Berlin is becoming one of the most promising tech startup hubs in Europe, according to The Economist, Wired, and many other sources with their eye on global startups. The city’s coolness factor, its “poor but sexy” vibe, and many unique structural advantages attract founders and investors from all over the world. These days if a US tech startup is looking to expand into Europe, they often look to Berlin. This dynamic and growing city is worth keeping your eye on.
Berlin’s track record in the startup scene has been an unbroken upward trend. So far, there still have not been many big exits or impressive later-stage successes, but many Berlin-based companies are well positioned to change the game in the near future and industry experts often compare Berlin to New York five years ago.
Seed money is practically on the street, and is bringing even more candidates for future success. There are many innovative startups which are growing quickly and look set to gain serious global recognition. These include examples such as: the fast growing online audio distribution platform SoundCloud, which reached 250 million monthly users as of last month; ResearchGate, the world’s largest social and collaborative network for scientists (with Bill Gates as an investor); and GetYourGuide, an online booking platform for holiday tours and attractions, which raised one of the biggest A funding rounds in Europe earlier this year with $14 million including US investors. Other startups such as Amen, where Ashton Kutcher is an investor, or 6Wunderkinder, which recently received $19 million from US investor Sequoia Capital were much talked about but did not make the walk yet.
Clone builders like Rocket Internet with stakes in approximately 200 startups worldwide raised $1 bn in 2012 alone. In 2013, one of their startups, Lazada, rasied another $250 million. The startups in which it invests employ thousands of people worldwide and hundreds in Berlin, bringing a serious lift to the city’s entrepreneurial ecosystem. Rocket Internet has often been criticized for its pure copying of successful US startups but beyond this, another estimated 2,500 startups flourish and give true substance to Berlin’s fast-growing digital economy within areas such as applications, marketing, cloud computing services, and customer services in e-commerce and digital content. Let’s take a closer look what makes Berlin so different.
The City’s Magnetic Pull
With a population of 3.4 million people, Berlin is not only Germany’s largest city, but also the second most populous city in the European Union.
Berlin takes advantage of Germany’s healthy economy and less youth unemployment than neighboring countries. It draws innovative creators from around the world and subsequently entrepreneurs to source potential talent.
The city has profound strength in socio-demographic criteria, which results in a unique selling point within Europe. In addition, its central geographical location with access to the Russian and Eastern European markets, access to great universities, low cost of living, and little industrial competition, all contribute to its popularity. One can gain easy access to expert know-how and experienced staff. By 2020 it is expected that more than 100,000 jobs could be generated through in the startup scene.
Spirit of Freedom
Although still in infancy compared with global tech centers like New York and San Francisco, Berlin has a community of angel investors have been beneficial to the city’s development for quite some time. Venture capital has followed and many big German and international names have either moved their headquarters there or opened an office to take part in the entrepreneurial rise of the city.
The city’s pull is undeniable. American startups like Airbnb, chose to relocate from their Hamburg location, and Twitter favored Berlin over any other German city. Telecom & IT blue chip companies like Deutsche Telekom with hub:raum and Microsoft also run their accelerator programs in Berlin with Microsoft about to open up the top floor of its brand new office on Berlin’s chic Unter den Linden to new startups. Media giant Axel Springer has been shifting its activities towards digital investments and mail-order group Otto have been present and active for a while now.
What is it about Berlin that has made it so attractive for startups to develop? First, Berlin offers a free spirit and social openness that is conducive to innovation. Combined with the strong German work ethic, execution follows up the idea.
Second, prices have been, and remain, relatively low compared other European cities. At the same time, competition for human capital was not very high,, although now it is intensifying in areas such as IT and marketing.
Third, existing startup founders are actively engaging with the community by investing in, and advising the next generation of startups. Most importantly, successful entrepreneurs are starting to reinvest in many of the ventures of their peers, such as the Swiss serial entrepreneur Christoph Maire or investor Klaus Hommels, SoundCloud’s CEO Alexander Ljung, Amen’s Felix Petersen, DailyDeal founder Fabian Heilemann or the young serial entrepreneur Lukasz Gadowski with his TeamEuropeVenture partners just to name a few.
After years of bringing together the right pieces, now all the components of a successful startup environment are present in Berlin: entrepreneurs, universities, corporate, media dedicated to entrepreneurship, and now foreign capital which has moved to Berlin recently – much needed for the still tricky financing beyond series A. Examples include one of the leading US VC firms, Union Square Ventures, which invested in iLiga (the leading European soccer app which currently has 10 million users), and New York-based Shutterstock, which opened their European headquarters in the city this year.
Promising Future
So far, the success of the Berlin ecosystem seems to have been entirely driven by a grassroots, community effort.
A recent study released by McKinsey, highlighted the potential of Berlin, though key influencers are still skeptical about the future possibilities for the scene. A major exit must happen in order to pull enough international attention and boost Berlin to the next level.
Much of the Berlin startup scene reminds New Yorkers of the scene here a couple of years ago. Needless to say, the transformation of Berlin is fascinating to observe and the world eagerly anticipates its future.
Read part 1 of this article – Berlin: Making Strides to Globalize