We talk to startups and investors, you get the value.
If you name a city at the first try that already has more than 2,000 startups, with a new one being founded every 20 minutes, then you can be proud of yourself. Indeed, Berlin has turned from the "capital of the GDR '' into the German capital of startups over the past few years. When we say “German” we mean the DAX market, that is, the entire German-speaking market, which includes several European countries. What happened to the city of "developed socialism" that turned it into one of the European innovation centers? Read on in our material!
We talk to startups and investors, you get the value.
Berlin plans to take first place in Europe as a center for entrepreneurial life in 2020. In the meantime, it keeps the seventh place in the world top ten and snaps at London’s heels in Europe in order to unsit it from the first position. The city has already created over 60,000 digital economy jobs, with start-ups and software developers accounting for the majority.
An important aspect is the multiculturalism of the former capital of the GDR in general and the business community in particular. About 44% of entrepreneurs in Berlin are not German. Berlin has strong historical ties with many European countries: France, Great Britain, Russia, and the United States. Besides, its geographical location almost in the center of Europe makes the city a bridge between east and west, north and south, attracting talent from all over the world.
The real estate in Berlin which all entrepreneurs need is no less diverse than the cultures of the entrepreneurs themselves. The city has accelerators, hubs, coworking spaces and innovation laboratories that make their humble input to the development of entrepreneurship. The German government also supports the development of an innovative economy in the country within the framework of the “High-tech strategy” (not to be confused with the Ukrainian “High-tak strategy”!;). And, finally, the German startup association occasionally reports on the success of its members both in raising investments and successful exits.
Looking at these facts, a natural question arises: where are the companies that were founded in Berlin and became world (at least by European standards) stars? Let’s name a few of them that many have heard about.
Zalando is a group of companies that is associated with the fashion industry, owning businesses around the world under various names (The Iconic in Australia, Lamoda in Russia, Zando in South Africa), founded in 2008, it has over 8,000 employees and an annual income of € 2 , 2 billion.
Rocket Internet (Rocket Berlin) is the accelerator behind the success of many Berlin companies, including the already mentioned Zalando. It has been running its business since 2007 in 100 countries around the world, focusing on growing markets. In 2014, it went to an IPO with an estimate of € 6.7 billion, but just two weeks ago it offered the current shareholders to buy back their shares at € 18.57 apiece in order to transform into a private company.
Soundcloud is another Berlin-based company that was founded in 2007, and has become an audio exchange and distribution service with 10 million users over the years. In 2013, its founders received the Europioneer Award from the European Commission.
The creators of 6Wunderkinder task manager, which was recently bought (for $ 100–200 million based on expert estimates) by Microsoft and became part of Microsoft ToDo founded in Berlin in 2010.
Last but not least, Babbel is an online language learning platform from Lesson Nine, which was also founded in Berlin in 2007, and has since grown by 100% annually with offices in its native Berlin and New York, with over 350 people. Besides, the company has been making profit to its founders since 2011!
What is it about Berlin that attracts entrepreneurs? If it can be expressed in one word, it will be the word “transformation”. Over the past century, this city has repeatedly changed the political system, styles in architecture, music, fashion, technology and entrepreneurship. All this attracts open and active people from all over the world. Berlin embodies change, which is exactly what entrepreneurs and startups aspire to. Everyone has the opportunity to move in their own direction, realizing their dreams, which is especially important for entrepreneurs in the digital sphere.
At the same time, entrepreneurs attract lobbyists, investors, opinion leaders, users to themselves and their projects — they all meet in Berlin, which constantly increases the value of the city’s ecosystem. According to a study by the University of Münster “Berlins Aufstieg als Finanzzentrum für Venture Capital” of 600 venture capital investments in Germany, almost half are in one city — Berlin, which means almost € 900 million in monetary terms, two thirds of which are Internet services, e-commerce, mobile services and software development.
Entrepreneurs can greatly expand their networks, hire well-educated students and, of course, take advantage of endless recreational opportunities (including famous Berlin clubs).
The local government also pays significant attention to the development of the ecosystem, in particular, by offering to use the online platform www.marktreif.berlin in 2014–2016 to crossbreed ideas with local businesses.
And last but not the least, entrepreneurs note the low cost of living and the ease of starting a business in Berlin.
Berlin is not the “Holy Grail” or “The promised land” for entrepreneurs, although it creates excellent conditions for business development. Despite the growth in the number of venture capital funds in Berlin, their number still lags behind London or the Valley. The growth of capital is still not keeping pace with the growth of the ecosystem, which can cause a certain deficit of finance. Although this year’s situation with the COVID-19 pandemic shows that there is enough venture capital in Europe, there is a certain shortage with high-quality projects you can invest in.
The language barrier can be another reason that stands in the way of an even more rapid growth of the Berlin ecosystem. Today, many entrepreneurs use English as the main language of communication (remember the multiculturalism of Berlin!). But at the same time, related services for entrepreneurs in English (legal, notary, accounting) are still insufficient. A large share of document circulation with government agencies is also in German, which may require translation services for those startups that do not speak German well enough. And finally, the last and perhaps the biggest deterrent is the bureaucracy. The Germans have always been famous for it, but the tech industry is not a case where bureaucracy can and should be proud. Despite significant efforts at various levels to simplify registration procedures and conduct business, many entrepreneurs remain frustrated with service at the state level.
A conversation about the entrepreneurial environment in Berlin would be incomplete without mentioning those who finance it — venture capitalists of various levels. In Berlin, you can find both the largest European “angels” and corporate or classic venture funds.
We’d like to highlight the following Seed funds:
Rocket Internet that we’ve already mentioned above, was founded in 2007 and managed to invest in a hundred (103, to be precise) companies in 13 years, with 31 successful exits. Among the latter are Talabat, Delivery Hero, ZipJet, Global Fashion Group and Funding Circle.
Point Nine Capital is another fund that invests at a very early stage. We had to include them at least for their minimal 90s website design. The fund’s portfolio includes almost a hundred companies (93), as well as 22 successful exits (including Zendesk, Delivery Hero, Deskbookers, and Momox).
Global Founders Capital headquartered in Berlin boasts investments in Facebook, Slack, Revolut, Skyscanner and … Rocket Internet (yes, the venture capital market is quite narrow and even those who are “seasoned” players today once started by raising capital for early stage). In total, this fund has 256 investments and a modest 28 exits, among the latter — Homebell, QuadPay, Rapidoo, Voya Travel and Marley Spoon, and the total amount of exits exceeds $ 20 billion.
Later stage startups in Berlin should seek funding from funds that prefer Series A + investments. They are:
Target Global has fifty investments (58 to be exact), including “unicorns” — Bird, Wefox, REEF Technology, AUTO1 Group and Rapyd. The total amount of 20 successful exits of the fund is about $ 2.5 billion, including Circ, Omio, Delivery Hero, BOOK A TIGER, and Missbeez.
Despite the name, Earlybird Venture Capital mainly invests in companies at the Series A. stage. Their portfolio has only two “unicorns” — UiPath and N26 Group, although the total number of investments is nearly one hundred: 94 companies received funding from this fund. And there are 32 successful exits, which is almost a third, and this is a fairly good indicator. Recent exits include CrossEngage, DeepCode, Socialbakers, Kaptivo, and Peak (a game maker, not a sports equipment maker). The total amount of exits of Earlybird Venture Capital has reached almost $ 2.9 billion at the time of writing.
Another foundation from Berlin at this stage that I would like to mention is Axel Springer. Among the unicorns in his portfolio are Airbnb, Magic Leap, StepStone, and Axel Springer Digital Classifieds. The total number of transactions exceeds one hundred and fifty (159), and the number of successful exits is only 17, which is slightly more than 10% of the total number of investments. Among the exits, it is worth noting the variety of companies: Uber, which needs no introduction, and SatoshiPay — cryptocurrency micropayments, Blendle, which allows you to organize a paywall for publishers. The total amount of exits of this fund exceeds $ 20 billion ($ 21.9 billion).
Despite the situation with COVID-19 in the world, we should stay optimistic and understand that at least part of our life still happens offline, and we need spaces where we can attend events, communicate with the team and other entrepreneurs and sometimes brag about our successes. The Berlin Ecosystem boasts several high quality coworking spaces.
Betahaus — starting with 250 square meters in Kreuzberg in 2009, it is one of the largest coworking spaces in Berlin that also includes coworking spaces in Sofia, Tirana, Barcelona, Hamburg and soon Milan. The coworking mission is simple and ambitious — to make everyone an entrepreneur, and the motto is: “Beta is not a stage in the life of a product, but a constant search for improvements.”
Factory Berlin is another Berlin coworking space, which opened in 2014 on the site of the former “Berlin Wall” called Berlin Mitte, and in 2018 expanded to a second location — Berlin Görlitzer Park, which has 14,000 square meters. And, of course, the main value is a community of over 3500 members of 70 nationalities, as well as partnerships with, for example, McKinsey and Google for Startups.
Unicorn Berlin is one of six co-working spaces of the Unicorn network, which, in addition to Berlin, is located in Potsdam, Cologne, Hamburg, Munich and Lisbon. The focus of this network is the provision of turnkey office space. Coworking spaces range from hot tables for individual entrepreneurs to full-fledged offices for teams. At the same time, the Unicorn network does not organize or conduct events, they believe that you need to work, not just hang out to become a “unicorn”.
Ahoy Berlin is another coworking space, which was founded in 2012 by Nikita Roshkov and Nicholas Voischnik in Berlin, and then grew to a second location in Sao Paulo (Brazil) to be sold to the American company Knotel. Ahoy holds a variety of events for entrepreneurs: from positive thinking to the solution ideation, and even tech open air annual festivals.
Higher education and universities are always a driver of innovation development, supplying the market with both scientific developments from their laboratories and human capital — their former students and teachers. In Berlin, there are three dozen private and public universities, where more than 175,000 students study, and about 20% of them are foreigners.
One of the biggest universities Humboldt-Universität zu Berlin opened in 1810, and over 34 000 students study here today. 57 Nobel laureates,including 2020 Chemistry Prize Laureate Emmanuelle Charpentier have worked here. Humboldt University Innovations has founded more than 100 companies, connecting science and society.
Technische Universität Berlin founded in 1770 has more than 35,000 students. It has one of the highest rates in terms of the number of foreign students — in 2019 there were almost 27% of them. One of the pioneers of computer science and businessman Konrad Zuse, who organized the production of the first commercial computer Z4 in 1943 studied here. Among the teachers of the university, there are Nobel laureates — Karl Bosch, Georg Karl von Hevesi, Dennis Gabor, the first president of Israel Chaim Weizman, philosopher Ludwig Wittgenstein.
New times require new approaches and they can be offered, for example, by XU Exponential University that is located in Potsdam, but, traditionally, belongs to the Berlin ecosystem. The university was licensed in 2018 and offers the most modern professions and approaches to teaching students — more practice and projects, less dry lectures and theory. XU positions itself as a university where ideas become innovations, although it still lacks the experience of the universities that we mentioned above.
We’ll see an exciting battle between London, Berlin and Paris for the title of “the best European city for the development of technology business.” We will talk about these cities in our next materials and continue monitoring the situation in Berlin itself.