Here is how they do it in Germany: outlook on the German startup scene

When talking about the German startup scene, it is important to consider two aspects. First, we are mainly speaking about Berlin, as the one and only German startup and Venture Capital site. Second, the discussion will automatically trigger comparisons with London.

The sum of all these factors brings us to think that, while Berlin is not exactly like London, it is only a few years away from becoming just like it.

 

THINGS BERLIN HAS

Some of the main factors contributing to the creation of a startup ecosystem in Berlin are the low cost of life, together with cheap rents and adequate salaries. In Berlin, the purchase power is higher respect to London standards’ by 40%, while rents are 60% less expensive. The average annual cost of a square meter office space equals to 156€ per year.

Beside, there is a strong young talents immigration phenomenon, coming especially from Europe; many migrants are in fact Italians. This means that there are loads of people ready to work on a startup at low costs, especially since Berlin lacks the presence of big tech companies. Many of those immigrants are entrepreneurs; to the point that foreigners currently found 44% of new businesses.

In Berlin there is also a relevant presence of Seed Capital Investors and incubators. Among the most significant we can count: Project A, Team Europe, and Rocket Internet, one of the biggest Berlin’ player. Rocket is a holding/incubator that differentiate itself from all others since it generates new startups at a vey fast rate by copying existing Business Models and exporting them in developing countries.

The presence of Seed Capital and low costs translates in the possibility of a certain time autonomy for the startups to reach the break-even point or get to new financing rounds.

 

THINGS BERLIN IS MISSING

Big tech corporations such as Google or Facebook do not have relevant presence in Berlin. This limits the possibility of system spillovers. In the Silicon Valley, the ex employees of those giants are the main responsible for the birth of new startups; in fact, those ex employees, often becomes entrepreneurs or angel investors themselves.

Unquestionably, the scenario is still very young. The Berlin startup scene did not see any consistent IPOs, stock positioning, or cases of startups that, besides creating a lot of entrepreneurs, would rather attract investors and animate the public.

The data collected by the Global Entrepreneurship Monitor revealed that Germans do not regard positively entrepreneurial risk. Less than 50% of Germans consider launching a new business an attractive idea, against 65% of French and 79% of Dutch.

Furthermore, Venture Capital investments are rare in proportion to the country’s GDP. While in the USA we are around the 0.17%, and 0,04% in the UK, Germany is exactly at half of it with 0.02%.

 

WHAT IS GOING ON

We'll certainly be spectators of a huge change.

During the second quarter of 2013, according to Dow Jones Venture Source, Germany has attracted more Venture Capital investments than the UK: 376 Million Dollars against 290 Millions in the UK. Moreover, the number of deals from 2011 rose by the 89% in 2013, wile it rose only 26% in England.

The novelty of the Berlin startup scene, merely five or six years old, in comparison to the maturity of London's startup ecosystem, explains many of the structural differences among the 2 scenarios, but things a changing rapidly.

The government has already set a “Startup objective”, thanks to a new coalition pact established with a group of politicians proposing the inclusion of the Agenda Startup in the government's programs: already a startup relations office, where startuppers can easily go through all the bureaucratic work to register and launch their own business.

 By Federico Invernizzi, on Twitter as @FedericoInv