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A common complaint in Berlin that the scene has plenty of hype but not enough in the way of local investment. Well, here comes something big.
Earlybird, the VC that moved all its operations to the city last year in response to the frenzy of activity there, has just announced a $100m first close of its new venture fund for European tech and internet startups — and is targeting an overall fund of $200m, with an emphasis on German-speaking countries.
As the 15-year-old firm points out, Berlin is now second only to Silicon Valley in terms of tech startup founding rates. According to Earlybird partner Ciarán O’Leary, the German capital may even catch up at some point.
“Silicon Valley will always be Silicon Valley but Berlin is a city where change and creative destruction is part of its DNA,” O’Leary told me. “If the startup scene focuses on nurturing that, it will become just as good a place to start a company, but for different reasons.”
Whereas the Valley offers proximity to Stanford and Google, Berlin is a city that’s constantly in flux.
“Everybody’s new and fresh, so they’re super-open. They’re sucking up ideas, and teams are forming up. Berlin founders are a bit more destructive; they’re focused on themselves and the city,” he said.
‘Focusing on themselves’ may sound like a bad thing to some, but O’Leary’s point is that the services these founders are creating tend to be single-minded solutions to specific problems.
Berlin is going to start tidying up the social mess we created. Facebook is turning into AOL – it wants to be ‘the internet’. Berlin startups are trying to do the opposite: they can do one thing really well. They’re ahead of the curve in the –- this sounds awful –- the antisocial movement. It’s about dividing into real use cases that people want, and giving people control again.”
That sounds like the traditional German industrial strength of finding a niche and dominating it. But the privacy issue also helps, of course. On the one hand you have German regulators’ extreme adherence to privacy principles, and on the other you have the privacy-be-damned attitude of the Googles of this world.
According to O’Leary, the result is that Berlin is developing a healthy balance and a “heightened awareness of certain fine lines” that contrasts with what he sees as a privacy crisis developing in the U.S.
Of course, Berlin’s not where it needs to be yet. There still isn’t enough cash (“There should be at least five Earlybirds here”) and the VCs funding local startups are doing so from afar, rather than setting up offices in Germany.
And then there’s the other big European startup hub: London. Despite having “a very rigid society and economic structures” –- the lack of which works in Berlin’s favour, O’Leary argues –- the UK capital is where a lot of big operators such as Index and Eden are based.
“London will remain incredibly strong,” O’Leary said. “It has a much stronger local economy, which is based on finance, but big U.S. companies also have their headquarters there for business reasons. In London you’re engaging with large corporations on a daily basis –- you’re going to struggle to meet them in Berlin. There’s a lack of top-level decision makers in Berlin.”
But Earlybird’s hoping that its new fund changes that to some extent, and here’s how it’s going to work.
“We’re going to have a dedicated seed program,” O’Leary explained.
“We’re noticing that founders here are much more technology-oriented — they’re already advanced and capital-efficient. They just want a couple of hundred thousand euros in venture capital to continue working on their product. We want to take smaller percentages with small tickets and get in much earlier, then continue to invest through the lifetime of the business,” he said.
O’Leary said he wants prominent angels to buy in and co-invest in these early stages, and help perpetuate the cycle. He reckons the first big exits in the Berlin scene will come in the next year or two, which will in turn create a “really big base of angels”.
Hype may have brought Berlin to the point where it finds itself now, but the means to take things further are now starting to appear.