Berlin Startup Scene

Posted by James

So something I wanted to do before I came to Berlin was check out the Berlin startup scene. I'd been hearing rumors that there were a lot of startups in Berlin, and I thought it might be interesting to check them out. I had actually become a bit fed up with the pretentiousness and arrogance of the startups in Silicon Valley, where every little tweak on providing access to domestic services through an iPhone app was trumpeted as a world shaking innovation. I was curious to see what things were like in Germany.

Well, as it turns out, there is a fair amount of startup action in Berlin. Something like 3 out of every 4 startups in Germany are started in Berlin. I think that has something to do with the favorable factors here, which the Bay Area also had in the 70's and early 80's: cheap commercial real estate, a high quality arts scene (including music), and great weather. Of the three, Berlin has the first two. Unfortuantely, it fails miserably on the third, with winter being pretty cold and wet.

There are a co-working spaces and startup accelerators all over the place, especially in Kreuzberg, one of the hippest places in the city to live. These not only feature cheap office space, but also a place where you can meet with other (mostly young) folks and talk about your ideas. Living costs here are also reasonable too. Prices for rent are about half London or Paris for the equivalent apartment, and food is reasonable. As for arts, the last two posts on street art (here and here) give you an idea about the visual arts scene. For music, there seem to be a lot of parties and concerts going on, mostly EDM  techno or house genres, because there are posters up about them everywhere. Though I wasn't living there at the time, I get the impression that's what the Bay Area was like in the 70's and early 80's.

I've attended a couple of startup events. One was the ZED Berlin startup night (picture above), sponsored by HP, Intel, and Nvidia in an old power station in Kreuzberg that has been converted into a startup incubator called Umspanwerk. This was a high budget event, with free food and drinks. A panel session of founders who had started hardware startups talked about their experiences. After the panel session, several founders gave quick talks about their startups. Most of the startups were doing hardware for consumers, like electric scooters or induction coils for heating tea water (everyone in Germany has an electric induction tea pot).

The other was at Betahaus, another incubator in Kreuzberg. This was more a low budget event. Entry was free, but a small bottle of mineral water cost 5 euros. The event was organized by Society3, a company formed by Axel Schultze. Axel is a German entrepreneur who moved to Silicon Valley in the early 2000's. He organized Society3 to try to get the Silicon Valley culture transferred to Europe, and in particular Germany. Most of his talk was about how to create a billion dollar company, like the so-called "unicorns" in Silicon Valley. In Berlin, a $100 million exit is considered to be eye-popping, whereas in Silicon Valley, that's the entry price for getting into the successful entrepreneurs club, but it certainly isn't going to turn heads.

The whole monetary scale in Berlin is about an order of magnitude less than in Silicon Valley. There's a lot of young people in one and two person companies, and some that are a bit larger, working on very low budgets. Recently, I got a Meetup announcement about how to form a 100 euro startup. The idea is to use very little money to get some data about whether your idea might have traction in the market before actually spending a lot of money developing the product. This is exactly the opposite of what people do in Silicon Valley. They burn through their order $100 million investment capital buying market share through offering goods and services at steep discounts then go broke or are sold for a fraction of their investment capital. The German government also has a fund for startups. A colleague of mine at work has a small startup that he's running from this fund. Government money is nice because you don't have to give away any equity, but it's relatively limited.

On the other hand, the ideas people are putting into startups are pretty much the same as in Silicon Valley, services that use moble or Web applications to outsource or automate some process. At the Betahaus event, I talked to a young startup founder looking for a co-founder who had a company that gamified marketing research. He had developed an app that allowed a company to set up a game for people in a country where the company wanted to introduce a product. People would play the game for points and the company would get valuable data about how well the product might do. Another founder at that event had an HR startup. Most companies interview multiple candidates for a job but only choose one. The others go into a file to be forgotten. His startup takes the candidates and offers them to other companies that might be interested. This guy was an HR professional and was looking for a CTO to handle the technical side of developing the Web app.

There are a few corners of the startup scene that I haven't explored yet, so I may change my mind, but I get the feeling that the focus on doing a startup is kind of a lifestyle thing here in Berlin, rather than the major business focus of Silicon Valley. With so much money at stake, the Silicon Valley startups can waste a lot, but they need to make a coherent argument that they are going to be unicorns within a couple years. To paraphrase Garrison Keillor's Prarie Home Companion "Silicon Valley is where all the startups are above average". In Berlin, the startup founders don't seem to feel that their idea is going to cause some major revolution in people's lives, but they don't have to make that argument because the scale is so much smaller.