London is often considered the coolest place for start-ups in Europe. But recently, a challenger has emerged in Berlin, also known as the Silicon Allee. The city now accounts for 39 per cent of all start-ups in Germany, edging out growing rivals like Munich, Cologne and Hamburg.
CB Insights reveals venture capital tech funding in Germany doubled from $578 million (Dh2.1 billion) in 2013 to $1.28 billion last year. In comparison, UK tech firms grew 78 per cent to a total of $1.6 billion. And in the first quarter Germany saw 30 exits, double that of Britain.
New approach paying dividends
A June Reuters report attributes Germany’s start-up acceleration to a new generation of tech entrepreneurs finding success through global concepts, “breaking with an inward-looking approach of predecessors that often built parochial German versions of Silicon Valley hits”.
Meanwhile, an E&Y analysis notes participation of international investors grew from 22 per cent to 29 per cent, especially for the larger funding rounds.
Delivery Hero, the online meal delivery service, is a great example of German start-ups with global aspirations. Now available in 34 countries, it has signed up over 200,000 restaurants. The company is currently valued above $3 billion. Other famous German start-ups include ResearchGate, a social network for scientists and researchers, which counts Bill Gates among its investors; EyeEm, an Instagram-style app that also allows users to sell pictures; and Blacklane, a competitor to Uber that has spread to 50 countries and 185 cities.
Elsewhere, research agency Globalwebindex notes SoundCloud is going “neck to neck” with Spotify and faring even better with the millennial audience. However, the start-up is currently locked in a copyright infringement battle with UK-based performing rights organisation PRS for Music.
Also on controversial ground is Eyeo, creator of AdBlock Plus, a popular ad-blocker for browsers. It has been downloaded over 400 million times and has 50 million active users — and has content publishers scrambling for ways around it.
On the gaming front, Wooga’s Diamond Dash has apparently has been played by more than 200 million users, while the maker of Crytek — of the running joke “But can it play Crysis?”, a reference to a game so high-end it brought the most powerful computers to its knees — recently announced it was moving away from that market to focus on online games.
The right ingredients
The Local, a European news network, estimates a new start-up is founded every 20 minutes in Berlin, and that the industry will create 100,000 new jobs by 2020. Also, compared to other parts of Europe, Berlin remains affordable — rentals, transport and the cost of living in general are lower, giving founders more “financial wiggle room to hatch exciting, riskier ideas”. The Local also echoes the rather hyped-up narrative that Berlin is a fun city that attracts a younger crowd from all over the world.
However, not everyone is impressed with the German start-up scene. A June Bloomberg report cites the example of online grocery delivery service Shopwings. Rocket Internet, Germany’s most prolific investment company valued at $8.4 billion, shut down Shopwings’ local operations just a year after its launch, citing lack of cooperation from retailers and regulatory hurdles. Bloomberg observes Rocket Internet “has a low tolerance for failure” and, according to German Startup Monitor 2014, 63.3 per cent of entrepreneurs believe this attitude is widespread in German society.
“Europe’s regulatory barriers, capital constraints, ingrained habits — and often the penchant for slavishly imitating US success stories — put even its most advanced tech hubs at a disadvantage,” the report states.
Furthermore, Jason Fell, former managing editor of Entrepreneur.com, describes Berlin as the “start-up city that is still starting up”, noting that seed-stage investments are easy to come by, but the “difficulty comes when companies looking to grow begin seeking larger investments in Series A and beyond”.
