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Why Berlin is poised to be Europe’s new tech hub

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Inside the offices of 6Wunderkinder

After the visual opulence of Paris, Berlin feels almost dowdy. Drab and dark, the city hardly comes across as one of the great capitals of the world. A city’s importance on a global stage is measured typically by the size and scope of its airport: Shanghai, New York, London, Los Angeles, Frankfurt and Paris are good examples.

Berlin’s Tegel Airport reminds me of another airport from my childhood in India. It is small – very unlike the city, which itself is sprawling and a collection of many neighborhoods. It doesn’t take very long for me to conclude that Berlin is one of the most un-German of German cities. That, it turns out, is its curse and its charm.

Earlier this year, Alexander Ljung, co-founder and chief executive officer, of SoundCloud and Christophe Maire, founder & chief executive, of e-book services company Txtr, separately invited me to visit Berlin. Their argument: something exciting is going on in Germany’s post-unification capital. It is, they insisted, beginning to attract talent and is becoming home to many new technology startups.

I am not the first guy to show up and write about Berlin and probably won’t be the last. The New York Times, Spiegel Online and several others have discovered the Berlin tech-scene. Our European correspondent, Bobbie Johnson makes regular visits to the city and reports for us. However, I wanted to see how real is this Berlin startup ecosystem myself.

Opportunity presented itself when folks from HackFwd (a startup accelerator) invited me to speak at one of their events (Build 0.8) and it dovetailed nicely with my visit to Paris for Le Web 2011. A few hours after landing in Berlin, I was beginning to rue my decision.

The second week of December is not an ideal time to visit, especially for someone who is used to the moderate climes of San Francisco Bay Area. Overcast skies, cold showers and temperatures dipping to 30 F at night are rough on those of us used to sunshine and blue skies. For the locals, it is still comfortable weather.

Minutes after I check into Motel One, one of the fast growing German equivalent of Hampton Inn, I run off to meet a group of HackFwd entrepreneurs and we go for a classic Bavarian meal. Nothing had prepared me for what I saw – a group that looked as if they belonged to TechStars or YCombinator. There are a lot more women entrepreneurs in the room. The energy in the restaurant was amazing, helped I am sure by a liberal serving of beer.

Location, Location, Location

SoundCloud CEO Alex Ljung

They are all very young – actually awfully young – and excited by the prospects of technology, most of them are here from across Germany, Poland, the Baltics and other countries east of Germany. In fact, the Pitch in Berlin contest organized by HackFwd attracted 100 applicants of which ten were selected. Three of them were from Poland, including MyGuidie, a start-up that “brings together people looking for a local guide, and locals willing to guide,”  co-founded by three women, won the contest.

And much later when I would assemble my rough notes into a narrative, I would spend a lot of time thinking that Berlin’s proximity to Eastern Europe and the Baltics gives its a natural geographic advantage over rival European hubs like London.

Berlin, even though an old city and stage for many Cold War spy tales, is relatively young in its current incarnation. Since the unification of two Germanys just 20 years ago it has been in a state of constant makeover. It doesn’t have the money – Frankfurt is home to the German bourse and hence the investment banking elite – or the heavy industry. Munich and the south of Germany have become the epicenter of global car business, and those traditional heavy industries that Germany is known for are spread across the south of the country — outside of Berlin. But Berlin does have politicians – a whole lot of them!

The lack of classical German industries means it is a city with fewer jobs than other parts of Germany. It also means the city has lower wages compared to the rest of Germany and much of Europe. The sprawling nature of the city means that Berlin has lots of real estate. And that means low rents – catnip for artists, musicians and yes, the start-up community.

The entrepreneurship is rampant in this city. Some say there are somewhere between 100 to 400 startups in Berlin. I was in Berlin for about 70 hours and I met with over 40. I am pretty sure – if I stuck around for another week — I would have met many more. The central Mitte district that is home to many of these is called Silicon Allee (aka Silicon Avenue.) They even have their own version of Coupa Cafe – Cafe St. Oberholz is a favorite gathering place of the Internet types.

Lars Hinrichs, the founder of HackFwd accelerator, points out that the presence of seasoned entrepreneurs like Marco Borries (who had started StarOffice and Verdisoft and sold them to Sun and Yahoo) is another advantage Berlin has over some of other tech-hubs in Europe. It is one of the reasons why he (and HackFwd) come back to Berlin for their startup school.

Destination Berlin

Pitch in Berlin by HackFwd contest

It is no surprise that young people from across Germany (and Europe) are making a beeline for Berlin. There are a lot of Americans, Australians and Kiwis too. This confluence of fashion, art, music and technology reminds me of Brooklyn and the San Francisco of yore.

SoundCloud’s co-founders are two such transplants. Ljung and Eric Wahlfross are both Swedish by birth, and music lovers. They started SoundCloud as a platform for DJs to remix and share tunes. It has now become a major audio sharing platform and has raised money from uber-VC, Fred Wilson of Union Square Ventures. Its success has turned SoundCloud into a poster child of the Berlin startup scene. Ljung, who travels to San Francisco, London and New York almost every month has become Berlin’s informal ambassador.

The success of SoundCloud has helped attract larger (and non German venture capitalists) to take Berlin with seriousness. Atomico, the venture fund started by Skype co-founders Niklas Zennström and Janus Friis has invested in collaboration and productivity startup, 6Wunderkinder, that has so far released one popular app, Wunderlist. Index Ventures are plowed in money into Felix Peterson and his co-founders’ newest startup, Amen.

The new hot thing from Berlin is Gidsy, a marketplace for “experiences” that was started by Dutch migrant entrepreneur Edial Dekker and his brother Floris, along with Philipp Wassibauer. They are said to have attracted big dollars from some well-known VCs but they are keeping it all very hush-hush. There were many whom I didn’t even get a chance to meet. Like Pipe, which is still in stealth is going to launch next month at the Midem music industry conference in Cannes, France.

Another company that didn’t find time on my calendar but be one worth looking out for: Uberblic Labs that is building a platform to link data across APIs ( competitor) and a mobile product to use that cross-linked data.

What is really impressive is the diversity of startups in Berlin. Over a much-welcome Turkish dinner organized by local tech blogger Nikolas Woischnik, I met with UPcload, a company started by Israeli entrepreneur Asaf Moses. The company has developed a technology that uses your laptop’s webcam to capture your body shape and share it with an online retailer and offer you the best fit for your clothes. It is already getting traction in Germany. Aupeo is a personal radio platform (somewhat like Pandora) that is targeting the connected car business and is finding a lot of traction in Europe.

Creative + Techies

A few members of Berlin Geek Squad

Holger Weiss who started Aupeo a few years ago is bemused by new interest in Berlin. In his opinion, it is the easy availability of engineering talent that makes Berlin very attractive for a company like his, which has to develop its product for multiple automobile platforms. Verena Delius, chief executive of Young Internet, a kids-focused game maker, shares that sentiment. Delius is rebooting her company to focus entirely on tablets: her company bet its future on Amazon’s Kindle Fire and other devices. Berlin’s blend of techies and creatives has helped the company make a fast transition to the new platforms.

Berlin, in my short visit, seems like a city that has a lot going for it.

I am pretty sure that technology is the best option for the city to overcome its disadvantaged position and its dependence on handouts from larger and richer parts of Germany like Bavaria. It needs to — otherwise the city will continue to suffer from the problems that come with high unemployment rates.

The Road Ahead

But to be candid, I think Berlin is a long way from being a booming tech-town. Even though it has a lot of entrepreneurs, the city still lacks a formal venture capital structure. The bigger slugs of money in city’s promising startups have come from outside investors – Fred Wilson’s Union Square Ventures is a big investor in SoundCloud for example, while Index Ventures of London & San Francisco has bet on Amen.

Berlin needs to show that it has staying power — it keeps attracting newer, hungrier folks with start-up dreams. However, in order to keep attracting more dreamers, Berlin needs a big company to rise from the rubble. Berlin needs one such big company to emerge in next few years – one that employs hundreds (if not thousands) of people.

And in order to do that, the city needs a mature venture capital infrastructure. That robust VC ecosystem has helped startups thrive and eventually grow into larger operations in non-Silicon Valley locations such as Boston and New York. Israel is another example of a country that has a robust VC ecosystem.

When I asked Hinrichs of HackFwd about whether we will see something like Tumblr or Pinterest emerge from Europe, he didn’t take long to say that those two companies “wouldn’t be funded in the Europe” as it would dismissed as just another cool idea.”The venture capital investors are not comfortable with the very idea that something might just be a col technology and could eventually become something bigger,” he added. The solution is more entrepreneurs turned investors (like himself and team Atomico) start making investments. “It is because we have a higher risk tolerance as such and know that sometimes you just have to try and build something bigger,” said Hinrichs.

The other issue Berlin needs to overcome is that of scale and international growth. Today it is commonplace for startups to talk about serving the global market almost from day one, but the reality is quite different. It doesn’t matter where you are based, but as a startup or any other business you need a domestic market which in turn can be used to grow overseas.

Silicon Valley startups have two advantages – the domestic U.S. market that has enough early adopters willing to try new Internet services. This gets the attention of tech media, which in turn allows companies to get more people signing up for their products. (Twitter, according to a MIT study, is a good example of this virtuous cycle.) That sets off a chain reaction and gets companies the global attention.

The overseas companies are on the opposite end of the spectrum. If a company is based in Berlin (or Paris or London), it doesn’t have the large domestic user base to get similar attention and adoption. That makes it difficult for companies to cross the proverbial borders. This, I sincerely hope, is a short term problem — one that can wither away with continuous emergence of clever ideas and great startups.

Despite many of its challenges, I am quite optimistic about Berlin. At the end of my brief visit, when waiting for my flight to Helsinki, I was jotting down my final thoughts. And as I did, I couldn’t help but listen to my intuition — there is something happening in Berlin. I can’t quite describe it. I can just feel it — it is electric. And it wants me to go back… but probably in the summertime.

Here are some photos from my trip to Berlin. Check them out if you have a few minutes.

33 Responses to “Why Berlin is poised to be Europe’s new tech hub”

  1. Amith Brahm

    om, i just want to let you know i moved from new york to berlin after reading this article. i took a job with a startup and moved here on feb 13. it’s been five days and already it is shaping up to be an awesome experience. the rent is still super cheap and you can walk everywhere. thanks for your post.. it gave me the confidence to pack up and leave

  2. Henryk Lippert

    “A city’s importance on a global stage is measured typically by the size and scope of its airport: Shanghai, New York, London, Los Angeles, Frankfurt and Paris are good examples.”
    I am missing San Francisco, or do you wanna say that SF and the Valley are not as important as these cities with their huge airports? Finally Berlin is opening a new airport in 2012 (BBI). This should bring Berlin more on the international destination map ;).
    The secret of Berlin is “speciality” and a flow which is not comparible to any other city.

  3. Berlin needs to show that it has staying power — it keeps attracting newer, hungrier folks with start-up dreams. However, in order to keep attracting more dreamers, Berlin needs a big company to rise from the rubble. Berlin needs one such big company to emerge in next few years – one that employs hundreds (if not thousands) of people.

    And in order to do that, the city needs a mature venture capital infrastructure. That robust VC ecosystem has helped startups thrive and eventually grow into larger operations in non-Silicon Valley locations such as Boston and New York. Israel is another example of a country that has a robust VC ecosystem.

    Zalando has over 1000 employees…and Groupon/Citydeal is huge as well and internationally headquartered in Berlin. It strikes me as slightly odd that the biggest VC/incubator Rocket Internet of the Samwer brothers hasn’t been mentioned…

  4. Problem with short visits to Germany is that you do not get to see whole picture. I lived and worked there and it is country where you get discriminated for not speaking perfect German and where they will look forward to deporting you as soon as possible. Getting work visas even with employer support is like pulling wisdom teeth and visiting Ausländeramt is torture.

    I can just imagine how it is for non-white ausländer in Germany. You should get some insight into this before declaring any german city a Europes tech hub.

      • Bobbie Johnson

        Good point, Dev. The level of monoculturalism in Berlin is certainly higher than the other European cities it wants to compete with, which is a big deal. Yes, there’s a big Turkish-origin population, but in my experience they almost form a shadow city.

        In most legal terms, immigration in Germany is roughly the same as most other European countries — however the smaller language footprint of German and state bureaucracy do make it harder than (say) getting started in London. This stuff is important, although remember that Berlin draws much of its immigrant tech population from the eastern reaches of Europe.

  5. d.robbins

    Re: your first two paragraphs misjudging Berlin, you failed to mention many other factors that clearly put your judgment in doubt.

    1) the architecture in Berlin is sublime; it’s arguably the most beautiful of any city in the world.
    2) art museums on par with anything outside the Vatican museum.
    3) the attitude of the German public is hyper-modern and can be seen in every facet of the society. Look at the design of mundane, everyday objects. Everything is so carefully considered that I was constantly undergoing jaw-dropping shock-and-awe at the gestalt of it all.
    4) you criticized Berlin’s smallest airport (of three) yet failed to mention — for one example — its central train station, which is better than any I’ve seen in my world travels (I’m not German, btw)

    Anyway, way to judge. I’ve lived in Europe and Asia for years and Berlin is by far the most impressive city I’ve seen.

    • D.Robbins

      Let’s choose to disagree on the architecture. I am pretty sure we cannot find a common ground here. On the museums, I have nothing to say, but on the airport – well criticism is valid. I didn’t land via the train station, though went there a few times since my motel one was right across from the station and it was the only place open for breakfast on a Sunday. It is impressive but frankly not memorable.

      Anyway thanks for leaving the comment.

  6. Marek Obuchowicz

    I would say – you were here for just 70 hours. It’s even bigger. There is a lot more of incubators like hack.fwd, much bigger, producing tons of startups every month.

    see you @St.Oberholz :)

  7. Nicole Simon

    For only having spent such a short amount of time there, this is a great post, thanks. ;)

    You point on maybe needing a local market goes two ways. Yes, if you have a startup which relies on a local user base, US companies are more of an advantage. But for everything else? Most of the international minded startups I encounter don’t go for a local market, they go for “worldwide” which is different to what Brendan is pointing at: If you start in German with German mindset and German customer base you fall into the same trap as starting with an American market.

    Most US startups do cater *too much* to the local market thus alienating international users / buyers. As I like to say “my credit card pays world wide”. A whole lot of US based startups and services could easily attract worldwide customers from the get go, but can’t because they are build with a “we go international later” mindset.

    You are a mobile app? Then upload your app worldwide, I do speak english fine, thank you. You require me to enter an address? Do realize that international addresses are formatted differently (I do have a fake US address for that). You use selections for date and time? By telling you I am from Germany I already told you that I use the 24h system and my week starts on monday. And I separate my numbers by , not by point and if I would by a fitness tracking devise, I want km and not miles.

    It starts with basics and if you build your startup without the foundation of international, you will have to add it later at a much higher cost which will delay you.

    And again that is the benefit of many of Berlin startups: They build with the international mindset, in English first and then go on for the European market as a user base. By catering to their needs and giving them the attention the US startups neglected to do, they can gain their user base. How about those influences? There is a strong feedback loop with silicon valley which is why you go for the influences like a US startup and make your visits; then use the attention of the US based influences to come back to Europe.

    All in all: looking forward to your next visit. ;)

  8. To be honest the Thing that attracted all of these startups is the huge pile of money the city is spending to geht them to Berlin… And the fact that costs of living, rent and wages are ridicioulusly low compared to any German city, most of which also have better infrastructure

  9. Brendan Gill

    Om is right to cite the importance of a large and supportive domestic audience in order to take a product globally. Europeans often list having to think ‘international from day one’ as an advantage for startups based here, but I can think of many startups that leverage the US market to go global but few that do the same from a Euro-start.

  10. Very good report on the Berlin tech scene, that should just give a short plug to rocket internet, who are – for very good reasons – not popular with many, but indeed this “big company … that employs hundreds (if not thousands) of people.”

    Groupon (formerly citydeal) Germany runs all of Groupons international operations and further expansion, Zalando heads an e-commerce operation that’s growing much quicker into a truely global shoe and fashion-empire, bigger than Zappon can ever be and these and many more are all born inside the rocket internet offices in Berlin…

    Cheers from the ‘Silicon Cape’ in South Africa (Cape Town)
    Randolf Jorberg :-)

  11. Hands Müller

    Hi Om,
    you said quote: “Berlin’s Tegel Airport reminds me of another airport from my childhood in India.”
    I live myself in Berlin, and you have forget to mentioned that Tegel is
    1) one of the three Berlin airports.
    2) the smalest of the Berlin airports.
    3) the oldest, too
    4) that its very within the city (and can hardly expendet)
    5) and that its also allready planned and decided to give this airport up and transfair it to Schönefeld (biggest and newest .. and at the citylimits)
    6) since it was decided to give it up, the visitor terminals are not modernernised (?,updated?, renewed?, … havent a good translation at hand of what i want to say) anymore
    7) but, and thats the only reason why its still up, that it is very popular, because you land in the central of the city.

    The three airports of Berlin are: Tegel, Tempelhof, Schönefeld.

    A final word or two about Berlin. Berlin is one of the biggest citys in Germany. Compaired to Munich, wich claims itself as a world city (metropolis?, cosmopolitan city?), Berlin is huge.

    … here I was writing something about the size compaired to other international known citys (which I never had visited) and while I was recherching on the internet for hard facts (which I can’t make me remeber) I got that I was mixing up the State (which is nearly about the half size of Germany) and the City of New York (which is a tad smaller than Berlin).

    State New York (141,300 km²), Germany (357,111.91 km²),City of New York (1,214.4km², but only 789.4 km² land, the rest is water), Berlin(891.85 km², almost everything is land).[source language=”wikipedia”][/source]

    Somehow I got off topic…

    • Bobbie Johnson

      Off topic, maybe… but to get things straight, I think you’re taking “size” a bit too literally. Nobody really thinks about a city’s impact in terms of its geographical area: otherwise we’d be talking about Ankara or London or Rome here, which all cover much more square mileage than Berlin.

      More accurately, perhaps, is to think about cities in population terms. In this scale Berlin a big city, but not a huge one. If you’re looking for comparisons to urban New York (nearly 20 million people) or Paris (10 million) or Greater London (8 million+) to Berlin (3.5-4 million) then you probably get a better idea of what Om means here.

      Also while we’re here, on the airport front: I’m surprised as a Berlin resident that you don’t know that currently Berlin *doesn’t* have three airports, it has two (Tempelhof closed down in 2008, if you hadn’t noticed). Tegel and Schonefeld are both crap by any international standards, but yes, they are all being rolled into the new BER over the next year. I’m not putting words into Om’s mouth here, but a city signals its intentions and ambitions from the moment an international traveller steps off the plane: maybe the new Berlin-Brandenburg airport will do a better job of that!

    • patrick wilken

      Ahh… Tempelhof (of Berlin Airlift fame) was a huge airport but it’s closed and now a public park. So strange to list it as one of the three Berlin airports.

      Both Tegel and Schonefeld are smallish airports; the latter seems to deal mostly with cut-price airlines like Ryanair so it’s certainly reasonable to say that Tegel is the main airport. While Tegel is small I personally like that about it. The future is no doubt something much bigger, but I for one will miss it’s charms.

  12. I agree, I actually did go to Berlin in the summer to strike a collaboration between a German and Indian startup in the foodservices space. The energy was palpable, the lower rents on the East side of the city allow for large loft-like spaces for operations, which would not be available elsewhere.
    There are some larger tech companies such as those by the Samwar brothers who’s Cloning has reaped enough reward to setup large ops in Berlin. While they’re clearly not the hub of innovation, they have allowed more talent to come to Berlin and given them a platform to work – now the smart guys who get disenchanted w these guys would at least have a network to startup their own stuff there.
    Fascinating place also in that a lot of innovative nordic and scandanavian folks are coming down as well as highly skilled techies from other parts of eastern europe. Collective upliftment of these people coming in as well as increased consumption in the city bodes well for Berlin.

  13. Berlin is solid..amazing tech scene! Super diverse and smart people. I go there quarterly for work and I am always impressed. I think the Samwer brothers had a lot to do with getting things going here!
    Alando sold to Ebay
    Jamba sold to Verisign then fox
    and invested in a ton of major start ups like City Deal bought by Groupon ..

  14. Hi Om, great article. I recently visited Berlin for the first time in 20 years, and there is indeed an electricity and vibrance in the air there. There’s an “anything goes” attitude which could well help it rise up in a variety of arenas, particularly with its embrace of the arts. Here’s hoping it happens!