Why does venture capital work in some countries but not in others? This clinical study of the first German venture capital firm examines the difficulties of creating a venture capital market in a bank-based financial system. The analysis identifies the problem of creating appropriate governance structures to protect investor returns. It exposes the difficulties of established banks - not to mention government - to devise venture investment strategies. It identifies the availability of high quality entrepreneurs as a critical complement. And it provides a reinterpretation of the hypothesis of Black and Gilson (1997), arguing that the existence of an active stock market is a necessary, but by no means sufficient condition for the development of venture capital.