Berlin, was once at the slower end of German economic development, due to its complicated recent history. Its lack of traditional industries has, however, now become something of an advantage in the digital age, where many businesses need talent, creativity, office space (and internet access) rather than factory plants.
You may remember this advert from the German Liberal Party which appeared on London buses in the aftermath of the Brexit referendum:
It would certainly be an exaggeration to say that there has been a rush of startups from London to Berlin since then. However, there are increasing signs that Berlin is seen as a startup friendly environment.
- The first startups have actually left London and crossed the Channel to Berlin, for example, BrickVest, an internet platform for real estate investments.
- For US tech companies looking to set up a European subsidiary, Berlin has become a real alternative to London, which used to be their natural choice.
- Rents, real estate and employment costs are still more affordable in Berlin than in London. Although prices and living costs have risen substantially in recent years, Berlin remains an attractive city for entrepreneurs and high quality hires; there is still office space to be found, and a number of co-working spaces, accelerator programmes and the like offer an extremely attractive tech eco-system.
- The amount of venture capital flowing into Berlin-based startups has risen substantially over the last few years. In 2016, Berlin attracted more capital than London for the first time (Berlin received EUR 3.3 billion and London EUR 2.2 billion). In 2017, Berlin reached a new all-time high of EUR 4.2 billion. This was backed by a remarkable number of successful IPOs (Delivery Hero, Hello Fresh and Mynaric) and high levels of M&A activity in the industry. This has helped to develop a more robust and mature venture capital/startup eco-system, attracting both talent and further investment.
The legal framework is gradually becoming more business-friendly
Germany still has a reputation for inflexible and strict legal regulations. In fact the legal framework has become more business-friendly than it used to be, with patient lobbying contributing to a more startup-friendly environment. This includes, for example, employment law rules which have been amended to allow agreement of fixed terms of employment more easily.
Even the notoriously strict German data protection rules may now turn into an advantage as the public focuses more on data privacy following the Facebook/Cambridge Analytica events. The new EU General Data Protection Regulation includes a number of concepts which are already familiar to German data protection lawyers which again, may attract inbound startups looking for a European base.
There is, having said that, still work to be done, including on tax incentives for employee stock option programs – particularly important to startups.
The past few years have seen Berlin become home to all sorts of tech industries including ecommerce businesses, fintech, games and SaaS and this growth looks set to continue.
Much remains uncertain around the impact of Brexit but with or without it, Berlin is proving to be an appealing proposition for many startups.