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Berlin is beckoning for tech startups

Written by Josh Russell on Wednesday, 06 January 2016. Posted in Communities, Analysis

With its unrivalled reputation for creativity and one of the most diverse talent pools in Europe, it’s easy to see why so many in the tech community are talking about Berlin’s burgeoning startup scene

Berlin is beckoning for tech startups

Europe is fast becoming an entrepreneurial force to be reckoned with and it’s fair to say that Berlin is the jewel in its crown. Whether it’s bringing together the best and brightest talent Europe has to offer or producing some of the region’s most staggering valuations, Germany’s capital has all the makings of the continent’s premiere startup hub. “It’s a creative city in which anything is possible,” says Pawel Chudzinski, managing partner at Point Nine Capital, the Berlin-based early-stage venture capital firm.

As with many a top tech hub before it, whether that be Shoreditch or Brooklyn, there is one factor that has undoubtably contributed to the explosion of startups in Berlin. When the Berlin Wall fell and the city was reunified, the prevalence of cheap Soviet-era property in areas like Friedrichshain and Kreuzberg made it a dream for cash-strapped artists of every stripe, further cementing David Bowie’s assertion that Berlin is the “greatest cultural extravaganza that one could imagine”.

But this hasn’t only created the perfect climate for artists and musicians: despite the fact that rents have risen in recent years, the overheads for a Berliner wanting to start a company are still significantly lower than they would be elsewhere. “Office rents are still quite affordable but what’s even more important is the cost of living,” says Kerstin Bock, co-founder and CEO of Openers, the organisation that connects Berlin startups with international corporates. “You can afford a flat here even if you’re a poor founder not earning that much.” This has lowered the barriers to entry for budding entrepreneurs and, inevitably, has led to an explosion in the number of startups in the city.

This has certainly made its mark on Berlin’s professional make-up. “There are only three kinds of people working here: politicians, artists and entrepreneurs,” quips Pan Katsukis, the founder of Remerge, the app-retargeting startup. And it seems that all the raw creative material floating around in Berlin has recombined into a community of entrepreneurs with creativity built into its very DNA. Katsukis relays an oft-repeated adage amongst Munich-based entrepreneurs that Munich makes startups to generate money, whilst Berlin creates startups just for the sake of creating startups. “There’s a bit of truth there,” he admits. “In Berlin, people really love building startups; it’s not about income but about being creative.”

This combination of low startup costs and a reputation for ingenuity has stood Berlin in good stead when it comes to drawing in talent from Europe and beyond. “What’s great about Berlin is that it’s relatively easy to convince people to come and work for its startups,” says Chudzinski. The buzz created by the city’s startup culture is encouraging skilled workers to flock to the city in droves; many successful startups are the product of a diverse range of Spanish, Greek, Polish, American, British and German talent working side by side. “There’s this open culture of welcoming people,” Chudzinski adds. “That accelerates the improvement of the talent pool.”

Bringing in such a broad range of perspectives has ultimately impacted on the kind of startups that Berlin tends to produce. Unlike London or Silicon Valley, Berlin is more generalist than specialist. “It’s not like Silicon Valley, which is super tech-driven, or London, where fintech is the big thing,” Bock says. While e-commerce, consumer apps, adtech, enterprise software and bitcoin have certainly all played a major part in the city’s burgeoning entrepreneurial scene, Bock emphasises that the real strength of the city comes from its multiplicity of ideas. “Our speciality is our diversity,” she says.

Something else that sets Berlin apart from London is how far removed it is from its country’s financial centre, which is based in Frankfurt. This definitely affected the way the city’s entrepreneurial environment evolved. While startups in London have developed in an ecosystem already dominated by one of the largest corporate economies in the world, Berlin was something of a new ecological niche when its own startup community began to develop. “In Berlin, you didn’t have the same resources; the only thing that you really had was the community itself,” says Michael Cassau, founder and CEO of ByeBuy, the tech subscription service.

As a result, there have historically been far fewer corporate accelerator programmes or venture funds in the city than there would perhaps have been otherwise. This put the onus on the community itself to come together to provide the mutual resources that entrepreneurs needed. “When many people come to a place to build something, its obvious and natural that you would help each other,” Bock says. However, with time, the wide variety of home-grown resources like the Factory, betahaus and the Berlin Startup Academy have been complemented by the arrival of resources like O2 Telefonica’s Wayra Berlin and Deutsche Telekom’s hub:raum.

Radiokafka / Shutterstock.com

But distance from Germany’s financial centre doesn’t only affect the availability of softer resources. Whilst early-stage funding isn’t necessarily hard to come by, there certainly aren’t as many funds based in the city as there may be in other hubs. “There are angels but probably not as many as there are in London, partly due to the lack of corporates,” says Chudzinski. “And there are really no late-stage funds on the ground.”

However, Berlin has another ace up its sleeve: its massive international appeal. According to an analysis conducted by Venture Source last year on behalf of the national German newspaper Die Welt, startups in Berlin in 2014 attracted €1.97bn, compared to the €1.35bn raised by London’s startups. Additionally, the city has seen some significant high-profile investments, such as those made by Peter Thiel, the high-profile Silicon Valley investor and co-founder of PayPal, in Berlin-based Number26 and EyeEm. And that’s not to mention the colossal $600m raised last year alone by food-delivery company Delivery Hero. “Berlin is attracting huge sums of money from investors all around the world,” Chudzinski says.

And it’s not just capital that’s flooding into the city: plenty of global tech firms are relocating to Berlin. “Many international organisations are looking into the Berlin market,” says Bock. This is hardly surprising; the tech hub is a stone’s throw away from London, produces the same tech as somewhere like New York and is at the same level of maturity as Tel Aviv. This makes Berlin the perfect place for these entrepreneurial ecosystems to converge.

Yet despite the influence Berlin is gaining on the international stage, it does seem that, historically, startups haven’t quite shared the same ambition as their contemporaries in Silicon Valley. “German startups typically exit early to Americans,” Cassau says. “Seldom do I see people believing that we can build a Google here.” But this does seem to be changing: just as London has recent successes with unicorns like Funding Circle and TransferWise, so Berlin has made a splash with the $8bn-valued Rocket Internet and the $2.9bn-valued Hello Fresh.

Evidently, the development of Berlin’s startup community is at a tipping point. The hub has seen its first round of startups failing, its first round of startups succeeding and is now witnessing its startups making waves around the globe. Ultimately, the city has everything it needs to become one of the world’s brightest entrepreneurial hotspots. “We’re ready to knuckle down to business,” Bock concludes.

 

Delivering the goods

Delivery Hero

There can be few companies that better demonstrate the raw potential of Berlin’s startup ecosystem than Delivery Hero, the global online food-ordering business that owns the UK’s Hungry House. After cutting his teeth co-founding OnlinePizza.se in Sweden, Niklas Östberg, the company’s co-founder and CEO, licensed his former company’s tech and know-how to bring online food ordering to the German market. “After a successful entry into the competitive German market, Niklas Östberg and his team decided to launch the business model internationally under the name Delivery Hero,” says Bodo von Braunmühl, the firm’s head of corporate communications. 

Without question, Berlin was the natural home to grow an ambitious startup into a true tech giant. “Berlin is a vibrant and dynamic city, enticing talented people from around the globe,” says von Braunmühl. This has enabled the company to build a talent pool of over 1,500 people that comprises more than 53 different nationalities speaking 20 different languages.

Additionally, the city has taken to heart the Silicon Valley maxims of remaining agile and constantly iterating. And this has helped create an innovation-rich environment in which to build a thriving tech firm. “The creative and lively spirit of Berlin, rich with culture and continuous transformation are also qualities that inspire and shape the spirit of our company,” von Braunmühl says.

Thanks to this creative culture, Delivery Hero has since grown to become the world’s largest global provider of online food delivery, serving around 30 million meals a month across 34 countries and boasting a valuation of over $3.1bn. “If Uber is the new way of riding, Delivery Hero is the new way of eating,” says von Braunmühl. 

About the Author

Josh Russell

Josh Russell

As acting editor, Russell is the man in charge of properly apostrophising our publication and ensuring Oxford commas are mercilessly excised. Our digital doyen, he’s also a Photoshop Pro, a dab hand with InDesign and the man to go to if you need a four-hour soliloquy about the UK's best silicon startups.

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