Mark Huberty, Johns Hopkins School for Advanced International Studies, The Johns Hopkins University The development of the high-technology startup sector in Germany is critical for the adjustment of the German economy to growing international competition in traditional industrial sectors. The article explores whether changes to the German venture capital financing sector in the period 1995-2005 indicate an improved development path for high-technology startup firms. Based on the volumes and structure of venture capital investments during this period, I conclude that the venture capital sector has undergone substantial change in favor of financing and supporting high-technology startup firms. However, small firm behavior suggests that even with a changed venture capital sector, the overall regulatory structure of the German economy will result in lower rates of firm success than otherwise would be expected from a resurgent venture capital market. The policy implication is that, without additional regulatory reform favoring small, high-technology enterprises, the transformation of German industry will continue to be constrained.