As the UK prepares to “brexit,” Berlin’s Silicon Allee is poised to take its place as the EU’s new Silicon Valley. Various entrepreneurs think Berlin will take London’s place as the EU’s capital for business after the departure. In fact, Inc. reports results from a recent Inc. 5000 survey that indicate 26 percent of EU entrepreneurs believe Berlin will emerge as the EU’s new business center. Others surveyed think Frankfurt will take the crown—but only two respondents said London will remain on top.
As Arne Schepker, CMO of online language learning system Babbel explains: “Berlin is here to stay. In Europe, only London can compete right now and the impending Brexit is not going to make the UK any more attractive. I personally think Berlin needs more breakthrough showcases like Zalando to build confidence globally and raise valuations.”
There are several favorable conditions that give Berlin an edge in this race. The city boasts a low cost of living compared to tech competitors like London, San Francisco and New York City. There is also a steady stream of skilled labor in Berlin, not to mention easy access to the rest of the EU.
Furthermore, there is already an American tech presence in Berlin. Several big companies like Airbnb and Facebook already have offices there, and incubator programs are readily fostering German startups such as EyeEm and N26 in Berlin. In fact, according to Ernst & Young, Berlin is now home to around 2,500 active startups, which have attracted about $2.7 billion* in venture capital in total. This means Berlin is attracting more money than startups anywhere else in the EU—but not nearly as much as Silicon Valley.
So, what’s the downside? Entrepreneurs still face barriers to entry in Berlin that don’t exist in Silicon Valley or London. Although it is growing fast, Berlin’s talent pool is significantly smaller than London’s. (This may be changing even more rapidly as Brexit causes a talent drain in the UK.) This problem is heightened by the lack of an alumni network that is dependent on a minimum volume in exits. To get to a better place in this regard, entrepreneurs in Berlin will need to either sell their startups or take them public, triggering more local investment.
All things considered, though, Berlin’s Silicon Allee is EU’s new Silicon Valley. This is especially true since the cost of living is pricing out many tech companies as it prices out their workers. We crunched the data to show you how and why that’s going to happen—and why more and more startups, originating in both the EU and the US, are going to be sprouting in Berlin.
How easy is it to launch a business in . . .
Both Berlin and San Francisco are extremely startup-friendly. Berlin has one of the most inclusive and diverse startup ecosystems in the world; it attracts the largest percentage of startups from outside the country of all EU ecosystems—11 percent, while the rest of the EU averages 2 percent. San Francisco, supported by the wealth of Silicon Valley, remains the dominant startup ecosystem in the world. Both cities have their pros and cons.
. . . Berlin?
In Berlin, an entrepreneur can found a startup in less than 7 days for $827. The startup will enjoy the support of various legal organizations, funding programmes, and the local network (for example, Business Startup Portal, Gründen in Berlin, and Investitionsbank Berlin).
Entrepreneurs can also apply to receive financial support from the government during the first months of the startup’s life (such as Gründungszuschuss, EXIST, and other programs).
. . . San Francisco?
It’s almost as easy and inexpensive to launch a startup in San Francisco. The primary advantages for an entrepreneur are the taxes: 10 percent sales tax in San Francisco compared to 19 percent in Berlin, and 9 percent corporate tax compared to 15 percent in Berlin.
However, founders will spend more money to build and house a team. For example, a software engineer’s salary is twice as much in San Francisco as it is in Berlin, and office space is $620 per square meter per year in San Francisco instead of $312 in Berlin.
Startup ecosystem and access to capital
Silicon Valley is the largest startup ecosystem in the world, valued at approximately $279 billion: over one-quarter of the world’s unicorns are located in Silicon Valley. 28 percent of global investments into early-stage startups are captured by Silicon Valley companies, and per startup early-stage funding there is $806 K. Startups in the area collected $26 billion in venture capital in 2016 alone.
The Berlin startup ecosystem is comparatively smaller, but has experienced impressive growth over the last 10 years. Over the course of the last decade Berlin’s startup scene expanded, from a few dozen tech startups in the mid-2000s to around 2,500 today. There are also 70 percent more digital jobs now than there were in 2008. Still, the capital outlay in Berlin is lower; Berlin’s startups collected $2.8 billion in venture capital in 2016, and the early-stage funding per startup is also lower at $510 K.
Holger Seim, CEO of Blinkist, believes Berlin’s growth spurt will continue: “I believe Berlin’s startup scene will grow even further in the near future and we’ll start to see more unicorns coming out of Berlin. There’s an increasing amount of experienced entrepreneurs who’ve built and exited their first company to mentor others to think bigger or start over themselves with more confidence and a bigger mindset.”
People and resources
The profile of a typical founder in Berlin looks like this:
- 32 years old
- 13 percent women
- 43 percent immigrants
In contrast, the profile of a founder in San Francisco looks like this:
- 31 years old
- 16 percent women
- 46 percent immigrants
Berlin’s startup founder profile of 43 percent immigrants makes it home to the second highest percentage of immigrant founders in the world—second only to Silicon Valley. Berlin startups also report the 6th-highest percentage of foreign customers from other continents at 28 percent, indicating a strong drive and ability to go global, compared to only 19 percent in London.
Bodo von Braunmühl, Head of Corporate Communications at Berlin-based Delivery Hero describes the spirit of Berlin as inviting for all nationalities: “Berlin is a vibrant and dynamic city, enticing talented people from around the globe to embark here on a new career journey. At Delivery Hero, we pride ourselves in being a multi-cultural workforce with employees from 70+ different nationalities.”
Can I afford to live there?
According to numbers collected by numbeo, this one is a clear win for Berlin, where the cost of living is 32 percent lower than in San Francisco. The rent is especially high in San Francisco—about three times what one would spend in Berlin ($3,471 on average per month in San Francisco compared to $886 on average per month in Berlin for a one room apartment). When it comes to cost of living, everything from internet access to lunch, is more affordable in Berlin.
Furthermore, you pay less for more in Berlin; according to an annual quality of living survey conducted by Mercer in 2017, measuring safety, education, hygiene, health care, culture, environment, recreation, political-economic stability and public transport, the quality of life is better in Berlin, which was ranked at 13 worldwide, compared to San Francisco which came in at 29 as the highest ranking US city.
Welcome to Silicon Allee
The numbers prove it: Berlin is the EU’s new Silicon Valley. Naren Shaam, CEO of GoEuro sums it all up: “Berlin was a great location choice for our HQ. The city is full of the energy needed to drive tech businesses like ours forward. It has the right ingredients to scale a business, including access to capital, good education and training opportunities, and it’s also becoming more competitive with a number of major businesses now located here. This can only be a good thing and we’re excited for the future.”
As the UK and possibly the US lose tech talent and investors due to less friendly science and tech and immigration policies, friendlier locales like Berlin will appear even more attractive to adventurous entrepreneurs looking to get more out of every startup dollar. Take it from us: we have happy 99designs offices in both the Bay Area and Berlin!
* Euro amounts have been converted to dollars at an exchange rate of 1 : 1.18.↩