Tel-Aviv to Berlin — my observation on two different startup ecosystems
Israelis love Berlin, and there are about 40,000 of us living in the city today. Berlin is one of the few places in the world that makes many of us feel at home outside of Israel. But for me, moving here did mean getting used to some differences, including in the innovation system I work in. These are my top four differences between the Tel-Aviv and Berlin tech ecosystems.
1. The startup ecosystem in Israel is more developed…
When I left Tel-Aviv for Berlin, some of my colleagues were surprised. “The Berlin scene is where Tel-Aviv was 15 years ago. Why would you want to work there?!” Indeed, the heart of Start-Up Nation, Tel-Aviv has a very developed tech scene: money from global funds is pouring in, there are multiple local funds competing for the best startups, and many organizations support the conversion of teams and ideas into young startups. While Berlin is a bit “behind,” I believe it will quickly catch up.
“The Berlin scene is where Tel-Aviv was 15 years ago. Why would you want to work there?!”
…but Germany is replete with opportunities to change the way large corporations work
For B2B startups, there are relatively few opportunities for Israeli startups to collaborate and work with large, global corporates. In fact, many large corporates picked up on this and have set up offices in Tel Aviv to try and make these connections at an earlier stage. Nonetheless, it is hard to compare the breadth of opportunities to work with top global businesses in Germany, and in Berlin specifically, with that which is available in Tel Aviv.
2. Raising larger rounds quicker in Israel, especially in deep tech and cyber…
The average round size in Israel is larger than in Berlin (seems investors there do not think this is a bubble). Why? This has partly to do with the competition over top talent and startups: The abundance of funding means that startups have more of a choice from whom to raise funds, and over time, this drives up valuations. As many Israeli startups are later sold or IPO in the US (or, increasingly, in China), valuations are compared to Silicon Valley valuations; and by those standards, Tel-Aviv is still “cheap.”
… but Berlin lets young startups leverage their cash better
While it’s true that Israeli investment rounds are larger, that cash burns faster, too. The incredible competition over talent in Israel is getting worse with the opening of more startups and more corporate engineering and innovation centers. This means that salaries — the major cash burner for most early-stage startups — are very high. When considering that many founders in Berlin have connections to even lower-cost developers in Eastern Europe, the differences in cash requirements become even more stark.
But if you look at the top exits of Israeli startups, you see that there are hardly any successful B2C model-based companies.
3. Israelis are bad at creating successful B2C companies…
Israeli B2B startups often perform remarkably well since they heavily rely on deep tech innovation. But if you look at the top exits of Israeli startups, you see that there are hardly any successful B2C model-based companies. Israeli entrepreneurs just cannot create products and services for their own consumer market, as it’s just too small. Focusing on consumers in other markets — the US, China, or Europe — seems to be too much of a stretch for these young entrepreneurs. Early failures in these business models have burnt some of Israel’s more notable early-stage investors, meaning the funding well is rather dry for these startups, especially when compared with those focusing on B2B.
…while German founders fundamentally understand the huge market they are working in, in a way that is hard for Israelis to compete with
Despite their strength in developing technology, Israelis do not excel in pursuing that elusive market-product fit, especially in the B2C space. The differences in mindsets and lifestyles between Israelis and Europeans seem to be larger than one might expect from a casual visit to Tel Aviv. German founders have a much firmer grasp on how Europeans will interact with their products. Their ability to build startups that leverage local needs for marketplaces is famously successful.
4. Israelis are a nation of early adopters so success there is a poor indicator of success abroad, yet…
Israelis love innovation and love trying out new things. And what founder wouldn’t want to have early adopters for her new product? But the downside is that both entrepreneurs and investors have recognized that a successful pilot in Israel is practically meaningless as proof of potential adoption elsewhere, to the point that almost no investor will take a successful local pilot as an indication of success in other markets. Consequently, Israeli founders have their sights set on global markets from Day 1.
Germany often seems to wait for proof that ideas work in other markets before they are adopted by consumers here.
… Germans are a nation of late adopters. Failure here means try again later
Conversely, most people would agree that Germans are a nation of late adopters. Given the size of the German market, the level of education of its population, and its ability to execute infrastructure projects (anywhere except in a small patch of south-eastern Berlin), one would expect Germany to be a great place to launch new products and services. Instead, we see that everything from fintech to marketplaces, Germany often seems to wait for proof that ideas work in other markets before they are adopted by consumers here. Failure of a novel idea in Germany may just mean that startups need to try to launch and succeed elsewhere and come back to Germany afterwards.
In summary, Israel can serve as an interesting model for Berlin on how to get some things right — and perhaps which mistakes to avoid — as it builds out its ecosystem. Berlin, on the other hand, provides a fertile ground to grow top-notch startups fast. I, for one, am super excited to be here in Berlin to be part of the growth and maturation of the ecosystem.