Germany — We Have a Structural Problem and We Need To Solve It Together
Why we need more collaboration between our fragmented tech-ecosystems.
Countless articles and studies have been written about the power of regional clusters and tech hubs, where many of them cite Silicon Valley as the leading and most successful example. I think attempts to “copy” the Valley have been met with limited success in the past because it is about people, and people are just impossible to copy. Put differently, and as Paul Graham says:
What it takes is the right people. If you could get the right ten thousand people to move from Silicon Valley to Buffalo, Buffalo would become Silicon Valley.
While Berlin is not the new Silicon Valley, I think it is pretty clear that it has evolved as the tech-epicenter of Germany in the last decade. The total invested capital per year, as well as the number of unique funded companies, underline Berlin’s dominance in Germany:
Besides Berlin, there are also other, much smaller German ecosystems on the rise, such as Munich (top 11) or Hamburg (top 15). While this is excellent news for these cities, it also reflects one of Germany’s biggest challenges compared to other European ecosystems: its fragmentation.
Germany’s fragmentation leads to widely distributed talent pools
A good way to highlight the fragmentation is to look at the location of leading universities. Here are European universities among global top50 in computer science and their global rank according to Atomico’s State of European Tech Report 2019:
As you can see in the table, the best four universities for computer science in the UK are all in or around London. France follows London, where you have both the PSL and École Polytechnique located in Paris. If you look at Germany it’s very different — the best universities for computer science are in Munich, Aachen, and Karlsruhe — and not in or around Berlin. Graduates from these universities are an excellent talent source, but they are not plugged into the big tech-ecosystem. So it’s harder for founders to put their company out there to attract talent and more difficult for students to find out about opportunities at (early-stage) startups or even learn that “tech” can be a great career opportunity. I remember from my time in Karlsruhe that “entrepreneurship” was unfortunately not on the agenda for many students, and there were very few role-models that could change that thinking (and too many events from consulting companies :-).
While Germany is a powerhouse for research and technology with its scientists and engineers, it’s incredibly challenging to connect all these people and to build bridges.
Also, many big German corporates have their headquarters somewhere else and far away from Berlin. So people who have spent years in a particular industry and quit their corporate career to start a company will probably build their new company where they already are. In this overview of startups that got founded by former employees from these selected German corporates, only seven out of 31 (22.6%) have their headquarters in Berlin.
Our investment activity here at Point Nine mirrors that trend, i.e., in the last 24 months, we have made more German investments outside Berlin than in Berlin. Lastly, late-stage investors are following and invested a lot of money outside Berlin in the past months, e.g. Celonis (Munich), DeepL (Cologne), Staffbase (Chemnitz).
Again, the big challenge that comes with that is people, i.e., finding mentors, talking to people who have done it before to learn from them, and hiring (senior) talent. All of this is possible outside big tech-hubs, and many examples show that it works — but it is probably much harder, and we do not talk about all the cases where it didn’t work out. As an example, if you want to hire your first product manager and you want to speak to ten awesome PMs from tech-companies to understand how a great PM looks like, it’s just tough to do that in Düsseldorf, Stuttgart or Dresden compared to Berlin. The fragmentation in Germany makes it harder for any of the cities in Germany to reach the “critical mass” needed to become a big ecosystem. Therefore, I usually encourage founders to spend a significant amount of time with other founders and executives to learn from them— even if that means that they have to travel to London, Berlin, or San Francisco. Our portfolio companies that are located outside the big tech-hubs are also thinking about hiring remotely much earlier because it’s just very tough to attract (senior) talent at scale. Well possible that the ability and the skills to hire remotely might be an underrated long-term benefit of the fragmentation in Germany.
We need to bring people together and collaborate — not compete
As smaller ecosystems are evolving, there have been a few initiatives that have a significant impact on that development, and they are doing a great job. A good example is UnternehmerTUM in Munich. Their main goal is to foster entrepreneurship in Munich, and they have initiatives that help people along the whole journey. They educate and mentor founders through the Manage&More program, they have a Makerspace to experiment with hardware, they started accelerators such as Xpreneurs and TechFounders, and they have Venture Capital (UVCP) if things start to work at scale.
We don’t lack the talent itself — on the contrary, we have a lot of talent, which is awesome — but we lack building bridges and bringing people together.
In Berlin, investors often complain about the lack of engineers as part of the founding team whereas in Munich or Karlsruhe, you sometimes miss a strong business person as a co-founder. However, there is just too little collaboration between all the different German ecosystems in my eyes. I think we need to find more ways to bring people together to foster entrepreneurship together in Germany and not separately. A few examples of what I have seen and would like to see more of:
- Collaboration at student-level: recently, a few KIT computer science students from PionierGarage did a hackathon with business students at WHU. Good chance that some of the participants will build a company together in the future.
- Collaboration at university-level: All four of the Munich universities’ Entrepreneurship Centers started the 4Entrepreneurship initiative and organize an annual global summer school about entrepreneurship. In addition, there is the entrepreneurship program CDTM as a joint institution of the two universities in Munich, the Ludwig-Maximilians-Universität München (LMU) and the Technische Universität München (TUM). Alumni of the CDTM have founded companies such as Personio, Freeletics, and Alasco among others. The CDTM got started more than 20 years ago in 1998 already which tells you how long it takes to develop an ecosystem.
- Collaboration at corporate-level: Daimler and a few other corporates have started Startup Autobahn, a program that aims at stronger cooperation between startups and 28 corporates with the end goal being a successful production-ready implementation. However, instead of more corporate accelerators and incubators, I would like to see more willingness to make acquisitions.
- Bring in role models and mentors: FoundersFoundation is doing a great job with its flagship event “Hinterland of Things” but they also bring other key-people from the tech ecosystem to Bielefeld on a regular basis. While I think investors in the different ecosystems exchange regularly, I think it’s less the case for founders.
- … and I’m sure there are many more.
Unfortunately, I haven’t found a silver bullet for how we can overcome our structural challenge. Still, I see entrepreneurship as a critical part of Germany’s economy, and it would be a shame if we didn’t unleash our full potential. I think our role as an investor is also to share knowledge and to foster entrepreneurship long term — if you are a founder in a less established ecosystem and you face similar challenges to what I described above, please reach out — I’d love to help.
