“The intersection of art and technology,” exclaimed the founder of SoundCloud, Alexander Ljung, when asked about why Berlin is a great place for startups.1 Young people are drawn to Berlin because of its “raw, artsy atmosphere that rivals Brooklyn’s as an icon of global hip.”2 Is Berlin’s startup scene merely a mirage or is Berlin going to be Europe’s next Silicon Whatever?
In Laura Ingram’s article, she mentions that nobody in Berlin has a real job and that the startup scene is only a bubble.3 She goes as far as saying the scene itself has embraced a culture of failure. 4 Other somewhat more optimistic commentators focused on other aspects of Berlin to suggest that this city may not be as hot for startups as it seems. One such commentator mentioned that starting a tech company is still a relatively new concept for young people in Berlin.5 In addition, risk-averse European tech investors typically focus more on the potential of financial success than do their American counterparts – a clear contrast from the founding philosophies of Facebook, Instagram, and YouTube.6 In the U.S., investors are willing to invest millions of dollars for a large user base. Yet the capital is Berlin is drying up.7 Investors are complaining that startups in Berlin rarely have successful exits and the city’s lack of major talents is holding it back.8
So why are we talking about Berlin?
“Berlin is where companies get built for generating hype, not money.”9 In my opinion, its biggest criticism is also its biggest strength. Garling’s observation that European investors are too risk-averse to invest in these tech companies may be true, but U.S. tech giants, such as Microsoft and Google, have already invested millions of dollars in the city and its buzz-worthy startups.10In fact, the city attracted 173-million euros in startup investment last year. In addition, TechCrunch’s Disrupt, a conference that often attracts venture capitalists and tech geniuses, chose Berlin to be its European host this year.11
The claim that Berlin does not foster many successful exits is also exaggerated. “Jamba in 2004 ($273 million/£180 million), Brands4Friends (€150 million/£129 million) and Citydeal (€130 million/£109 million) in 2010, and DailyDeal in 2011 (around €130 million/£109 million) are evidence that Berlin can deliver.”12 While the chance of striking gold is far from 100%, some investors did manage to hit the jackpot. With these successful stories, venture capitalists, lawyers, and bankers are drooling over the next big wave of exits in Berlin, which includes well-known companies such as SoundCloud and Wooga. 13
Moreover, last year, the revenue from information technology in Berlin rose by 20% and the city’s overall economy grew 1.2%.14. Those numbers do not suggest that the city fostered a culture of failure among its high-tech startups. The city has also gathered tech talents and experienced entrepreneurs from all over the world due to its relatively low cost of living and favorable immigration policies in comparison to the U.S. 15
Is Berlin capable of becoming the next hotbed for high-tech venture capitalism? I think so. Given Germany’s strong economy and its tech-friendly culture, Berlin could take over London as the hottest high-tech venture capital spot in Europe. As long as this hype persists, Berlin will attract more brilliant young entrepreneurs, such as Naren Shaam, a 30-year old Harvard Business School graduate.16 These people and their startups tend to attract more venture capitalists and their money. And the money tends to attract even more brilliant young entrepreneurs.
Caleb Garling, Why Berlin’s Startup Scene is Growing, SF Gate, (Jan 28, 2013, 12:51PM) http://www.sfgate.com/technology/article/Why-Berlin-s-startup-scene-is-growing-4226122.php . ↩
Claudia Rach and Cornelius Rahn, Cash Scarcity Threatening Berlin’s Thriving Startup Scene, Bloomberg (Jun 9, 2013, 5:01PM), http://www.bloomberg.com/news/2013-06-09/cash-scarcity-threatening-berlin-s-thriving-startup-scene.html. ↩
Lauren Ingram, Berlin and the Tech Startup Scene—10 things to know before making the move, The Guardian (Oct. 25, 2013, 7:22) http://www.theguardian.com/technology/blog/2013/oct/25/berlin-tech-startup-scene-10-things. ↩
Garling, supra note .1 ↩
Rach and Rahn, supra note 2. ↩
Garling, supra note 1. ↩
Robin Wauters, Overhyped or underrated startup city? Either way, it’s crunch time for Berlin, The Next Web, (Jan. 31, 2013, 6:48PM) http://thenextweb.com/eu/2013/01/31/ich-bin-ein-berliner/. ↩
Garling, supra note 1 ↩
Greg Williams, Europe Hottest Startup Capitals: Berlin, Wired (Oct. 1, 2013) http://www.wired.co.uk/magazine/archive/2013/11/european-startups/berlin. ↩
Rach and Rahn, supra note 2 ↩
Wauters, supra note 8. ↩
Rach and Rahn, supra note 2. ↩