Guest post: The upsides and downsides to starting up in Berlin

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This is a guest post by Projjol Banerjea, VP Marketing at virtual currency monetization platform SponsorPay. Projjol moved from London to the company’s headquarters in Berlin earlier this year. The piece was co-authored by Regina Leuwer, Marketing and PR Manager at SponsorPay, and a Berlin native.

Two decades after the fall of the Berlin Wall, the German capital is vibrant with tourists, artists, and entrepreneurs. The city is home to over 200 startups, more than in Munich, Hamburg and Cologne combined.

Berlin’s leadership in this domain is perhaps unexpected – it has hardly ever been an economic centre in Europe or even Germany. The southern part of the country is famous for its car industry, Frankfurt is the financial centre and Hamburg is well known for advertising. Berlin, in contrast, is as its Mayor Klaus Wowereit famously coined in 2003 “poor but sexy” and this combination works like magic for startups. “For people who are basically looking for a big career and a lot of money, Berlin is not the right place. But if you are motivated by other things, like creating and learning, Berlin is perfect”, says Anna Ott, Head of Recruiting at i-potentials, a placement service that focuses on the German Internet scene.

Berlin’s startups are usually situated in the eastern part of the city where many unoccupied industrial sites have been renovated and converted to offices since the 1990s. According to Lukasz Gadowski, serial entrepreneur and partner at venture capital firm Team Europe Ventures, “Berlin combines very high living standards in terms of apartments, traffic and culture with relatively low costs. It is probably by far the cheapest capital in Europe. Rents here are significantly cheaper than even in Eastern Europe capitals like Warsaw or Prague.” Xpatulator.com has Berlin in 92nd position in its latest rankings of the world’s 300 most expensive cities in which San Francisco, London, New York and Singapore take 63rd, 23rd, 21st and 20th place respectively. Specifically in the housing category (rent, utilities etc.), Berlin’s position at 203 is in sharp contrast to San Francisco at 71 and the others ranked between 12th and 18th.

Yaron Valler, partner at venture capital firm Hasso Plattner Ventures, regards this as one of the biggest – if not THE biggest – advantages of Berlin. “Costs here are lower than anywhere in the Western world. At the same time there are amazingly gifted people coming to Berlin because it is so attractive for creative talent to work here.” Most people have heard about Berlin’s cultural scene – 50 theatres, 153 museums, more than 420 art galleries and, of course, a vast number of bars (no curfew!) and clubs only serve as a cursory listing of the city’s offerings. Lonely Planet introduces Berlin as “a scene-stealing combo of glamour and grit, teeming with top museums and galleries, grand opera and guerrilla clubs, gourmet temples and ethnic snack shacks”. With the influx of creative individuals from across the globe it has become a top location for media startups. Indeed, a recent article in The Economist described the city as “reminiscent of South of Market in San Francisco, the preferred habitat of more artsy start-ups.”

Another important element that works in Berlin’s favour is the aid offered by the government. A huge incentive for startup founders is that the administration in Germany, and especially the capital, is very encouraging of entrepreneurs. Almost every startup in Berlin is backed by at least one of these state-supported funds like Investitionsbank Berlin (IBB), High-Tech Gründerfonds and KfW, among others. “This kind of support by governmental institutions is almost unparalleled in the world”, says Valler.

Finally, just as all leading startup hubs are bolstered by graduates of top universities, like Stanford and UC Berkeley for Silicon Valley, or Cambridge, Oxford and the University of London for the British capital, Berlin too has its share of ‘feeder’ establishments. Leading institutions Humboldt University, Freie Universität (Free University of Berlin) and Technische Universität (Berlin Institute of Technology) have realised the potential of entrepreneurship – albeit a little late – and established programmes to not only train students but also offer commercial guidance as well as monetary support. This is among Berlin’s strongest assets according to Janis Zech, co-founder of SponsorPay. “The training and networking opportunities here are excellent. Right now only the funding structure is still a disadvantage, but that’s true for almost everywhere in Europe”.

The lack of adequate venture capital is a probably the most serious limiting factor. Not only is there a smaller capital base than say London, investors here have also been overly cautious since the dot-com bust of the early 2000s. To close this gap, enterprises like Team Europe Ventures have surfaced that constantly re-invest money from previous exits into new businesses. These firms have built their own networks and actively promote cooperation amongst portfolio companies to strengthen overall business. “As for investors, we help our portfolio companies secure follow on financing,” Gadowski explains. “In doing so, we introduce approximately one new investor into the German market each month.”

The city also has some catching up to do on the technology side. Berlin’s startups are often more inspired by business ideas than engineering prowess. “If you look at Silicon Valley, there are a lot more technological innovations in the startup scene. In Berlin, technology-driven startups are the minority,” observes Valler. “But in the long run, I think this will change. I expect more tech innovators to settle here.”

In the past, foreigners looking to work in Berlin have faced a major challenge. With the notable exception of software developers, many of the jobs have required a certain level of fluency in German. As Ott notes, “there is high demand for qualified product managers who combine technical and business expertise. But most Berlin startups wouldn’t recruit a product manager who doesn’t speak German, no matter how capable the applicant.” This, too, is changing. Companies are beginning to realise that if they choose not to restrict themselves the considerable inflow of talent is a gold mine. At SponsorPay, for example, we have employees from 22 different countries who all contribute to our effort to build an international company while enjoying the plethora of options in terms of lifestyle and nightlife.

Considering all that has been accomplished in Berlin over the last few years, one can’t help but be excited about what the next decade has in store for this city with ever-evolving zeitgeist.

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