Startup Hubs Around the World: Berlin
The urban setting of Berlin is making a name for itself among young entrepreneurs who have a vision for the future, but who want to enjoy living while they’re young. The reunification of Germany left Berlin with a wide assortment of abandoned buildings. Former government buildings that were no longer needed were abandoned and the city found itself with cavernous buildings that were eventually converted into creative spaces and cheap housing. The combination of the two created a culture that is helping to propel Berlin to the forefront of the tech industry. An influx of young people looking for inexpensive housing, lively party scenes and a creative environment has caused a perfect storm of elements that cannot be overlooked.
In this article about Berlin, we look at six essential elements of a potential start-up location that must be considered: 1) location, 2) tax incentives, 3) legal incentives, 4) availability of investors, 5) local resources and workforce, and 6) specialization.
The capital city of Germany, Berlin is poised to become Europe’s leading start-up hub within the next ten years, according to experts. The momentum that Berlin has gained can be maximized by working off the success it has already had and improving in several key areas. Berlin has attracted a growing number of young, educated people who are looking for an environment that is conducive to creative work and creative play.
Old world buildings, traditional architecture and a landscape that is teeming in history gives Berlin an classic feel that is hard to find elsewhere in the world. As the capital city, it is considered Europe’s hippest city – a reputation that it received from the onslaught of young people who flocked there.
The start-up community in Berlin has a wealth of advantages, beginning with the availability of cheap office and housing spaces. Rent is typically one of the largest expenses a company has and a struggling start-up is often scrambling for a location they can afford. The rents in Berlin are affordable, making it an attractive location for many companies.
As an urban city, the transport of raw and finished materials both in and out of the city is easily managed. Warehouse space is easy to find for the start-up that requires larger areas for product assembly and/or workspace.
2. TAX INCENTIVES
The economic benefits of becoming a start-up hub are vital to the continued advancement of Berlin. Developing a culture that welcomes innovation and design through the creation of tech start-ups will improve the economy in various ways. Offering tax incentives to start-ups located in Berlin will help to increase the number of people interested in beginning a business. It will encourage entrepreneurs to consider start-ups as a viable venture, and will increase the possibility of businesses staying in Berlin.
The tax incentives available to you will vary based on the type of business you are establishing and the specific tax laws in place. Consult with a tax professional who is trained in the German tax code to ensure that you receive any tax incentives that are available.
3. LEGAL INCENTIVES
Creating a centralized location in Berlin that would focus on the support of start-ups would help encourage political, economic and academic fields to join forces. This would enable Berlin to develop policies and initiatives to attract additional investors and start-up companies, and would provide additional legal incentives to the company. Finding a lawyer that specializes in the specific legal incentives available is a necessity for anyone considering establishing a start-up in Berlin. The legal ramifications of improperly registering a corporation, etc, can be costly and inconvenient. Before pursuing any type of venture, make sure that the legal paperwork is taken care of by a professional.
4. AVAILABILITY OF INVESTORS
Venture capitalists in Berlin invested over 133 million euros, compared to 24 million in the next most heavily invested city. The city of Berlin is bursting with potential investors who are looking for solid talent and growth potential. Established investors are highly successful in identifying new businesses, but need to improve on the investment opportunities for companies in the growth phase.
Angel and seed investors have an easily recognizable presence in the city, making it easy for start-ups to make contact and connections with the people who have the needed funds. Trying to navigate the world of venture capital alone can be frustrating and distressing. Establishing a forum for investors and entrepreneurs to connect creates interest in the city’s future. Growing incubators, collaborative workshops, networking events and other opportunities for business owners to meet and investigate potential connections begins to generate a climate of excitement and innovation.
It is obvious that the potential for tech start-ups in Berlin is immense. The investors are there, and the entrepreneurs are there. Getting the two together is the challenge that Berlin faces if it truly wants to be a contender on the start-up front. As the capital, it attracts big money investors that have a vested interest in the country. By maximizing the opportunities that have naturally developed, it can help to sustain the start-up market in the city.
5. AVAILABILITY OF LOCAL RESOURCES AND WORKFORCE
The general attractiveness of Berlin as a place to live helps to attract workers and talent. However, there is a shortfall of students entering technical fields or expressing an interest in starting a business. Berlin attracts fewer foreign skilled workers than other start-up hubs, creating a shortfall of needed talent in the workforce. Increasing student enthusiasm and interest in becoming entrepreneurs will help solidify the city’s start-up hub position.
Berlin has a growing population of creative individuals who are drawn to the city to pursue their art. The idea that most people are there to ‘work on a project’ is common, and it is known as an eclectic, artistic city. That type of environment fosters a sense of creativity that encourages outside the box thinking and fuels new technology and ideas. Encouraging more technical creativity will help in generating the needed ideas to inspire people to pursue entrepreneurship.
Working towards a business model that designates Berlin as a ‘city of the future’, start-ups in the German city are geared towards highly advanced industries. Building on the existing strengths that the city’s start-ups have will help ensure that the city continues its entrepreneurial advance. The fields predominantly featured in Berlin include biotechnology/medical technology, urban technology and digital business models. By establishing a centralized campus center, the start-up companies would be able to network together and generate ideas, support and coaching for each other – helping ensure success.
As with other markets that are encouraging growth in the biotechnology/medical fields, the future is bright for these newly developing fields. The challenge will be developing cutting edge technology that can be useful long-term in a constantly evolving and growing market. Start-ups need to be developed that can be purchased by larger medical or research firms, as well as companies that are developing long term protocols and products. Both types of specialization will be needed in the future and Berlin needs to begin to seek out the individuals who can provide this.
Urban technology is a growing field as well and has a wide range of possibilities for development. Trying to establish a foothold in the tech market with this field will require creative problem solving and attention to detail. Due to the urban nature of Berlin, the individuals who live there are uniquely poised to develop solutions to some of the problems their own city is having. By focusing on problems they are currently facing, the solutions will often benefit not just their own city but other cities as well. Empowering the creative individuals who live and work in the city to identify and solve some of the common problems would begin to generate interest in the entrepreneurship process. By tying the problem to a current, existing issue, people begin to see the necessity of a solution.
As cloud based computing grows in scope and size, digital business models will become more and more in demand. Finding potential start-up opportunities that can maximize on the experiences of Berlin will accomplish several key things at once. It solves problems that the city is facing during this period of growth and expansion. It also creates a framework that other organizations can use to solve their problems or issues. Further, it generates interest in the process of becoming an entrepreneur.
Success breeds success – drawing more investors, other potential start-ups and skilled workers to the city. Berlin start-ups are slowly beginning to achieve success which will help build the city into a start-up hub. SoundCloud – an online collection of audio files set up similarly to YouTube – is one of Berlin’s first success stories. Other prominent start-ups include 6Wunderlist: an app that manages to-do lists, Gidsy: a virtual marketplace for experience junkies, EyeEm: a social media photo sharing application and Amen: a platform that lets people post their opinions about virtually anything. One can almost feel the anticipation in the city as entrepreneurs are waiting for the ‘one big exit’ that will draw international attention to Berlin. All of the pieces are there, now the city is in a tentative holding pattern as developers wait for one of their early efforts to payoff.
Berlin Startup Ecosystem – Ympact
A Cautionary Tale
A danger to the Berlin start-up scene is the number of companies that are focusing on industry clones rather than innovation. One company has developed an incubator/accelerator model that essentially clones successful US companies, and then sells the clones back to the original company. They have used this method with great success beginning with eBay (they created Alando and then sold it to the internet giant); then took on Groupon (CityDeals was their version of the money-saving website) followed by Care.com (they made Betreut). While imitation is known as the highest form of flattery, the reputation of simply being a cloner is less than appealing to the fledgling start-up industry in Berlin. The development of start-ups that can create innovative technologies on their own is imperative for success as a start-up hub.
It is not realistic to expect the problems Berlin has faced over the last thirty years to disappear overnight. Nor is it realistic to expect a start-up to show up and change the entire climate of the city. However, with gradual progress, Berlin can work towards improving their city in incremental steps. They can begin to attract start-ups are looking for a vibrant, working city. Start-ups that are trying to break into the tech world have stiff competition all over the world. It can be disheartening to pour time and effort into a project only to have it dashed to the side or overlooked for someone else’s version. Time is an enemy in the race to be first with start-ups and no one wants to be second. Finding a location that meets all the potential needs of the company is essential, and securing funding that will allow the company to do what it does best is vital.
Berlin is poised to be a powerful contender for start-up success, but the city must overcome its obstacles quickly. The growing reputation for being a ‘party town’, a Bohemian paradise and an industry clone must be put aside if they truly want to become a start-up hub. The relatively recent entries into the start-up war are beginning to settle into their roles and are expecting other companies to follow into the fledgling Berlin marketplace. Only time will tell what success Berlin will have as they continue to develop their business acumen along with their creative climate. With the right leadership and diligent planning, Berlin could take its expected place at the top of Europe’s start-up market.
Berlin has the opportunity to re-invent itself and move into the future as a successful, vibrant city. Obviously, there was a period of adjustment needed with the reunification of Germany and they have had a quarter of a century to get their bearings. Moving forward, the city must take decisive action if they want to truly advance. The rising generation knows little of the city’s past struggles, and the young developers who have only known a unified Germany will either recognize Berlin as a place of innovation or a city that never quite recovered from history.
Interviews with Entrepreneurs from Berlin
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