Known as “Silicon Allee,” Berlin is considered one of Europe’s hottest destinations for fledgling tech startups and is home to a slew of companies that have both garnered a lot of media attention and received millions in venture capital.
According to researcher Startup Genome — the research company that looks into what makes startups successful — Berlin ranks second, only behind London, for the number of startups founded in a European city and is currently home to about 2,500 tech companies, including tech giants like Google and Twitter.
Ironically, Berlin’s appeal lies in the fact that it is still an economically developing city. Yes, we know: The German capital was originally founded in the 13th century. But age is irrelevant here.
Since the reunification of Germany in 1990, Berlin has been in flux, constantly evolving. And unlike other large German cities like Frankfurt and Munich, which have well developed industries (such as chemical and metal processing and car manufacturing) to support their populations, Berlin doesn’t. While this is a concern for your typical Berliner, it’s a good thing for cash-strapped startups.
Consider it a lesson in demand over supply. There is a surplus of skilled workers, but fewer jobs are available for them. As a result, the jobs that are available pay lower wages compared to the rest of Germany and much of Europe.
In addition, Berlin is a sprawling city — one of the biggest in the E.U. Because there are fewer people employed and making good money, there is a glut of vacant real estate. Thus, rents are relatively cheap — about a third of what you’d pay in, say, London or Paris.
“Skilled, cheap labor and low-cost rent are the cornerstones for building a successful business,” asserts Oliver Beste, CEO of Tollabox.de, a Berlin-based manufacturer of educational games and former board member for startups and entrepreneurships at media.net.berlinbrandenburg.
That’s not all. Berlin’s low cost of living has attracted many fledgling musicians, artists, filmmakers, designers and other creative types trying to launch their careers on the cheap. As a result, Berlin has transformed into a center for arts and culture in Western Europe with a vibrant nightlife scene.
“It’s metropolitan but affordable, unlike London, San Francisco or Tokyo,” says Alexander Franke, president of TradeMob, a Berlin-based and -launched data-driven app marketing platform that helps app marketers maximize their installs, in-app conversions and App Store charts rank. “It is a fun place to live with a hip, young vibe that attracts smart, talented and innovative techies from around the world like catnip.”
A less obvious reason Berlin is so popular: The people tend to be more open toward each other in terms of knowledge sharing. Startup founders often mingle and meet up with other entrepreneurs to share wisdom, advice and sometimes money — more so than in other tech hubs.
Even as Berlin competes with London or Dublin for the title of Europe’s latest Silicon Whatever, a lack of financing threatens its growth. While it’s not difficult to raise angel funding of a few thousand dollars and seed money up to about $1 million, the next round of financing — the essential $3 to $5 million dollar range a company needs to grow — is where the challenge lies.
According to the experts, there just aren’t many $100 million-plus venture capital funds in Europe actively seeking investment in these areas, and the investment is too small for the larger funds in the U.S. to notice and too far away geographically for the smaller ones to make a large commitment.
“Berlin’s ecosystem is still very young by any standards (even European ones). It is on a very promising trajectory and is already now one of the great places in the world to build a company — with plenty of room for improvement,” wrote Ciaran O´Leary in a blog post for the website TechCrunch. O’Leary, a partner at Earlybird Venture Capital in Berlin, which manages €600m in funds and has invested in companies such as Carpooling.com, Peak Games, The Football App, and Wunderlist continued, “These are still the early days, and it’s good to be in on the ground floor.” But the city needs a steady cash flow from investors to continue to be a place where tech companies want to locate. If not, the startup scene might not mature like the city hopes it will.
Here are other cities in our series on tech-friendly startup locations:
For nearly two decades, New York-based writer and editor Chuck Tannert has covered everything from arts and leisure to fashion, fitness, politics and technology. His work has appeared in many print and online outlets, including CNET, Men’s Journal, Popular Mechanics, Popular Science, Wired and many more.