From baby steps to becoming a hotspot for tech startups, the city has lots to offer fledgling businesses
Have a conversation about Berlin’s effervescent startup scene with those involved in the tech capital of Germany and you can almost guarantee that two things will happen: firstly, any comparisons to Silicon Valley (Berlin was – and still is – pitted as the next major tech hub) or London will be vehemently batted away and secondly, descriptions of the startup ecosystem will be peppered with words like serious, grown up and professional.
Berlin’s low rents, cool image and open attitude mean the city is an attractive hub for any creative business, and here startups are as ubiquitous as beer and graffiti – a new startup is founded every 20 minutes in Berlin, according to Gruenden, an advisory agency for new companies. Working spaces such as Ahoy! Berlin in the city’s Wedding neighbourhood are constantly sprouting up.
However, it’s clear that its startup ecosystem has become much more structured and mature in recent years. Fashion etailer Zalando, founded in a Berlin flat in 2008, now boasts 15 million customers, 9,000 employees and is listed on the Frankfurt stock exchange. The success of Zalando and peers such as online music service SoundCloud and online food delivery firm HelloFresh signals just how far Berlin’s startup scene has come since its early days.
“Berlin is much more grown up now,” says Nikolas Woischnik, co-founder of several companies including Ahoy! Berlin and Tech Open Air festival, an annual tech conference with live music and art thrown into the mix. He says: “It’s becoming more professional. Bigger global companies are moving in and a lot of great talent is being spun out of the first wave of startups who are now starting new companies.”
One company to have catapulted from a startup into a serious firm backed by significant investment is EyeEm, a photo-sharing mobile app that connects amateur photographers with potential buyers. Founded in 2010, the company has 13 million photographers on its platform and has raised $24m in funding including $18m from PayPal co-founder Peter Thiel’s investment vehicle.
“Berlin’s creative industry is getting more serious,” says EyeEm co-founder Gen Sadakane. “We began as a startup and had a lot of fun creating a photography community but now we have revenues coming in and outside investment.” The company, based in Berlin’s Kreuzberg neighbourhood, now has 80 employees and is looking to open offices in New York and San Francisco.
“We don’t have pressures from executives but we want to create a sustainable community, a marketplace where people can sell images. Although fun is still important, everyone in Berlin is getting more serious, people have grown up and want to make more serious stuff or something more financial-related. It’s no longer just about ideas to create a startup and make something random; there’s more serious calculation behind the process.”
With this serious approach comes equally serious big bucks from investors looking to capitalise on the city’s entrepreneurship. Even if Berlin’s tech ecosystem isn’t as big as, say, London, Berlin startups raised about $2.2bn in venture capital last year compared with $1.5bn in London, and the investor flow is set to continue.
“We’re seeing more interest from large American companies,” says Woischnik. “Union Square Ventures, which has invested in Twitter, is doing a second event with us here and more American capital is coming in to relieve Berlin from the scarcity of Series A funding.”
Financial opportunities from overseas are gearing up, with Berlin-based online eyewear shop Mister Spex this year receiving $40m in funding in a round led by Goldman Sachs while Microsoft snapped up personal planning software firm 6Wunderkinder in June. There’s also plenty of corporations rushing to swoop on the growing startup scene. Take Google, which together with other corporate partners including Lufthansa, last year launched Factory Berlin, a creative campus designed to encourage collaboration and innovation. Tech rival Microsoft runs an accelerator programme designed to help build Berlin-based startups.
Berlin’s dynamic and creative environment means it is catching the eye of investors such as Earlybird Venture Capital, an investment fund which moved its offices from Hamburg to Berlin in 2012 to ensure it was in the thick of Berlin’s bubbling startup scene. “We realised Berlin was unlike anything else on the continent,” says Ciarán O’Leary, a partner at Earlybird, which has backed the likes of EyeEm, task-management app Wunderlist and mobile community Onefootball. “The question was, do we want to be part of it or on the sideline.”
In the past few years O’Leary has watched Berlin’s startup scene gain serious traction:“Experience [in the startups] is growing, venture capital is growing. Top American firms are investing, talent is coming to the city and the number of startups is growing.” Although O’Leary has witnessed Berlin’s success stories and is enthusiastic about the city’s burgeoning startup scene, he, like many Berliners, is frustrated by the constant comparisons to other global startup hotspots.
“Berlin was overhyped by the media several years ago when it was pitted as the next Silicon Valley,” he says. “It’s important to compare apples to apples. The Berlin ecosystem is a quarter of the age of other European ecosystems. It wasn’t until two years that there was a VC [venture capital] fund in Berlin. What we saw three or four years ago were the first baby steps of Berlin.
“Now, against the odds, with no capital here, Berlin has still made it. It’s imported people from all over the world, venture capital is now on a par with ecosystems in Europe – there’s been two several billion IPOs and companies like SoundCloud taking off. It’s important to reflect back on these as the foundation years when the magic of Berlin happened. Now we have the ingredients – capital, serial entrepreneurs, people who are experienced – and have established a global talent magnet.”
Woischnik believes that in the next 20 to 30 years, Berlin will have developed its own DNA that will be much closer to New York than Silicon Valley from an ecosystem perspective.
“Silicon Valley doesn’t have fashion or art; it’s a different scene with nothing to do with Berlin,” he says. “That doesn’t mean we’re not excited developing very strong and hopefully more global companies but I don’t see each of the European ecosystems competing against each other. There’s a lot to gain from collaboration from different ecosystems.”
It’s a mature attitude for a startup scene that’s knuckling down for business, hype or no hype.