As a fund that has been setup in 2000 with offices in Munich and Berlin we have been able to observe the emergence of Berlin as one of the main tech hubs of Europe very closely. Most recently a report by Compass Global (http://blog.compass.co/the-2015-global-startup-ecosystem-ranking-is-live/) put Berlin as the 8th global tech ecosystem, but the 1st in terms of growth momentum. And that momentum is what can be felt every day if one goes to Berlin.
When talking about Berlin and comparing it to other established tech ecosystems around the world one has to always put the ages of said ecosystems into perspective. With that in mind the evolution of Berlin over the last decade is nothing short of extraordinary and included below are some thoughts on what has driven it and where we stand.
The Macro environment
If I’d have to pin-point the birth of Berlin as a startup hub then I’d probably put that date somewhere between the start and the depth of the financial crisis. At that point in time a few macro events initiated what turned out to be the start of a golden age for Berlin as a tech ecosystem. More precisely a spike in youth unemployment across large parts of Europe, a zero interest rate policy by governments and a chase for yield and growth in an otherwise imploding world intersected in this city that until that point had been known as “poor but sexy”. That’s also the time when three entrepreneurs took notice of the opportunity at hand and started what would become the engine of the Berlin startup ecosystem for some years to come: Rocket Internet.
For the data junkies among you here are some fact and numbers:
Startup stats (in German)
http://deutscherstartupmonitor.de/fileadmin/dsm/dsm-15/studie_dsm_2015.pdf
Youth unemployment in Europe
http://www.statista.com/statistics/266228/youth-unemployment-rate-in-eu-countries/
Quantitative easing since 2007
https://en.wikipedia.org/wiki/Quantitative_easing
The Costs
The cost factor is (still) a big plus point for Berlin. While a strong team with a great idea should be able to succeed anywhere, a low cost base definitely helps while still exploring ideas or while growing on a lean budget. Price indices put the cost of living in Berlin in 2016 as 43% lower than in San Francisco and 38% lower than in London. The bulk of the difference keeps being the differential in housing cost in which Berlin remains 66% cheaper than San Francisco and 53% cheaper than London (source: https://www.expatistan.com/cost-of-living/comparison/san-francisco/berlin).
Will this persist? As with every growing and thriving city prices are bound to go up as demand pressure increases. Substantially different rental laws in Germany (in which rent caps are in place) however ensure that the relative competitiveness of Berlin when it comes to costs is not going to vanish any time soon.
The Incubators
Incubators, accelerators and corporate accelerators keep playing an important role in Berlin and more broadly speaking in Europe. Historically and culturally entrepreneurship was not an obvious choice coming out of University hence Incubators have become a good and safe choice to ease young people into the unknown of entrepreneurial life and be directly plugged into a large community of like-minded people. Right now we are living through a second entrepreneurial wave in which talent from incubators is flowing back into the ecosystem and starting their own company. That’s a first sign that points to the fact that Berlin is here to stay as a tech hub and that the last 7-8 years weren’t just a temporary phenomenon.
The (lack of) power-house academic brands
One of the big missing ingredients in Berlin (and in Germany for that matter) is a powerhouse academic brand. A world renown tech university attracting the best and brightest future engineers. That doesn’t mean German universities are bad, on the contrary the education system is very strong. Universities however have failed to market themselves internationally so far. That has to change for the sake of creating a hotbed of innovation that takes inspiration from the Valley. The Silicon Valley and Stanford University strive together and strengthen each other.
The talent and the capital
In an endless chase in which capital chases talent and talent chases capital Berlin is slowly becoming a good meeting point between the two. And with the momentum picking pace many global market leaders in tech took note and also fueled the momentum. In the last few years Berlin saw the opening of offices of Amazon, Ebay, Microsoft, Twitter, Uber, Spotify and many more. The journey is definitely not complete yet but a self-fulfilling cycle of capital attracting talent attracting corporates has been kick started.
Final notes. At Holtzbrinck Ventures we are currently investing out of a 285m eur global multi-stage fund. Our strategy is to back companies at an early stage and grow with them over their lifetime and through to the exit. Our target investment size is therefore quite broad and can range from 0.5m eur to 40m eur. You can reach us at businessplan@holtzbrinck.net or ping me directly at barbod.namini@holtzbrinck.net
