This case stuy was firstly published in Coller Venture Review #5/2017 of Tel Aviv University by Maxi Knust, in 2017 - presenting 10 key factors in the development of the urban venture ecosystem of Berlin, such as: geographical context, relationship with the government, anchor institutions, venture statistics, strengths, weaknesses, ecosystem players, results, lessons and conclusions.
This case study contains research in depth and is backed up with several sources like German Startup Monitor, European Startup Monitor, Global Ecosystem Report, EY studies, McKinsey studies and many more. As Berlin's startup ecosystem is changing rapidly, some facts might be already outdated when you read it.
But to give you an overall view on how Berlin rose up to become Europe's startup hub, this short executive summary will help you to get some more detailed insight into Berlin's venture infrastructure.
#1 The geographical context
Central & Booming
Berlin serves as as a gateway that connects Eastern and Western Europe. Between 2012 and 2014 a total of 135,000 newly registered „Berliners“ settled in the city.
Recruiting talents more easily
As a member of the European Union (EU), Germany, and especially the international start-up ecosystem of Berlin, benefits from access to Europe's highly educated talent pool.
#2 Relationship with government
Grants programme by government
To improve the entrepreneurial environment at universities and research institutes, the German Federal Ministry for Economic Affairs and Energy (BMWi) developed the EXIST start-up grants program.
Startups expect a better understanding of specific needs
Only 5.5% of the German founders attribute good start-up understanding to policy makers. Every fifth start-up expects politicians to reduce regulatory and bureaucratic hurdles, followed by tax reductions and assistance in raising capital.
#3 Anchor institutions
Universities with entrepreneurship programmes
Technical University of Berlin, Free University of Berlin, Humboldt University of Berlin
Siemens, Mercedes-Benz, Amazon, Fujitsu, Google and Microsoft have subsidiaries in Berlin, between them employing 25,000 people.
Accelerators and incubators
Team Europe, MCube Incubator, Project A Ventures, Rocket Internet, Rheingau Founders, YouIsNow - incubator by Scout24 Portals, Hubraum - incubator and accelerator by Deutsche Telekom, Metro Accelerator by Techstars
Since it’s opening in 2014, Factory Berlin has brought together such innovative start-ups and mature tech companies as 6Wunderkinder, Soundcloud, Twitter, UBER and Zendesk. These companies cooperate as business incubators for other new ventures, a model that Factory Berlin calls “organic acceleration”.
#4 Venture statistics
Growing number of startups & jobs
In the space of four years, start-ups in Berlin have tripled, from 270 start-ups in 2012 to 620 startups in beginning of 2016. The number of employees increased from 6,700 in 2012 up to 13,200 in 2016. Berlin-based start-ups were the fifth-largest employer in the city.
Number one in venture capital investments
In 2015, Berlin start-ups raised around €2.145 billion venture capital and, subsequently, Berlin became number one in Europe in venture capital investments, even before London with €1.773 billion.
Becoming a major global player
Berlin moved from position #15 up to position #9 on the startup ecosystem index in the Global Ecosystem Report 2015, and was rated as the ecosystem with the highest growth index.
Startup scene brings strong economic growth to Berlin
In 2014, the GDP of Germany‘s capital increased by 4.4% compared with 2013, while Germany‘s GDP grew by only 1.7%.
Berlin is a melting pot
Berlin is diverse, with people from more than 180 countries, with around 15% not holding a German citizenship. Most people in the start-up-scene speak English.
A strong creative scene has resulted in a soaring inflow of national and international tech talent.
Berlin is affordable
Though rents have increased in the last few years, life is still well affordable compared to other global venture hotspots. In addition, highly qualified talent can be recruited for quite low wages, thus making it easier to set up a start-up team.
Berlin is attractive to founders
“Startup Heatmap Europe” named Berlin as top city when founders were asked where they would start up if they could begin all over again.
Rigid regulatory investment environments
Experts argue that the rigid regulatory investment environment, as well as a weak local exit market, are curbing Berlin’s growth. As a consequence, it remains a challenge to raise late-stage funding in Berlin.
The length of time it takes to process documents due to understaffed public institutions in Berlin and burocratic hurdles are seen by founders as obstacles that should be reduced in order to foster growth of the local start-up scene.
#7 Ecosystem players
The largest incubator in Berlin, which was founded in 2007 and had a €6.5 billion initial public offering in October 2014, one of the largest in Europe. In 2016, Rocket Internet was valued at €6 billion. Start-ups such as Zalando and HelloFresh have emerged successfully from the incubator.
One of the most active and oldest German VC's, it has supported more than 100 companies, such as Delivery Hero, Groupon, and AUdible. The VC is also one of the regular investors in Rocket Internet, and, in the run to Rocket's IPO in 2014, it became a direct shareholder.
In 2015, the top VC-financed start-up in Germany (€586 million) was the Berlin-based start-up Delivery Hero.
#8 Strategies employed
Increased opportunities to network
Events which help entrepreneurs to connect and network, such as Tech Open Air, Noah, Heureka, Startup Safari, as well as a variety of meetups, are hosted in Berlin. In addition, the digital networking performance center of the four Frauenhofer Institutes helps to transfer research results into innovative products.
Large funding for early-stage and growth start-ups
in 2015, Holtzbrinck Ventures launched its sixth and largest fund with €285 million and invests between €500,000 and €40 million per company.
Highest start-up rate in Germany
121 new business were founded per 10,000 residents in Berlin in 2013 (average in Germany: 76).
Highest Self-Employment rate
Berlin also has the highest percentage of self-employed people in Germany with 13.6 % in 2013 (average: 10.7%).
Berlin is the leading state in IT start-ups
Two-Thirds of the invested capital went to startups in the information and communications industry, with focus on Internet and mobile services, software and e-commerce.
#10 Lessons and conclusions
More political support is needed
Though Berlin politicians have been promoting the scene throughout 2015, making several visits to Tel Aviv and New York City in order to strengthen ties of cooperation, the startup ecosystem still needs more support by government and policy makers. An organization that is actively supported by the Senate of Berlin to push through initiatives, to define targets for the different parties involved, and to ensure that targets are actually met, is essential for further growth.
The growing interest of Germany’s established corporations in the start-up scene and the influx of venture capital are an indicator that Berlin’s boom is not just a temporary one.
Berlin‘s venture ecosystems are maturing
Successful IPOs and exits helped to build the confidence of investors that Berlin’s start-up ecosystem is gaining in maturity and the balance between ideas and capital is falling into place.The growing interest of Germany’s established corporations in the start-up scene and the influx of venture capital are an indicator that Berlin’s boom is not just a temporary one.
Find 10 more city venture cases (e.g. Hongkong, Shanghai, Tel Aviv, Pune, Newark NJ) here!
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Title Photo by Anastasia Dulgier