Last weekend I had a high school reunion in Berlin: celebrating nearly 20 years of friendship. We stayed in Kreuzberg, visited the impressive former Stasi prison and cycled around the city. Berlin has a laid-back vibe, an abundance of culture and a nightlife that is hard to beat. Furthermore, the German capital is home to hipsters, hackers & hustlers resulting in a thriving start-up scene. It is fascinating to see that 6 out of 11 of our high school fellows have founded or are working for a start-up (e.g. Hutspot, PUP Creative Agency, BrownCow, Get a Crowd, Amator & Bohemian Birds). In this blog I am sharing 8 insights about the start-up scene in Berlin.
#1: Berlin is the 9th start-up city of the world
After a decade of slow growth, Berlin’s tech scene has grown very fast since 2010 and was the fastest growing hub in 2014. It was ranked #15 in 2012 and is now #9 in 2015. According to our data, Berlin is home to between 1.800 to 3.000 active tech startups. By 2020, Berlin’s startups could potentially create as many as 40.000 new jobs (Compass).
The city of Berlin has long been a sanctum of creativity for some of the world’s most interesting minds. A strong creative scene makes the city shine bright like a diamond. Even Rihanna would be jealous of this ;-) And low living costs have resulted in a soaring inflow of national and international tech talent. A decade ago Berlin’s mayor Klaus Wowereit tried to attract creative types to the city by declaring “Berlin ist arm, aber sexy” (poor but sexy). It worked. The City’s astonishingly low rents compared with other European capitals — a one-bed flat a short walk from Alexanderplatz in the centre of town can still be picked up for as little as €450-a-month (£373) — have helped draw arty people from across the world and made Berlin a major centre for artists, writers, musicians and, increasingly, technology and web entrepreneurs. Many members of the startup community see Berlin’s relatively low cost of living and strong creative networks as the ideal foundation to build a new company (The Guardian).
Startups in Berlin ecosystem have historically been successful in markets like eCommerce, gaming, and marketplaces, with new startups showing potential in other verticals such as SaaS and adtech (Compass). The infamous Rocket Internet, founded by the Samwer brothers, is the driving force behind Berlin’s e-commerce power. What is Rocket all about? It is a “company builder”, perhaps the biggest innovation that has come out of Berlin so far.
Critics decry it as a “clone factory”, which just copies start-up ideas thought up elsewhere — and sells them to the original for top dollar. In 1999, for instance, the founders, the Samwer brothers, launched Alando, an online auction site, which they sold on to eBay 100 days later for $43m. In 2010 Rocket repeated the trick by selling CityDeal, an online-coupon site, to Groupon for $126m.
But Rocket can also be seen in a different light: as a reaction to the lack of a start-up culture in Germany and a model of the country’s penchant for going about things methodically. When Rocket kicked off in 2007, Berlin had not much of an ecosystem to speak off, says Christian Weiss, one of the firm’s founders. So the idea was to build a think-tank that could identify promising ideas and help start-ups implement them.
Today Rocket is a hyper-efficient assembly line for e-commerce start-ups: it can launch new online stores within weeks. The core of its business model is to take proven ideas, optimise them and export them to countries where they have not yet taken off. Rocket now controls a network of 75 firms globally, which together have more than 20,000 employees. The pick of the bunch is Zalando, which is modelled on Zappos, the American shoe and clothing site now owned by Amazon (The Economist).
Berlin’s weak spots have traditionally been the vibrancy of its funding landscape and lack of exits. Yet its recent history has more than reversed that trend. With two back-to-back IPOs above $6 billion in the Fall of 2014 (Rocket Internet and Zalando), an exponential growth in exit volume due to startups like Sociomantic, Wunderlist, and Quandoo, and more than 2x growth in VC investment, there is no doubt the Berlin is on its way into the upper echelon of startup ecosystems. Berlin tops our Growth Index among all measured ecosystems with a maximum score of 10, (twice that of #2-ranked Bangalore), thanks to an explosion in exits and VC investments. Berlin’s VC investments ranked #2 in Europe, just behind Tel Aviv, and #8 among the top 20 (Compass).
By surpassing the $2 billion mark in VC investments, the ecosystem attracted even more growth capital than London last year. This amount, however, was raised by a few rapidly scaling startups such as Delivery Hero (~$520 million) and does not lead to the conclusion that Berlin’s funding landscape has come of age. Experts argue that the rigid regulatory investment environment, as well as a weak local exit market curb Berlin’s growth. As a consequence it remains a challenge to raise late-stage funding in Berlin. Berlin’s startup ecosystem has established a strong national pull. Its next emerging step is to become more of an international attraction (Compass).
Berlin has the second highest Startup Experience in Europe, with a 20% higher percentage of employees with prior experience in a startup and the highest number of advisors with equity in Europe (yet still 51% below Silicon Valley average) (Compass).
According to recent reports, Germany is home to four, billion-dollar tech startups including internet platform Rocket Internet, food delivery Delivery Hero, ecommerce store Zalando and furniture company Home24. Want to build a billion-dollar company within 36 months? You can do this in 3 steps: (1) The push, (2) The markup and (3) The backfill.
According to The Guardian, the Berlin tech startup scene has 11 downsides: (1) The Berlin startup scene is a total bubble, (2) Wearing a tiger onesie to work isn’t necessarily a smart plan, (3) Nobody has a real job, (4) It’s possible to fall down the party hole (5) It’s incredibly inward-looking, (6) Getting paid is a luxury not a right, (7) Fail culture rules, (8) The independent bars and cafes are surprisingly similar, (9) Nobody speaks German, (10) Your circle of friends will be ever decreasing and (11) The streets are not paved with gold.
We just sent you an email. Please click the link in the email to confirm your subscription!
OKSubscriptions powered by Strikingly