Germany x France: Who Shaped The Entrepreneurial Culture For European Startups?
A story about the differences between the French and German ecosystem
Since I started working at the French VC fund daphni I heard all over how exciting it must be to live in the fastest growing and most hyped startup ecosystem. Indeed, media mentioning’s of “France + startup” are skyrocketing since late 2016, France had more VC backed rounds than any other European country in 2017, Macron vowed to turn France into a Start-up nation, the Brexit is questioning the British ecosystem as Europe’s ultimate VC market, over 9.400 startups are located across France, and so on. France is definitely catching up with the UK and Germany. But why does France have to catch up in the first place?
France is the most visited country in the world and hosts 29 of the Global 500 companies. Paris has been one of the centres of finance, commerce, fashion, science, music and painting in Europe since the 17th century.
My journey as a German Analyst in the “Sillicon Sentier” led me to discover and understand some differences between my home country, Germany, and France.
Picking Paris or Berlin
Comparing the capitals of France and Germany means also to compare both countries startup hubs. While Paris is the second most expensive city in the world to live in and generating a GDP of €681 billion. Berlin only has a GDP of €124 billion with no significant industry settled in the city. Indeed, Germany’s most important industry, the automotive production, is based in the south, financial services are located in Frankfurt, press, insurance and advertising can mostly be found in Hamburg. In fact, Berlin is the only major capital in Europe where the per capita GDP is less than the countries average. It is not very surprising than, that housing, food and labor are much cheaper in Berlin compared to Paris, even if the gap is slowly declining.
Further, Berlins history is completely different to the Parisian one. Carl Sagan once said, that “You have to know the past to understand the present” and Berlins history is very diverse. While Paris became the French capital already in 900 and kept being the capital nearly continuously until today, Berlin only became Germany’s capital in 1871 and again in 1990 after the fall of the Berlin wall. At the end of the Second World War Berlin was completely destroyed, which required a rapid rebuilding of the city without having resources to care about its architectural attractiveness, making the first appearance of the city not very likeable. Apart from not being very appealing, Berlin was also separated between east and west until 1989 and therefore, the centrepiece of the Cold War. While democracy was predominant in the West, communism and surveillance by the Stasi (state security service) was omnipresent in the East. In fact, the Stasi was one of the most hated and feared institution of the East Germany Government, maintaining more than 6 million files of its inhabitants and having more than 100k informal informants partly spying on their neighbours. Growing up in such conditions make you develop a serious anti-establishment mindset with a desire to design things differently, challenge the status quo and create a better future. People wanted to bring live and color to the dull and unappealing city. Imaginable, that this new creative, alternative emerging scene of people, also attracted other, international like-minded peers. Indeed, Berlin became a very international city.
Taking a closer look at Berlin’s history gives you an idea of why Berlin had an unfair advantage in regard to the creation of a startup land. Not only did people have a deep desire to change and create due to historical circumstances but the low cost of living in Berlin helped a lot as well. The opportunity costs starting a new business were much lower in Berlin than in Paris. As many people in Paris on the contrary could afford to attain good universities and were exposed to a flourishing industry with comfortable and well-paid jobs there was less a need to step outside the comfort zone and create new businesses. Further, working on your own project in Paris for something like three years could become very expensive.
Today, you feel the energy in and optimism surrounding Berlin with the desire to create a better future quickly when you arrive. Berlin is celebrating its open mind, tolerance and sexiness. Actually, Berlin’s vibrant, dynamic scene is difficult to capture in words. But it is a great entrepreneurs’ city.
The founders DNA
After looking at Berlins history it does not come as a surprise, that every tenth founder in Germany is foreign-born and 30% of startup staff is coming from abroad. Even from a broader perspective, Berlin is still a very international city with more than 27% of all its inhabitants coming from abroad. But it’s not only the facts that make Berlin seem more international than Paris, everybody visiting Berlin experiences how bartenders and waiters often only speak English. Being such an open city attracts talent from all over and helps generating new ideas which can be put into reality. In comparison, I feel Paris to be, apart from the tourists, a more national city where speaking French is required to land a job and integrate into social life. Therefore, foreigners might have a difficulty to adapt and are less incentivised to move to France permanently. However, the beauty and charm of the city are outstanding and offer value seldom be found anywhere else. It still is the city of love.
Something else which distinguishes German from French founders is, that in Germany more founders are graduates from business schools. It has been different a few years ago when just crazy and adventurous guys started their own projects in Berlin, but nowadays being an entrepreneur has become really hot and you sometimes have the impression that it is required to be part of the hip, cool scene. This led to an increase of startup incorporations from different kind of people, some of them approaching the founding from a more formal perspective. Having a strategic mindset is not necessarily bad, but following BlaBlaCar’s value, “done is better than perfect”, maybe not the most desired trait for scaling a startup. Hugo Amsellem, who launched the Family in Berlin, believes that business school graduates suffer a habit of raising money too early, sticking too much to a plan and they stop when it starts hurting. Even though this might be true, I also believe graduating from a business school does not only bring bad traits when it comes to founding. Looking at one of the most recent German success stories, N26, supports that. Its founders Valentin Stalf and Maximilian Tayenthal, studied Business Administration in St. Gallen and at the University of Vienna.
In France, on the contrary, I discovered, that people who graduated from universities have mostly been working in a specific industry and discovered a certain problem within this industry they want to solve with their startup. Let’s take daphni’s portfolio company Comet as an example. Its founder and CEO, Charles Thomas, has an engineering education and worked as an IT consultant helping big cooperation’s finding suitable IT experts. It was during that time, when he discovered how hard it is for companies to find suitable candidates. Further, he also identified the inefficiency in the process of hiring IT experts as the consulting company received relatively high commissions. His current project Comet, helps companies to scale their tech and data teams on demand by seamlessly connecting them to a direct pipeline of qualified freelance engineers.
Rocket Internet, the incubator of the ecosystem
One institution which has had a big influence on shaping the German ecosystem and making Berlin more cosmopolitan is the controversially discussed company Rocket Internet. The Berlin based company is often referred to as a copy-cat, replicating successful businesses from abroad, mostly from the US and therefore killing innovation. After its foundation in 2007, Rocket Internet founded Zalando in 2008, inspired by the successful US retailer zappos.com. Just six years later at Zalandos IPO, the company was valued €5.3 billion. This early success did not come alone, HelloFresh, Delivery Hero and most recently Home24 generated huge value for Rocket Internet at their IPOs as well. In total Rocket Internet backed six unicorns so far and as most of the cash has been reinvested in the ecosystem, a significant share of the German startup capital came from Rocket Internet. I believe this to be a great factor contributing to the steep development of the ecosystem in Germany. Nothing comparable can be found in France.
However, the successes of Rocket Internet did not just provided capital but also attracted and produced skilled workers. After copying the first companies, Rocket Internet hired young, ambitious overachievers from companies like McKinsey, Goldman and the like to become the CEOs of their companies. These kinds of professional people were previously not very attracted to Berlin but starting with Rocket Internet they discovered it as a very liveable place. In this regard, Berlin was able to catch up to Paris quite quickly.
Further, many people who initially worked for Rocket Internet also became founder themselves. Adrian Li believes that Rocket Internet indirectly enabled non-entrepreneurs to become entrepreneurs. Some even speak about Rocket Internet “graduates”. Andre Alpar (AKM3), Elias Russezki (DeltaMethod), Mario Suntanu (Bobobobo) and Dominik Wojcik (TrustAgents) are just a few to mention who founded themselves, but there are a lot more. Given Rockets “education” a high percentage of startups founded by ex-Rocket employees became successful and consequently shaped the German ecosystem significantly.
The obvious decentralisation of Germany
Klaus Wowereit, the former major of Berlin once called its city “poor but sexy” and given that most traditional, significant industries are located outside Berlin it is still true. But not just the heavy weights of the German industry are spread across Germany but the Startup landscape as well. While Berlin is still the most important center with more than two thirds of the top 100 start-ups in terms of funding, Hamburg and Munich are not far behind. In terms of total founding successful startups can be found all over Germany, Kreditech (Hamburg) raised €497M, Westwing (Munich) raised €237M, Auxmoney (Dusseldorf) €198M, Lampenwelt (Schlitz) €191M, Lilium Aviation (Gilching) €101M, Sonnen (Wildpoldsried) €98M, Blue Yonder (Karlsruhe) €75M, Open-Xchange (Nuremberg) €68M and Arago (Frankfurt) €55M, just to name the most successful ones not coming from Berlin.
One reason for this decentralisation is also the distribution of the best German business and engineering schools across the country. While most people only know the TU Munich, other technological universities like the RWTH Aachen, TU Berlin or KIT (Karlsruhe) are less well known but do not lack much behind in quality. Tobias Kollmann, professor for e-business at the University of Duisburg-Essen, sums it up quite well by saying “Germany has more than one Silicon Valley.” Indeed, the decentralisation of Germany might be its biggest strength, which many foreign people are envying.
Paris on the contrary is the hub of France. Not only do people clearly separate themselves between Parisian and non- Parisians but the business importance of Paris is immense as well. Out of the 29 Fortune 500 companies located in France, 27 are within greater Paris. Also, in terms of financing rounds Parisian technological companies saw 342 deals in 2017 whereas the second most deals have been made in Lyon with only 26 closed rounds.
Despite the fact that Germany might had a historical advantage and a lucky hit with Rocket Internet, France (and especially Paris) is having its momentum. The Global Entrepreneurship and Development Institute (GEDI) published the 2018 Global Entrepreneurship, which assesses and ranks 137 countries on their ability to offer a healthy entrepreneurship ecosystem and after finishing 13th in the 2017 index, France was ranked 10th in the 2018 standings. Germany on the contrary is number 15 in the world. However, it’s not just the more serious but also not that much related rankings where France currently leads ahead of Germany. Surprisingly, Paris is more hipster than Berlin, making the city maybe even cooler for entrepreneurs? Finally, I personally felt the French passion for innovation, creativity and entrepreneurship. At the end of the day, the word “entrepreneur” is French.