Cheap rents, an ideology based around sharing, and an influx of migrants are turning Germany’s “poor but sexy” capital into a thriving technology start-up hub. But opportunities abound for UK businesses without the tech clout too
Do what you love”; “Why not now?” Sitting alongside avant-garde plant-pot urinals on the walls at Berlin co-working space Rainmaking Loft are these stencilled-in slogans, which could describe the entrepreneurial ethos of its hoodie-clad habitués too. Slouching behind wooden desks, peering into MacBook screens, Dre headphones round necks, they’ve come from Birmingham, Bogotá and who-knows-where-else to launch their bright ideas.
Workdays, which could start at 4pm (there’s a sleeping-bag-strewn mezzanine floor for all-nighters), may also entail attending coding lessons given by a freelancer downstairs, drinking in the Rainmaking Loft’s very own liquid nitrogen cocktail bar, or chatting with its Kaiser Wilhelm-moustachioed co-founder. All without a landline telephone in sight.
The scene would be risible were it not for the fact that they – and the rest of Berlin’s burgeoning start-up community – are getting some serious work done. Berlin’s ‘digipreneurs’ rake in €8bn (£5.7bn) in revenue every year, employing 62,000 people, with success stories including Soundcloud, ResearchGate, Wooga and Zalando. Enticed by cheap rents and, possibly, Berlin’s bohemian lifestyle, a phalanx of international tech-savvy migrants have been lured to the city. To tap into this febrile talent pool, multinationals such as Google, Microsoft and Mozilla have set up Berlin offices and entrepreneur-friendly initiatives.
Areas of opportunity
Berlin’s tech zeitgeist comes at an opportune time. With Angela Merkel’s Germany currently the centre of European power – its GDP of $3.73trn (£2.5trn) surpasses every other EU economy – the country is also the UK’s second-largest export market. And one sector, well established in Britain, is especially primed to take advantage: services and consultancy.
“Because it’s such a young scene, there hasn’t [until now] been the budget for marketing professionals, consultancies and satellite services,” says Glaswegian Linsey Fryatt, Germany managing director of Clarity PR, which set up offices here in 2013. “Germany’s economy was built on manufacturing, traditionally relying upon these products to sell themselves. [Therefore] the market for soft skills isn’t as advanced as elsewhere. There’s definitely opportunity.”
In 2004, Berlin’s former mayor Klaus Wowereit famously described his city as “poor but sexy”. A decade on, it’s a maxim that perfectly describes its start-up community. Both living and office rents are astonishingly low compared with other European cities – a single desk space in a shared Silicon Roundabout office can cost £400-a-month compared with £80 at Rainmaking Loft – while recruiting is similarly inexpensive (average Berlin salaries are seven per cent below the German average).
Aided by Merkel’s progressive immigration policies, low living costs have engendered a truly multinational talent pool, which Director witnessed during a networking breakfast at co-working space Betahaus. As French skateboarding start-up Krak outlined its game plan, accents in the Q&A session seemed to be from everywhere – New York, South America, Croydon. Meanwhile, downstairs, in Betahaus’s coffee shop, nobody ordered their Club-Mates (a soft drink popular with hackers) in German: the lingua franca in Berlin’s start-up scene is almost-exclusively English.
“It creates a culture whereby you could come from anywhere in the world and feel at home relatively quickly,” says Ciarán O’Leary, from Earlybird, one of Berlin’s most prolific venture capitalists. “Many restaurants now have only English menus because nobody there speaks German.”
At both Rainmaking Loft and Betahaus, young entrepreneurs readily share skills and resources, whether it’s coding or hackathon lessons – including Fryatt, who has hosted publicity and pop-up posture workshops. There’s even a group called Berlin Geekettes, assisting females working in tech. Furthermore, in a city where Uber is banned, ride-sharing schemes and tool-sharing shops (where small companies can borrow anything from drills to board games) are hugely popular.
But although Berlin’s poor-but-sexy lifestyle is seductive for many tech émigrés – there’s a paucity of suit-and-ties, while entrepreneurs talk of meeting business clients on the dancefloor of techno club Berghain – it isn’t without challenges. Says O’Leary: “You don’t have big companies in Berlin, so you can’t lunch with the head of product at a big company. People forget everybody’s poor here – it’s a horrible market for distributing products.”
And despite Berlin’s start-ups attracting significant venture capital (£145m in VC funding in 2012), follow-up financing and successful exits remain rare. “Berlin poses more attraction as an investment destination,” says Allie Renison, the IoD’s head of Europe and trade policy. “In recent years, it’s struggled to cement its reputation as a sustainable start-up location.”
There’s another bugbear for overseas firms too: bureaucracy. “For a country renowned for efficiency, Germany remains bureaucratic for businesses as its system is designed for heavy industry rather than lean start-ups,” says Renison.
It’s a problem noted by Fyona Kovero, co-founder of jewellery/accessory e-commerce site Fy (see case study, below). “In the UK, you can do everything online or with a phone call,” she says. “But here, you need to write letters. It’s a skill I’ve relearnt because I haven’t written one in 20 years.”
Setting up, or scaling to a GmbH – a limited liability company, requiring €25,000 (£18,000) share capital – can be a red-tape minefield too. “When we knew Clarity wanted to solidify and run a GmbH, that’s when we really encountered bureaucracy,” says Fryatt. “I don’t think we were prepared for the level of input. Our CEO had to come over from the US [authorities demanded his presence] to have contracts read by a German notary, before being translated word-for-word.”
Berlin: A city apart
Fryatt also notes that doing business in the capital is radically different from the rest of Germany. “It’s nice you don’t have to get dressed for meetings,” she says. “But if we deal with old economy clients, they expect formality. I’ve been caught short before by what I thought was an informal chat, but ended up giving a two-hour presentation.” She also points out German linguistic skills may be useful. “When it comes to arranging compulsory health insurance, premises and tax, it can be a rude awakening to deal with systems you don’t understand in a dense, technical language.”
Of course, Berlin isn’t just about flashy tech start-ups. Although more than 250,000 manufacturing jobs were lost in Berlin between 1991 and 2006, the energy and automative sectors are thriving in the city and surrounding Brandenburg area – Rolls-Royce moved its testing factory there in 2010.
For now though, in a city that has perennially been a site of disruption and takeover, the army of tech-savvy entrepreneurs will be watched with bated interest. “The Berlin scene is very young – it’s only been attracting international companies and investors for the last five-to-six years,” says O’Leary. “But we’re going to see e-commerce companies do some spectacular exits,” signing off with a missive that could be on the Rainmaking Loft wall: “Just be patient.”
To find out more about the British Chamber of Commerce in Germany, visit bccg.de
A jewel of a start-up story
Berlin-based e-tailer Fy was launched by three British/Irish expats in March. Having worked for online design shop Fab in Berlin, the trio left in October 2013 to form their own business – selling jewellery and accessories on a platform similar to Asos and Germany’s Zalando. “At Fab we found there is a market for people looking for accessible design they can’t find on the high street, while there’s an amazing community of designers/brands who don’t have the platform for promoting their wares,” explains co-founder Fyona Kovero. “We just put two and two together.”
A big boon was Berlin’s geographic position. “It’s so centrally located, it makes it ideal for shipping,” she says while also enthusing about the city’s famed low-cost environment: “Our last office seated 16 people and was centrally located with a kitchen. It was the equivalent of what we’d pay for two desks in a London co-working space… If we did this in London, we’d be on the outskirts.”
Having sought investment from angels, as well as friends and family, Fy’s launch has been aided by government schemes too. But it hasn’t been without its bureaucratic challenges. As Kovero notes: “There are huge amounts of paperwork, form-filling and physical letter-writing. Also, as a business, you have to get a bank statement every day in paper – you can’t do it online.”
Fy employs 10 full-time staff and two part-timers and adds 125 new products to its website every week. “I love the openness of people in Berlin, plus the fact I can live here on a meagre start-up salary – I think we’d struggle to get as far in the UK in the time we have here.”
FACT Berlin recently surpassed Rome as Europe’s third-most-visited city, after London and Paris
FACT Berlin has 3.5m people but is nine times the size of Paris
FACT Buying a Trabant car in East Germany usually necessitated waiting times of 15 years or more