Tech Destination: Berlin

by Marc Lamik - 10 Apr 2017

In terms of branding, Berlin does very well. It’s been known as a haven for gifted fugitives or creators – or both – since the roaring twenties, and while the city’s squat skyline remains low the ceiling for success is inordinately high. Berlin’s startup scene is a constant newsmaker, as its growth rockets and it’s inevitably compared to older tech hubs like London or Silicon Valley.

The work hard, party hard capital comes with more than a few myths, even in the platform industry. That steaming cup of coffee on your co-worker’s desk on a Monday morning might very well suggest they’ve come straight to the office from Berghain. It happens. It’s a reputation the city largely enjoys, and a handy conversation starter at international conferences; that you’re more likely to find a couple of beers in the kitchen of a Berlin startup than containers of protein shakes.

I first moved to Berlin eight years ago, seeking somewhere I could involve myself deeply in startup culture. I wasn’t disappointed. A series of early movers such as brands4friends brought the first of some very talented people to the city; Zalando followed, together with Soundcloud. The late 00s marks the time Berlin recognised itself as a startup hub and started growing its community in earnest.

As with any ecosystem, there are advantages and disadvantages to living, working and creating in Berlin. Affordability, lifestyle, and diversity hangs in a constantly changing balance with complex paperwork and a tug-o-war for the best talent. But we’re not worried: Berlin’s agile, driven nature is as inexhaustible as its partygoers.

Benefits

Berlin is affordable. Londoners are reported to spend 72% of their income on rent, while in Berlin the figure drops to half that figure; this when London pays startup employees only $3,000 more per year than Berlin. The work/life balance is also kinder than in other famous tech hubs, especially as regards families. The three years of kindergarten before school are free, the education system is good, and pleasant, family-friendly boroughs are still close to the city centre.

Over 30% of startup employees in Germany are foreign nationals, while approximately 621,000 of Berlin’s 3.5 million residents do not hold a German passport. These numbers make for a vibrant, international city which ups the attraction for potential incoming talent. The diversity of personnel is reflected in the spectrum of industries represented. Berlin has some interesting fintech startups like N26 and Finleap, but it’s not a fintech city. Soundcloud is one of the most exciting platforms to emerge from Europe, but creative services don’t dominate the scene. We have a vibrant gaming background with the likes of Wooga, as well as strong e-commerce and service platforms like Home24 and Delivery Hero.

For younger companies, the ecosystem is equally rich. Incubator concepts like Betahaus and Factory enable businesses to come here, start fairly small and work together in a vibrant, creative atmosphere. The abundance of meetups, discussions, workshops, and pitching events allow for valuable connections and a healthy, supportive community.

Although we’re still trying to join the dots between tech hubs within Europe and beyond, the hunger and potential for connection is huge. Berlin enjoys a close relationship with Stockholm, comparable in terms of maturity, business mentality and the types of startups to emerge. Soundcloud’s connection to New York and Zalando’s tech hubs in Dublin and Helsinki also highlight the benefits that come from linking cities and focusing on relationships additional to Silicon Valley.

Challenges

Like any tech hub, business in Berlin doesn’t come without challenges. Germany has a well-founded reputation for being somewhat enamoured with bureaucracy, especially when compared to other tech hubs in Europe. In a recent survey by a German startup monitor, over half the founders questioned said the government’s grasp of startup requirements was “unsatisfactory” or “deficient”. Coupled with the absolute necessity of German language proficiency and the complicated tax rules, young international startups have a lot of leg work to do before they place their order for crates of Club Mate.

Competition for talent is getting tougher year on year, especially as large companies like Amazon are drawn to the city and inevitably seek out the most capable people. For young startups, this unfortunately means a much harder fight for personnel. To ensure Berlin remains attractive internationally, we need to support potential founders or talent, and significantly simplify the setup process. The more great people we get here, the better the whole ecosystem becomes.

Future of Berlin

It’s tough to anticipate Berlin’s future given how much the ecosystem has changed in just the last eight years. What we are seeing recently is greater confidence from venture capitalists. Ernst & Young reported that €2.145 billion were invested in Berlin’s startups in 2015– €1.254 billion more than in 2014; a figure that ranked the city as Europe’s biggest venture capital beneficiary. Cherry Ventures raised a €150 million fund last year, and many more former founders of the Berlin area who made their exits are now reinvesting in the local scene; an absolutely vital component of maturing any ecosystem.

Greater connectivity between hubs, more talent, and a streamlined setup process are all areas we’d like to improve in the coming years, but as Berlin pushes harder and diversifies more, we’re likely to see these challenges shrink against the city’s ever-growing strength and world-famous dynamism.

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