In a new series, Innovation Cultures explores tech scenes around the world that aim to replicate Silicon Valley's success. First up is Berlin, where Stephen Evans investigates whether this cutting-edge, affordable city is finally attracting serious investment.
When new businesses based on the computer chip began to gather in Santa Clara Valley, it wasn't long before someone coined the term Silicon Valley. This set a trend, leading to names like Silicon Glen in Scotland, Kenya’s Silicon Savannah, Silicon Gulf in the Philippines, Silicon Taiga in Siberia, and even the less romantic-sounding Silicon Roundabout in London.
Now, there's Silicon Allee in Berlin (Allee means alley or avenue in German and is part of many street names in the city), which some say captures the spirit of early Northern California. This was certainly the vibe at Tech Open Air Berlin, an event held earlier this month in a quirky complex of wooden and stone buildings in Kreuzberg, a trendy part of the city. There was soft acoustic music, falafel, and many stylish people exuding a carefully crafted coolness.
“You’re going to see a lot of amazing things coming out of Berlin,” says Tikhon Bernstam, who traveled from Silicon Valley to attend the event. “This kind of culture you see here, with the hippy music, is exactly what we had in San Francisco a few years ago. I’m impressed by the quality of the companies I’ve seen here.” Bernstam co-founded a cloud data service, Parse, which was recently bought by Facebook for $85 million.
Of course, Berlin is far behind Silicon Valley. From Adobe to Yahoo, including Apple, Intel, Google, and Oracle, the Valley, as its residents call it, has a combined wealth that most countries would envy.
Exact figures are hard to find, but Berlin ranked ninth in a recent global list of cities with the most tech start-ups founded since 2002 that are global or have received angel funding or venture capital. The top three were San Francisco-Silicon Valley with 201 start-ups, New York with 144, and London with 90. Berlin had 27, just ahead of Bangalore with 26 and Sao Paulo with 21.
With its reputation for doing things differently, affordable rents, and the ambition and optimism shown at events like Tech Open Air Berlin, there's hope that the city's tech scene will live up to the buzz it's had for the past few years.
In many ways, the city itself is like a startup. From 1945, it was devastated and divided for nearly half a century. The eastern, Soviet-controlled zone wasn't exactly a hub for innovation, and industry moved out of the West. Students were exempt from military service, which attracted a young, artistic, and politically radical alternative scene.
Since the fall of the Wall in 1989, the city has been reinventing itself. The vibrant alternative culture still exists, and some believe it provides fertile ground for creating disruptive technologies. However, others argue that a counterculture's dislike for making money might hinder innovation.
One thing is clear: property is cheap. Berlin's rents are so low that they surprise visitors from London and New York. At the end of last year, the average annual cost of a workstation in a Berlin office, including maintenance, taxes, and rent, was $8,410, compared to $14,050 in New York and $14,620 in the City of London, according to a report by the global property company DTZ. Renting a 120 square meter apartment in Berlin costs about a third of what it does in London and New York.
This combination has attracted many aspiring to become the next big thing in tech. Some have already succeeded, like the social game developer Wooga or ResearchGate, a networking site for scientists. The star of the scene is SoundCloud, an audio-sharing platform with 200 million monthly users. Alex Ljung, its co-founder and CEO, moved the company from Stockholm to Berlin because he found a richer mix of people involved in music and because of the abundant and affordable office space.
However, Ljung admits that his company's new home doesn't have everything. "With start-up life, there's never really much calmness. It's all jet and no lag," he says. "In an average month, I spend about a week and a half in Berlin, about a week in San Francisco, and the rest of the time split between Los Angeles, New York, and London." What Berlin lacks compared to San Francisco is the large number of people who have grown tech companies. Ljung says he can meet others there who have taken the same path and can advise him on shortcuts and pitfalls. In New York, London, and Los Angeles, he can meet many people with money to invest in good ideas.
According to Bernstam, investors from the US are hesitant to invest in Germany because they don't understand how companies are structured and the corporate regulations. "We don't know what might happen if future investors try to dilute our shares," he says. "Investors from the States don't yet understand how that works abroad and are frankly scared of investing overseas."
This has created a chicken-and-egg problem in Berlin. Some entrepreneurs have stayed away due to the lack of investors, while those with money have chosen to invest elsewhere because there are more companies to choose from.
However, this resistance is starting to break down on both sides, according to David Knight, editor-in-chief of the Berlin tech scene blog Silicon Allee. "There's been a streak of creativity, and once you had a core group of people, starting around 2009, you began to see a lot of investors from the US and Europe looking at Berlin. It's still in the early stages, but there's much more money now than there was two years ago."
Districts like Kreuzberg, Neukoelln, and Prenzlauer Berg, where aspiring entrepreneurs gather in bars and cafes with Wi-Fi, are now seeing the impact of this change. In Prenzlauer Berg, Factory, which received €1 million in funding from Google, has rented space to over 15 companies, including SoundCloud. The city now also has more serious business professionals. Florian Lanzer is working on a website to sell green products to people who aren't necessarily committed environmentalists. He mentioned that the project has attracted a lot of interest, including the involvement of a former CEO of Sony Germany.
“Berlin attracts the right kind of people,” says Lanzer. “Young people with talent and those with extensive experience are coming together.”
About a decade ago, Berlin was famously described as “poor, but sexy” by its mayor, Klaus Wowereit. The hope is that creativity and commerce are now coming together in tech, helping the city finally shed its "poor" label.