Berlin: Germany’s Bid for the “Next Silicon Valley”

Start-ups are being launched at a dizzying pace in Berlin, a phenomenon that has vaulted the city into the worldwide pantheon of aspiring innovation hubs.  According to an article in WIRED magazine in October 2013, “Berlin has been the most talked-about (and talked-up) startup hub in Europe for several years”, and WIRED also reported that there has been an increase in the number of accelerators and incubators in and around Berlin and that access to capital for startups appears to have improved.  However, skeptics question whether the Berlin start-up scene is more about chic art galleries and hip music and less about serious long-term innovation that will ultimately begin to produce a stream of truly global technology companies.  Berlin entrepreneurs have been criticized for often relying on replication of business models developed elsewhere as opposed to identifying and developing their own ideas and Berlin start-ups struggle with shortages of qualified designers and engineers, difficulties obtaining venture capital funding, an immature local innovation infrastructure and a societal culture that, while changing, remains relatively risk averse and is typically slow to encourage nascent entrepreneurs to follow their passions and form their own company as opposed to traditional career paths.  While there have been several successful local firms, they are often sold to larger foreign multinationals and Germany has not been the birthplace of a truly global technology company since SAP was born in 1972.

Berlin, which has been referred to as a relic of the Cold War unable to modernize with the same speed and vigor as other German business centers such as Hamburg and Frankfurt, has recently undergone a renaissance of sorts that has turned it into one of the most discussed, and fastest growing, communities for start-ups in the world.  Low rents, coupled with stylish art galleries and a surging underground music scene, have made Berlin a magnet for engineers and designers and Berlin’s technology companies have gathered support from national and local politicians.  The creative atmosphere that has emerged in Berlin’s innovation community has been especially conducive to the launch of video gaming firms that have developed games that have gathered international followings and help put Berlin on the map for international investors and encouraged global technology companies, such as Google, to invest in local companies and incubators and look to the area as fertile ground for possible acquisitions.  In addition to video gaming, Berlin has been the home for successful startups focusing on mobile advertising, online shopping and audio-sharing Web services.

Arguably the biggest potential asset for Berlin in its attempt to become a global innovation cluster is the city’s ability to attract large numbers of creative people; however, the area has a long way to go to move beyond chaotic enthusiasm to the robust, mature networks found in Silicon Valley.  Berlin has developed a unique, and somewhat dazzling, “startup scene” that includes cafes filled with dozens of people working away on their laptops and holding mini-meetings.  However, for commentators like Westervelt, who mused about whether Berlin would be “The Next Silicon Valley” in a post for NPR All Tech Considered that appeared in July 9, 2012, the question is just how many of those people are working on a serious business plan as opposed to simply blogging about their experiences and how much fun it would be part of launching the next Facebook.  Berlin’s innovation cluster has yet to produce a steady stream of successful exits (i.e., large acquisitions by multinationals in deals worth more than $1 billion or lucrative initial public offerings); however, there have been smaller acquisitions deals with well-known companies from the US (eBay, Google and Groupon) and Japan (Panasonic).

Since the end of the 2000s Berlin has been capturing a larger share of the startups launched in Germany and research published by McKinsey & Co. In October 2013 indicated that for every new business set up in Munich 2.8 companies were started in Berlin.  Berlin is attracting startups by offering cheaper rents for residential and office units than other European innovation clusters and one now finds startup events going on daily in Berlin with large crowds attending.  The Institute of the German Economy has released statistics that showed that by 2013 Berlin had passed Munich to become Germany's main hub for venture capital investment.  Although the Berlin start-up scene, and its focus on digital innovations, has achieved a large amount of attention, entrepreneurship also flourishes outside of Berlin in sectors such as chemistry and engineering that have been particular strengths of German business since the Nineteenth Century.

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