A City Finding Itself: How Berlin’s Startup Ecosystem Evolved
While chatting a few years ago about Berlin with a venture capital veteran from the Silicon Valley, he mentioned that he saw Berlin as ‘a city finding itself’. As a recurrent visitor of the city since 1998, I can relate to that statement; I can happily say that by now, this city has developed a character of its own (on the startups’ side).
Berlin is the capital of Germany, and one of the most eventful cities in the world.
It is a city of contrast where history and newness encounter each other on every corner.
A good example is that the city serves as the center for all political decisions in Germany as well as the hub for startups and technology advancement. But before we look at the current state of the city, it is useful to go down memory lane and understand the following:
🔥 How the Berlin Ecosystem came to be
After World War II (1945) the city was mostly destroyed. Situated at the center of such a dark recent history, the city needed to rebuild itself and was in an awkwardly divided position: West and East Berlin. The West side was controlled by the American, British and French, while the East side was controlled by the Soviet Union. The division was so strong that there was even a physical manifestation of it, the Berlin Wall, which was built in 1961 and only fell in 1989. The city became the capital of the German nation in 1991 and then started its reconstruction process.
Two main factors determined the type of people that lived or moved to the city and would later become critical for the development of the startup ecosystem:
- 💸 Cheap rent: Since there were no major industries in the city and the infrastructure was not the most beautiful after the war, housing in Berlin was easy to find and very cheap.
- 🎨 Cultural movement: The city attracted a crowd of alternative people (non-conformists, artists, and liberals). West Germans living in Berlin did not have to serve mandatory military service, and that attracted many, which helped the blossoming cultural scene.
These factors attracted talent to Berlin, creating density over time and increasing its appeal to internationals. In the words of a friend:
“Berlin is not a city where people brag about a 6-course menu at a restaurant, but rather one where people talk about the clubs they frequent.”
That alternativeness in what it means to have “made it” in the city attracts a distinct crowd.
So let’s create a short timeline with some of the main events in this ecosystem building process:
🌱 2007–2010: The beginnings
In the early 2000s, there was arguably not much happening in the city in terms of industry. In Germany, a highly decentralized country, every region or “Bundesland” was relatively specialized in terms of a certain type of business: insurance in Munich or energy in Essen. Berlin was mostly known for being the city where the artists and the government were located, but there was no big industry, which made it a fertile ground for people to build from scratch.
The first wave of startups in Berlin dates to the interval between 2007 and 2010. Within that time the city gave birth to startups like studiVZ (social network), Immobilienscout24, Zalando, Idealo, Gate5, and Jamba. Jamba was the second exit from the Samwer brothers who later became the founders of Rocket Internet. Gate5 was sold to Nokia, and the founder, Christophe Maire, would later go on to start Atlantic Labs.
🔨 2011–2013: Venture Building and “copycatting” everything
This period saw the rise of venture builders; since these types of companies are not common everywhere, I’ll explain: Venture Builders are companies that focus on launching new businesses from a core team that develops them and supports them with some central functions such as HR and Legal. In short, these are companies whose purpose is to create other “child” companies. While venture builders are now present across the world, there has been a strong concentration in Berlin.
Around 2011, there were two venture builders in the city: Team Europe and Rocket Internet. Team Europe was started by Kolja Hebenstreit, Lukasz Gadowski, and supported the early days of Delivery Hero (Lieferheld back then), Wooga, and Spreadshirt. Rocket Internet was started by the Samwer brothers who had previously founded and successfully exited companies such as Alando and Jamba. There has been plenty written about the Rocket Internet and the Samwer brothers’ story, but I personally recommend reading this version by The Generalist.
While there are mixed opinions on the company and its ethics, no one can deny that they were one of the largest catalyzers to make the Berlin startup hub “happen”. Among the companies that benefited from the Rocket Internet force, we can find some of the most iconic scale ups such as Delivery Hero, HelloFresh, Zalando, Home24, and Westwing.
As time progressed, startups originated not only from venture builders but from other founders entering the scene; some of those stories relate to SoundCloud, Wunderlist, EyeEm, SumUp and Amen. On the venture capital side of things, some VCs started to see an opportunity in Berlin and one of the first ones to establish a presence here was Earlybird, which moved from Hamburg to Berlin in 2013. Berlin started to appear in the international startup scene, so much so that even Ashton Kutcher decided to invest in the city back in 2012.
Several of the companies mentioned before were the bootcamps for much of the talent we see today, and as talent churned from the bigger companies, more ventures got built. At this point in time, most of the companies built in Berlin had a flavor of commerce, consumer and copy-cats. People associated Berlin with power of execution, but not necessarily with innovation.
🚀 2014–2018: Professionalizing investing and growing aspirations
By 2014, Oliver Samwer, the older brother of the trio, started to professionalize his investing and from that Global Founders Capital was born. It was right around that time that Rocket Internet was considered to have reached its peak success, where many of its ventures such as HelloFresh, GlossyBox, DeliveryHero, and Zalando were present not only in Germany but had also started international expansion.
As Berlin became more recognized as a startup hub and the venture building practices became internationally known, more venture builders started to emerge such as Hitfox (now IONIQ), which expanded into fintech with finleap and later into healthtech as Heartbeat Labs. Many of these venture builders not only built for themselves but also for corporations, and soon enough it became common for several German corporations to establish their innovation practices in Berlin. Examples include Lufthansa Innovation Hub, BCG Digital Ventures, and Körber Digital enabled by consultants such as BCG Digital Ventures.
In 2015 Wunderlist, a startup from entrepreneur Christian Reber and the Wunderkinder crew, was sold to Microsoft for $125 million. While compared to some of the valuations and exits we are seeing in the current VC climate this might seem small, at the time this was a major milestone for the Berlin ecosystem. This made it clear that it was possible to build something out of Berlin and exit to global players.
By 2016, Berlin was well recognized as the second largest startup hub in Europe, only behind London. It is around this period when Rocket Internet stopped incubating more businesses. At an ecosystem level, there were already enough small successes to have attracted more capital to Berlin and many new VCs were founded: Point9, Cherry Ventures, and LaFamiglia.
As aspirations in the city grew, it became increasingly attractive to international funds opening offices in Berlin– properly committing to the city. Some examples of international funds opening offices in Berlin include Creandum, Heartcore, and Speedinvest.
🕺💃 2019-onwards: We keep dancing
The success stories of previous years have encouraged more people to pursue entrepreneurship as a viable career path. As we look into the future of Berlin, the city has diversified the type of industries it serves into fintech, logistics, mobility, edtech, etc… Furthermore, it is expected that some of the Berlin based unicorns will IPO or be acquired in the coming years, leaving several employees with disposable income to invest or start new things on their own. At the same time, this also means more second-time founders and operators with scale-up experience that will continue the flywheel in the ecosystem.
On the VC side, the proliferance of smaller VCs led to a general sentiment that Berlin has consolidated its spot as one of the leading European hubs, taking on increasingly more ambitious challenges. Two movements that were not discussed in this narrative so far were the governmental initiatives to enhance the startup ecosystem, such as the Adlershof, and the fact that for a while Berlin was considered one of the crypto hubs of Europe.
For now, I believe it is time to bring the story to the current times and identify who the movers and shakers in the ecosystem are:
🇩🇪 Berlin’s movers and shakers:
By now it is no secret that nearly every important fund in the world has at some point invested in a Berlin-based company, however I want to focus our attention on funds that are “headquartered” or “committed” in Berlin.
The first category, “headquartered”, contains funds who were founded or moved their headquarters into the city. The second category, “committed”, contains the funds that have at least one person permanently based in Berlin; hence they have formalized their commitment to the city.
While the city’s stars are and will always be the startups, it is useful to see some of the VCs as the catalysts for innovation happening in the city. Many of those VCs are operators turned investors or individuals who have boldly betted on Berlin being the next innovation center of Europe. By late August, Sifted reported that Berlin startups had already obtained €5.1bn in investment:
As we can see this means that by the time I publish this article, the city is likely to have doubled the investment from 2019, the record year until now.
On the startup side, I don’t think I’d ever finish this article if I were to list all the startups in Berlin. Nonetheless, I want to highlight some of the ones that have successfully put the city on the global map:
Move to Berlin already! Or at least come visit 😉
I want to finish this article by encouraging everyone to move to, invest in or visit Berlin. Nowadays, there are more factors that contribute to the city continuing to gain the hearts of many, so here are few selling points:
- 🤩 Industry-diverse startup hub: whether you want to look into fintech or climate tech, this city has more than one vertical where startups focus on and strive in.
- 🏙 High quality of life: it is one of the greenest cities in Europe with a lot of space and one of the most vibrant nightlife scenes.
- 🎓 Qualified talent: Berlin universities are a great source of highly qualified creative and technical talent.
- 🌍 International: the current startups and scaleups have attracted a good mix of international talent willing to forego Silicon Valley salaries to experience the city.
- 💰 Affordable rent: it might be a real pain to find housing in Berlin but the rents are unarguably cheaper than many other European capitals.
Overall, it has taken a while for Berlin to become the startup capital we know and love. I am bullish on Berlin continuing to attract highly qualified talent and increasingly incubating more European unicorns. Come visit or message me if you have extra stories on the city.
💁🏽♀️ You can follow my journey and more musings on Twitter and connect with me on LinkedIn.
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