Berlin Startup Ecosystem. The Rise of “Europe’s Silicon Valley”

At the end of the 1990s few people could imagine Berlin competing with London for the title of Startup-hub №1 in Europe. But today most of the entrepreneurs visiting Berlin are impressed by the amazing emerging ecosystems and incredible startups that are blossoming in the city.

How could that be? Let’s try to understand. We’ll weigh all the pros and cons of doing business in Berlin. To set the process in motion, Christoph Sollich, mentor & investor, will pitch you a startup called “Berlin”.

Content

  • Why Berlin Attracts Startup Founders
  • Leading Sub-Sectors: Realm of e-Commerce, Rise of Blockchain
  • Who Invests In Berlin: Accelerators, Incubators, VCs & Angels
  • The Biggest Berlin Startup Events in 2019
  • Closer to The Community – Build Your Network
  • Things To Consider
  • To Conclude: The Rise of “Europe’s Silicon Valley”

Start your startup

Start your startup in Berlin (Source)

Why Berlin Attracts Startup Founders

“Affordable to live & work” – This is the main reason why startup founders prefer to launch their business in Berlin. Adam Haywood, founder of photography location service Reccy, compares Berlin with London and says that his company chose Berlin because “the rents and other costs are so much lower so we can stretch money a lot further”.

Alexander Ljung, CEO of SoundCloudThe founders of SoundCloud moved to Berlin from Sweden

Founders of the world-famous music streaming service SoundCloud, Alexander Ljung and Eric Wahlforss are the other notable examples of people who chose Berlin as a city to move to, from Sweden. Alex says: “We had several cities in mind but in the end we chose Berlin, mainly because of the good music and club scene, but also it was and still is affordable to live and work there”.

So, let’s have a brief look at the main lines for costs: living, renting an office, and hiring a team.

Eat, Dress and Rent

Since Berlin is competing with London for the title of Europe’s Startup Hub №1, it’s useful to compare them. Almost all living expenses in Berlin are lower than in London – restaurants, markets, transportation, clothing, childcare and rent. The only exception is basic utilities, like electricity or heating, that in Berlin are 1.5 times more expensive. Here you can explore average prices item by item – from 1 kg of bananas to 1 liter of gasoline. But the bottom line is, maintaining the same standard of life requires around €3,500 in Berlin and €5,400 in London.

Housing rents in Berlin are quite affordable compared with other European cities. For instance, a 50m2 apartment is about €715 / month on average. The city’s authorities are highly encouraging to startup ecosystem development, too, which is why a potential non-German startup founder or employee can count on simplified paperwork and housing rental rates at relatively low prices. However, in other cases, getting a rental may take 6 months or more.

Find Your Dream Office Space

Office space is also much more affordable than in many other startup hubs in Europe. The average price is €21.70 per sq.m. East Berlin is actually a better choice for startups. Kreuzberg and Friedrichshain are slightly cheaper, while Mitte and Prenzlauer Berg are slightly more expensive.

If you want to save some coin, you can sublet part of the office from another startup. It will be a bit cheaper. A lot of companies make 5-years contracts; it requires some time to grow into the entire office space, which is why they sublet a part.

Co-working spaces are a great way to save money and make new business contacts. Prices vary from place to place, but you can obtain hourly passes from €4 and monthly passes from €50. Berlin Map of Coworking Spaces is an invaluable resource that is updated regularly.

If your startup doesn’t include sales or customer service right in the office, do consider getting a loft. Those views over Berlin are invaluable for inspiration.

Build Your Startup Team

For tech startups, the local developer’s salaries are extremely important. Today, a median developer salary is over $55K and continues to increase. However, Berlin has good access to buzzing tech talent hubs like Poland, Czech Republic, Russia, or Ukraine. Hourly rates there are significantly lower while engineering schools are remarkably strong.

Hiring remote developers makes sense in two cases. First, it is necessary when you have investments and must handle tight deadlines, but you can’t find specific local talent. Second, remote developers are helpful when you have budget constraints and need to cut costs. Either way, augmenting your team with remote developers will solve issues.

In general, local residents argue that Berlin has a unique, relaxed atmosphere, and power of money here doesn’t have such a strong influence on people as it does in cities like New York and London, which is pretty refreshing and liberating.

Leading Sub-Sectors: Realm of E-commerce, Rise of Blockchain

Berlin, like every startup hub, has its own sub-sector strengths. According to AngelList, the top domains that Berlin startups operate in are e-commerce, AI & ML, fintech, healthcare, and blockchain.

berlin startup ecosystem_leading sub-sectors

Leading Startup Sub-Sectors in Berlin. Data Source: angel.co

For many years, e-commerce has held the number one position for investment volume. Everyone has heard about Zalando and Home24, Europe’s leading online retailers. Another bright example is an online car dealer, Auto1. The startup received a $566 million investment and proved that large-scale success stories are possible in buzzing with early-stage activity Berlin.

Fintech raised 676 mln euro in 2018 and maintains the second place. Local sources project the addition of around 40,000 new jobs in fintech during the next ten years, and many of them will be created by scaleups.

Artificial Intelligence sector made a 1200% growth and raised 76 mln euro. The last three years were remarkably strong in number of founded AI startups, with 80 new ventures emerging. Some of the famous startups are Kreditech, Blue Yonder, and Konux.

Compared to 2017, capital invested in blockchain startups increased more than tenfold from 9 to 95 million euros. Some say that Berlin is a raising blockchain capital. Significant blockchain events are held there, and blockchain incubators, like LongHash, operate in the city.

Berlin also plays a significant role on the health and life sciences scene. Healthcare giants, such as Bayer or Pfizer, operate vertically focused labs and accelerator programs in Berlin. Ada Health is an emerging health startup that is worth mentioning, which leveraging AI to build an innovative medical app with almost $70 million in funding.

Who Invests In Berlin: Accelerators, Incubators, VCs, and Angels

There were around 20 active business accelerators in Berlin at the beginning of 2019. Most of them were founded in 2012-2013 and have already helped to launch hundreds of startups since then. All of them have similarities and common features as well as differences and specificities.

An incubator differs from an accelerator in the stage of startups it accepts. Incubators are suitable for early-stage startups, while accelerators serve to rapid-growth companies. Fernando Sepulveda argues that incubators are a good tool for “childhood” of startup, while accelerators can guide it from “adolescence to adulthood”.

Name Brief Description
Accelerators
HubraumThe tech incubator of Deutsche Telekom bringing early-stage startups and the leading European telco together.
Project Flying Elephant The incubator focussing on tech-savvy teams which build outstanding products.
Techstars BerlinThe worldwide network that helps entrepreneurs succeed. Techstars accelerator portfolio includes more than 1,500 companies with a market cap of $13.9 Billion
Alex Springer Plug&PlayJoint venture between the Plug and Play Tech Center and Axel Springer SE.
StartupbootcampIt started in 2010 and now operates globally with 20+ industry-focused programs in some of the greatest startup hubs including Amsterdam, San Francisco, London, Berlin etc.
Incubators
Rocket InternetVC and business incubator. It follows the strategy of startup factory and builds companies on the basis of proven Internet-based models. The most successful cases are HelloFresh, Jumia, GMG.
Hitfox GroupComplex platform for entrepreneurs. It consists of three parts: FinLeap (Fintech), HeartBeat Labs (HealthTech) and another platform with specialization in AdTech and Big Data (ad2Games, AppLift, ZeoTap).
Rheingau FoundersProfessional co-founders with emphasis on digital business. Provides support in the very early stages using experience of various successful startups and adopting it for new projects.
TeamEuropeEarly stage business incubator.
Venture Fonds
EarlybirdOne of the most experienced VC’s in Europe with over €1 billion budget, 7 IPO’s and 22 trade sales has an office in Berlin.
Point NineAnother worldwide VC with office in Berlin. Usually invests from few hundred thousand of dollars up to about 2 million.
Project AInternational VC firm based in Berlin. Assets: €260 million.
Holtzbrinck VenturesEarly stage VC with more than € 1 billion under management.
Business Angels
Cristophe MaireThe best “Europe seed investor” by TechCrunch 2016. Currently focus on: foodtech. Cristian Vollmann
Cristian VollmannWinner of the Business Angel of the year award. Invests only in the single-digit percentage range. Adviser on startups policy to German Minister of economics.
Michael BrehmActive investor in more than 20 startups in Berlin
Michael KalkowskiAngel investor in various Internet startups. Focuses on: game design, marketing, positioning.
Thomas HesslerBusiness angel with more than 200 startups invested. Focus on: blockchain businesses.

Generally, VC’s and Angel investment culture in Berlin is still much less developed than in the US and London. It is now at the beginning of its development stage. There is an increasing number of early stage business incubators, but it is extremely hard to compete with the US with regards to fundraising.

The Biggest Berlin Startup Events in 2019

  1. Disrupt Berlin – This annual conference is one of the most anticipated startup events of 2019. Participants can meet with entrepreneurs of any kind, find investors, and gain international exposure. The “Startup pitch battlefield” is hosted during the conference. Next edition: 11-12 December 2019.
  2. Lean Startup Summit – This conference is a showcase of Eric Ries’ ideas. The event offers workshops, monitoring sessions, case studies, roundtable debates, networking, matchmaking, etc. Next edition: 11-12 February 2019.
  3. Noah Conference – An annual event where CEO’s, investors, and executives discuss the latest trends of in the digital realm. Partner dinners, pre-event matchmaking, exhibitions, and workshops are included. Next edition: 13-14 June 2019.
  4. Tech Open Air – An annual tech festival which combines technology, music, art, and science. Next edition: July 2019.
  5. Startup Camp – The biggest early stage startup conference in Berlin. Includes keynote speeches, know-how mentoring and practical tips from experts, pitch battle, office hours etc.

Disrupt Berlin 2018

On of the Biggest Startup Events in Berlin (Source)

Closer to The Community – Build Your Network

As a bonus we’ve prepared for you a list of resources to network with a startup community:

  1. Startup Digest Berlin events calendar – here you can find a wide range of events in Digital: conferences, lectures, trainings, meetups, etc.
  2. Grunder Metropole – also a very useful link to find events and meetups.
  3. Closed community with focus on startup events in Berlin. It is growing rapidly and today comprises more than 13,000 participants.
  4. Another Fb closed community with more than 20,000 participants provides a great opportunity for sharing business experience and expansion of your network.
  5. Berlin Map of Coworking Spaces – an invaluable resource for any freelancer tired of working at home. Or for any event organizer.

Things to Consider

As we see, Berlin is growing rapidly, but it has some specifics that complicate its development. We should consider these if we want a complete picture. Here are some points Berlin has to work with:

  1. The USA sets world digital trends, and startups in other countries can sometimes copycat American designs and ideas. The most dramatic examples in Germany are StudiVZ, known for copying FaceBook, and flash marketing company CityDeal, infamous for copying GroupOn.
  2. It is difficult to hire and fire in Berlin, because its labour market is highly regulated by law. Holidays, sick pay, the option to work part time, and job related training are the basic rights of German employees.
  3. Renting in Berlin is quite cheap, but real estate prices are rising rapidly at the moment and we should consider it carefully before making our decision.
  4. The English-speaking culture is pretty well developed in the city, but sometimes you need to speak some basic German.

To Conclude: The Rise of “Europe’s Silicon Valley”

Generally, we can say that the notion of Berlin as a “startup city” came out of nowhere. In the 1990’s, after the fall of the Berlin Wall and the many years of being on the front line between communists and capitalists, its future was very uncertain. But today Berlin is a city with a strong economy and favourable business microclimate. Dozens of promising startups are springing up here because of the advanced business culture, modern business tools, talented young people, and fresh ideas which all strengthen the spirit of pioneering and innovation.

Former mayor Klaus Wowereit branded the city as “poor but sexy” – a very unusual position statement, but it worked, and Berlin still posts this mark, attracting creative types to the city and becoming “Europe’s Silicon Valley”.

Views over Berlin

Panoramic View over Berlin (Source)

The working language of all startups is English. It allows founders to hire talented young people from anywhere. Jens Begemann, founder and chief executive of Wooga, says: “You have to have everything in English; it is the only language we speak here”. He jokes that the company canteen is “like the United Nations” because the company employs staff from about 50 countries.

Berlin’s geographical position is another important factor that determines its status. It is situated right on the border between Eastern and Western Europe so it can call on very talented and cheaper developers from the Eastern part and access to capital and established markets in the Western part. It’s as if this mix predetermined the success of Berlin as a startup city.

The lifestyle of Berlin’s startup community is also worth mentioning – it’s a frenetic workaholic and a party animal at the same time. Alexander Ljung, CEO of SoundCloud, says: “Some folks are like professional clubgoers. And the consequence is that people in the creative, media, and internet world are much more understanding and tolerant when someone comes to a meeting a little bit later, and with a hangover”. But this freedom means that you have to be twice as attentive to your discipline, because you still have to work hard to create a company and you better “not get tempted too often to enjoy the Berlin nightlife”.

If you are starting your own startup in Berlin and looking for the best development team – just get in touch with us! Our tech-savvy guys will help you to build a great product within a budget.