Berlin’s Network Effect Will Make It A Global Startup Center

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Editor’s note: Matt Cohler is a General Partner at Benchmark and was the lead investor in Asana, Instagram and Quora among others. You can follow him on Twitter @mattcohler

Throw a dart at a map. There’s a pretty good chance it’ll hit near someplace hoping to become the “next Silicon Valley.”

I’d bet on Berlin.

I believe Berlin has the best shot in the Western world outside of Silicon Valley at becoming a place with a true tech startup ecosystem. I don’t just mean a place where one or two great companies are born — that can happen pretty much anywhere. I mean a place with an enduring ecosystem powered by a network effect that gets stronger over time. Like what Hollywood is for entertainment, London and New York are for big finance, Milan and Paris are for fashion, and Silicon Valley is for technology.

Recipe For A New Ecosystem

Creating an ecosystem from scratch is hard — building a network effect always is. But it can be done. I believe every enduring creative ecosystem has five key ingredients: creators, builders, the right kind of capital, the rule of law and, last but not least, the opportunity to take the starring role on the local center stage. And whether in finance, fashion, technology or the arts, you need all five:

Creators. Any creative ecosystem needs a meaningful group of creators to germinate new work. A fashion ecosystem, for example, needs designers; a film ecosystem needs writers. In a technology startup ecosystem, these people are the founders and entrepreneurs.

Builders. These are the skilled creative people who shape vision into reality. In a technology ecosystem they’re people like engineers and organizational leaders.

The right kind of capital. Different types of ecosystems need different types (and amounts) of capital to fuel growth. In a tech startup ecosystem the right kind of capital is venture capital: simple equity funding that’s aligned with creators and builders, takes a long-term view, and sometimes works shoulder-to-shoulder with the creators and builders themselves.

Rule of law. I mean a developed and reliable legal system, along with a culture and society that values that system. This one may seem obvious, but it’s still not a given in many parts of the world.

The center stage. To attract the best, most talented, most capable and most committed people, a creative ecosystem needs to command the local center stage. Finance holds the center stage in London, while in Hollywood it’s entertainment and it’s fashion in Milan. Each of these creative ecosystems has its own unique culture, expertise, and way of expressing social and financial credit. Each has grown through a network effect that attracts people to join and to stay, making it incredibly difficult to siphon a place’s best and brightest away from an established ecosystem onto something new. That’s why Milan is not a capital for technology startups any more than Palo Alto and San Francisco are for fashion.

The 5 Key Ingredients In Berlin

As the German capital, Berlin clearly has the rule of law. An exciting, creative, and affordable place to live and work, it’s also benefiting from Germany’s healthy economy, which boasts dramatically lower youth unemployment than the rest of Europe. All of which is attracting pioneering creators and builders from around the world. Early-stage Silicon Valley-style venture capital is starting to take notice.

Most crucially of all, Berlin is a place where there’s still no creative ecosystem holding the center stage. Berlin is one of the world’s great cities, but other than the German government Berlin isn’t really the global epicenter of anything…yet. And that’s the key reason I believe it’s the place in the Western world with the best shot at becoming a great new global tech startup ecosystem.

Not Prime Time Yet

Even with all five key ingredients in place, Berlin still needs a catalyst, a spark to light the flame. In Silicon Valley, the initial catalysts were Stanford University, Shockley Semiconductor Laboratory and Fairchild Semiconductor. Berlin’s nascent tech startup ecosystem needs its own catalysts in the form of one or two significant, enduring companies that kickstart the virtuous cycle of a network effect. I don’t mean “exits.” I mean the presence of at least one company with its roots in Berlin that becomes the worldwide leader in its field, serving an important global market at scale. A beacon the world can see and that will continue to draw creators, builders, and capital to Berlin’s new center stage.

Going Global

I believe SoundCloud and ResearchGate can become those beacons for Berlin. SoundCloud is an online platform for distributing and sharing audio clips. It’s used widely by artists and consumers in the electronic music world and is the global leader in its market. ResearchGate is an online professional network for scientists and researchers to share papers, find collaborators and field questions, and is likewise the global leader in its market. (Disclosure: I’m an investor and board director at ResearchGate.)

This week Bill Gates became the newest investor in ResearchGate, joining existing investors including Benchmark. German Chancellor Angela Merkel — a chemical physicist by training – recently visited ResearchGate in Berlin to speak with the team, a sign of the company’s growing presence in Germany. While we’ve become accustomed to politicians dropping in on companies in the U.S., such visits are rare in Germany.

It’s telling that SoundCloud was started by an entrepreneur from Sweden and ResearchGate was started by the German-born son of Syrian immigrants. And that’s my point. As global companies, SoundCloud and ResearchGate could have launched anywhere in the world, but chose Berlin because of the five key ingredients I’ve been talking about.

Where prior generations of Berlin tech startups focused on serving the German market, these new companies are global players — companies serving global markets whose teams come from all over the world and where work gets done in English.

My partners at Benchmark and I believe that Silicon Valley is still the best place to build a technology startup. That’s where we focus. But if for some reason you don’t want to (or can’t) come to San Francisco, then head to Berlin. All of the key ingredients are there. These are still the early days, and it’s good to be in on the ground floor.

[Image via Wikipedia]