (of which pension funds supplied approximately 46%).¹³²" [4]: https://www.driftsignal.com/p/my-worldview-in-10-ideas?utm_source=chatgpt.com "My Worldview in 10 Ideas - by Nicolas Colin - Drift Signal" [5]: https://www.driftsignal.com/p/late-cycle-investment-theory?utm_source=chatgpt.com "Late-Cycle Investment Theory - by Nicolas Colin" [6]: https://commission.europa.eu/news-and-media/news/eu-inc-making-business-easier-european-union-2026-03-18_en?utm_source=chatgpt.com "EU Inc. – making business easier in the European Union - European Commission"