Startup Hub Berlin
27 March 2014

How Did Berlin Become a Startup Hub?

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From copycats to international attention: how did Berlin become a big startup hub?

Europe is not Silicon Valley, and it doesn’t have to, and we’ve already talked about it. But as the Valley once did, some startup hubs have emerged during the last years all over the continent. Berlin has got the greatest buzz. “Is Berlin Europe’s Silicon Valley?”, some asked. Is it? With new accelerators, recent international investments, major events, vibrant lifestyle and cheap cost of life, Berlin is one of the hubs to watch. What’s going on there?

You know the story: the Berlin wall fell in 1989. Attracted by low rent prices and a dynamic art and music scene, during the 90’s artists moved and the city turned out to be an attractive hotspot for young and creative people – some sort of ‘the place to be’. By mid-2000’s, Berlin was taken.

“The whole city is a startup”

It’s 2014 and Berlin still is one of the most tempting cities in Europe. Since 2007 rents have risen by 35%, but they remain low compared with other european capitals (let’s say London or Paris). Artists would suggest that it is not “what it used to be”. But it has gained a new status: to be, now, one of the leading european tech startup hubs. Media has noted it (here are The New York Times, The Guardian and The Economist, comparing London and Berlin, stories on it), as well as its people. “Berlin is a city of creativity an tech”, said Alex Jlung, Soundcloud co-founder and one of the names on the scene. “It’s counterculture. People do things their own way and that’s very much like startups are. And that is how Berlin is now (…) Creative and fun. One of the things why it is good for startups is because the whole city is a startup”.

“It’s all about the talents”, adds Berlin’s Technology Foundation CEO, Nicholas Zimmer. “It is a tolerant and international place to live, with comparably low cost of living and a dynamic club scene. That attracts young people from all over the world. I like to think of it as Open Source: you can use, re-mix and give back to what the city has to offer. You won’t find that in any other German city”. Its centric location plays a role too. “There is a mixture of backgrounds. When you walk around the relevant areas you realize that people don’t really speak German. It’s English. People from Southern and Eastern Europe come here, as well as lots of Americans and Asians”, says Max Claussen, venture capitalist at Earlybird Ventures.

Poor but sexy – just as startups are

“Berlin is poor but sexy”. When in 2006 the city’s Governing Mayor said this in a TV interview he probably did not think his quote will become such a slogan (or did he?). Poor? Berlin’s economy and high unemployment rate used to differ from the rest of the country (think of Munich or Frankfurt). That made a distinction to other tech hubs. As Mike Butcher, Techcrunch Europe editor, said in Hy!, “in London entrepreneurs live together with other big industries such as fashion, media, finance or marketing. Startups in Berlin are becoming the main character, in creation of employment and in investment”. Jlung had similar thoughts. “It depends on what you are doing. But if you are an early stage startup, sometimes in London people get distracted by big companies and potential partnerships, when you should be focusing on product and user experience. For us, it was easier to do that in Berlin”.

We have the lifestyle, low cost of life, international talent and a less competitive economy. Is it enough? As Berlin has been, for years, the most talked-about hub, some wondered if it was pure hype. And according to Ljung in The New York Times, the scene is young and the city “isn’t proven yet”.

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The copycat factory – and how it shaped the ecosystem

Founded in 2007, Rocket Internet is a startup incubator specialized in building copy cats. That is: they identify successful business ideas in the big markets (like the US) and then create their versions for emerging markets. Zalando, inspired by Zappos and operating in fourteen countries or Wimdu, Airbnb competitor, whose platform includes 39 different domains, are some examples. Others, like Citydeal, have been sold: it was purchased by Groupon for 126M in 2010. Rocket Internet’s business model has, indeed, been controversial.

“Previous generations of Berlin start-ups were copycats”, said investor Matt Cohler to The New York Times. Other exits in Berlin include Jamba, Brands4Friends and DailyDeal, which were, indeed, bought by its competitors. But from Claussen’s perspective, Rocket Internet “are good for the ecosystem”. Why? “They employ thousands of people. Product management, online marketing, engineering, logistics… And all go through the education on how to run a business. At some point they get tired and do something else”.

Major companies putting an eye: Microsoft, Deutsche Telecom, Google and Axel Springer

Last January, Chiara Zeccheto joined Urlist, a social platform for sharing and discovering links. Before that she worked as bussiness development manager at Plinga, a social game publisher and Rocket Internet venture. Founded in Milan in 2011 by Alberto Granzotto, Urlist moved to Berlin in 2012 “due to the opportunity to grow the startup in an international and talented environment”. Its office is in The Factory, an internet-businesses campus opened in 2011 and supported by Gooogle for Entrepreneurs. “It is the perfect place to be in Berlin if you are interested in startups. Even if the main building will be completed in the next months, the hype and interest in the startups hosted by the Factory is high”, she says.

Google is not, at this point, the only major company showing interest in Berlin’s ecosystem. “I have seen mostly private initiatives and accelerators spread around the city. It is interesting to see: Deutsche Telecom, Axel Springer (partnering with Plug and Play, a Silicon Valley’s accelerator), Microsoft… And smaller accelerator programs or coworking spaces. If you are an entrepreneur moving here, the variety of programs is pretty amazing”, says Claussen.

Public initiatives are being considered too. “The hub is pretty much self-sustained. We have adapted our public funding vehicles to make more seed funding available”, says Zimmer from TSB. “But most of the tax issues that may influence investors are to be dealt with on the German federal level. However, we are considering programs to foster entrepreneurship in our universities, to have a public supported startup campus on the area of the former Tempelhof airport, to facilitate series A/B fundings and have a delivery unit coordinating all those efforts. Those ideas are based on a study McKinsey made for Berlin last year which had some impact, obviously”. Read here McKinsey study: Berlin can become Europe’s leading startup hub.

Following the trend, politicians have also joined the party. Back in March 2013, Angela Merkel toured startups. “If you think about the startup scene as a growing ecosystem, it is mainly due to the private initative and the entrepreneurial drive of people”, says Claussen. “Yes, Merkel was doing a startup tour, but that’s late. Which is good! Because it means that the ecosystem was able to create itself – not intended to be created”

When Techcrunch announced that its startup event, Disrupt, was finally coming to Europe and to be held in Berlin, some wondered why there and not in London. London’s calendar was full of tech events and, as its organizer Mike Butcher said, “it felt right at this point in time to acknowledge the explosion of growth in Berlin amongst startups like Soundcloud, ResearchGate and Wooga, many of which are being created up by an international set of founders”.

Disrupt Europe later went to London, but at that point Berlin’s ‘startup status’ was there. Just as McKinsey study suggested.

The new generation of Berlin startups

“What I’ve seen from the past five years are truly original and non linear tech companies. They have their own DNA. Think of Researchgate, Wunderlist, Soundcloud. It has changed”, agrees Claussen. Researchgate, a social network for scientists (founded in 2008, 35M total funding), Wunderlist, a productivity app by 6Wunderkinder (founded in 2010, 23.9M total funding), Soundcloud (founded in 2011/123M total funding) a social music platform are the best known ‘made in Berlin’ startups, but not the only ones.

EyeEm (founded in 2011, 6M total funding), a mobile photo sharing app just announced that it will be partnering with Getty Images to distribute photographs. The Football App (founded in 2008, 20M total funding), a detailed football information platform, recently raised funding from NY firm Union Square. And earlier this month, Panasonic bought streaming radio startup Aupeo.

“I can see that we are having a lot of innovative startups gaining international visibility. They are shaping Berlin’s startup scene and that’s important for the whole community”, says Zimmer. For new startups, like Urlist, that ‘vibe’ is a good thing. “The hype and interest in the startups hosted by the Factory is high, thanks also to the last investment to 6Wunderkinder, a startup sharing with us and Limemakers one of the buildings at The Factory”, says Cheeze. And there’s easier access to capital, too. As reported by Wired in its startup hubs series, Berlin attracted €173 million in venture capital funding in 2013.

So, what’s going on next? Is this so-called-ecosystem young and unproven or not? “I think there is always this false assumption to measure startups in a entrepreneur ecosystem on a short sighted mode. Developements are growing and there are a lot and interesting global companies. I would say some of the prove has been given”, considers Claussen. “But in terms of outside exits and large companies building up, I think we’re not there yet. It will take longer, five or ten years. But in the medium term, and for the next four years, a lot of changes will happen”.

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