Das Berlin Startup Szene

“Berlin ist arm, aber sexy.” - Klaus Wowereit, Mayor of Berlin 2001 - 2014

“Berlin is poor, but sexy."

Next month is the 30th anniversary of the fall of the Berlin wall. Crazy. This physical and political barrier single-handedly shaped the city to become the post-capitalist contradiction it is today.

I get a lot of questions about Berlin even though I’m American. Painfully American. I first came to Berlin on my honeymoon and moved here in 2015. Even though it has many quirks and faults, I fucking love this city. This take won’t do the city justice, but I hope it’s enough to put it on your radar.

Berlin before and today

As a divided city between 1961-1989, political volatility kept most major companies away.

West Berlin survived on subsidies from the government and military occupation, East Berlin on Soviet-sponsored socialism. Exclaves from Turkey and Vietnam, artists, musicians, punks–altogether created a city-state known for breaking the rules. That lack of a cohesive identity gives us the opportunity to create a new one when the wall fell on November 7, 1989.

But when you have a clean slate, Berlin struggles with its identity still, especially with tech. It took decades for Silicon Valley to go from orchards in the 1930s to Fairchild Semiconductors in the 1950s to Oracle, Sun, and Apple in the 1980s. Point is, Berlin is still in its tech youth.

That youth is mildly dominated by a few industries. There are plenty of lists out there, but at a 100K foot, non-exhaustive view of the startup scene you can see a few patches:

• E-commerce - You can’t talk about the Berlin startup scene without mentioning e-commerce and Rocket Internet, the engine that jump-started the deep e-commerce heritage. Some of the companies include Zalando (which now employs 6K in Berlin), Delivery Hero, HelloFresh, and Jumia.
• Music tech - Another patch of startups is music-tech. Many companies here don’t have the culture or scale of a typical startup, and the scene is anchored by companies are 10-20 years old like Native Instruments, Ableton, and SoundCloud.
• Mobility - Every major German automaker has some sort of incubator in this city. Incubated startups like FreeNow (Daimler, BMW) and Coup (Bosch). Then you have the independents like Circ, Tier, Unu, Miles among many others.
• Fintech - Despite not being a financial center, Berlin has its share of fintech startups, including N26 (which started off as a credit card for teenagers and is rapidly expanding), FinLeap, WeFox, and TaxFix.
• Travel - Seedtable previously talked about the shared heritage of e-commerce and travel. In Berlin we have Get Your Guide (which just raised a megaround that’s skewing all the Berlin metrics), Omio (formerly GoEuro), and Tourlane.
• Crypto - While crypto is decentralized and remote, there are a lot of companies that have their core teams in Berlin. There was a large movement to make Berlin the crypto capital of the world, but much of it moved to the background.

Why you should move to Berlin

For the past decade, artists, musicians and broke entrepreneurs have gravitated towards Berlin.

The main reason: the barrier to entry to move to Berlin is much, much lower than Paris or London, particularly for English-speaking talent.

Here’s why.

First, a low cost of living (sort of).

Apart from peculiarities with housing (which I’ll get into later) everything is default-affordable. A €9 vs. €15 cocktail. €7 vs. €15 lunch, and so forth. You can always find your expensive craft beer place (€7) if that’s your jam. According to the cost of living index, Berlin is 34% cheaper than New York.

And while cities like Barcelona and Lisbon rank a lower cost of living, Berlin’s purchasing power is 44% and 105% higher respectively. After all, it’s what you can do with your doublons that counts.

But the greatest bang for your back lies (glibly) in the world-class techno scene. For less than €20 you can enjoy the clubs of Berlin for the entire weekend一of which there is no comparison.

Second, Germany has a straightforward visa process.

France and Germany lead the EU for total number of Schengen visas issued since they are the most populous, though France beats Germany by issuing 23% of the visas even though they are 16% of the EU population.

It’s straightforward to get a visa as a ‘skilled’ worker in Germany though not as generous as France. For Non-EU workers, the most popular options are the EU Blue Card and the freelancing visa. The Blue Card is tied to employment and takes a few weeks to process, and the freelance visa requires a portfolio or letters of intent. Most people I know can secure one in a couple weeks.

Third, there are plenty of companies and jobs up for grabs.

There are plenty of companies raising and hiring. Berlin ranked #12 globally with $7.2B in capital invested, and #17 in deals (and this doesn’t include the mega rounds from N26 and Get Your Guide, since the data is from 2017).

Go to Crunchbase and find out who’s raised money, and then check out their sites to find jobs. Done. Looking at platforms like Angellist or Glassdoor, the ratio of job listings is 6:2:1 for London:Berlin:Paris.

Finally, the low language barrier helps. Berlin is 16% foreign-born compared to 12% for the rest of Germany. Yes you can get away with speaking english, and yes I know the damn Oscar Wilde quote of ‘life is too short to learn german.’ Out of respect you should learn your host country’s language.

In Berlin at least learn enough German at least start your conversations. Strive for B1 competency, or at least hit A2 in your first year.

It's not all roses and unicorns

Pun intended. Sue me.

Berlin’s positives highly outweigh the negatives, but it’s only fair that I cover everything.

To start with, the low cost of living comes at a cost. Ask any Berliner, they dread searching for an apartment. Yes rent is cheap here relative to income. Groceries were cheap in the Soviet Union, but that’s not the problem. Supply and demand don’t match up. Econ 101 - if you have price controls and increasing demand, then you have supply shortages. Demand is high because you have 40K more people coming in per year vs available units.

There is a long, complicated history on how we got here, and like many other cities, there are no easy solutions. It’s still manageable to move here if you do your research and come prepared.

Then, compensation isn’t globally competitive. Compared to all other European cities, the compensation is honestly quite high. A software engineer making on average $52K in Berlin is equivalent to $50K in London (which I found absurd), $34K in Barcelona, and $38K in Paris一which I find ridiculous.

However one challenge I see is the pricing of talent here is lagging behind expectations of the talent market. While the math works (see the cost of living index above), it’s hard to take a job at half-price compared to its equivalent in SF/NYC/LON. Especially if you have fixed costs like student loans, something that most Europeans don’t have.

Third, startup incentives aren’t as strong as the US or the UK. Virtual shares are not fucking worth it.

Okay. WTF are virtual shares?

Let’s quickly break it down: Germany’s equivalent of the LLC一the GmbH一has absurdly strong minority shareholder rights (like delaying board decisions if you own a single share). Not wanting to shell out the large fees for a stock corporation (AG) nor risk poor corporate governance, companies instead give virtual shares.

Virtual shares are a cash liability to the employee against a liquidity event, the biggest IOU ever. Any payout is treated like income (with a 50% tax), and they function as a benefit e.g.the company can get rid of them as easy as free snacks, with little protection from the law.

The probability that you’ll become wealthy on virtual shares is virtually non-existent. Anyone who understands this dynamic steers clear of companies that use them, or optimizes for salary and works on their side project. Most people don’t, especially entry-level employees. Check out Index’s more diplomatic take on European options here.

And last but not least, the lack of experienced middle management and junior teams is a big con.

Since the startup ecosystem in Berlin is young, theoretically and anecdotally we have a lack of experienced middle managers. From what I’ve seen, most middle managers (e.g. Directors / VPs) of scaling startups are promoted internally. I was one of them. They/we and the rest of their teams skew very young.

So to be competitive you have to import talent from elsewhere. However it’s tricky since you 1) have lukewarm compensation below expectations 2)shit stock options, 3) internally promoted colleagues who can’t benchmark against other companies and 4)a junior team. Sign me up.

Lately I’m noticing a lot of newcomers from SF and that’s a great sign. I don’t see a lot of them joining the Series A startups that need them the most. This is a pattern I’ve seen frequently and I think it’s a symptom of this scaling barrier in Berlin.

So... should you move to Berlin?

Nothing is black or white.

Should I start a company in Berlin?

Absolutely. I think Berlin is a great place to start a company, both for established residents and new ones. There are plenty of things you need to adapt to, specifically around company formation, compensation, and talent strategy, but you can learn those easily over time. Just don’t start a boring company, please.

Should I scale a company in Berlin?

Depends. There is a saturation point. You have mature companies like Zalando that are trying to build massive engineering teams. Gresham’s law definitely applies一it’s hard to keep the talent bar high at that size. Instead your company will just be a waypoint for developers as they move onto other companies一which isn’t a bad thing for the ecosystem...

An emerging template is to have the headquarters and product leadership in Berlin, but stand up teams in different cities to spread the risk and talent footprint. N26 is doing exactly that with product teams in New York, Berlin, Barcelona, and Vienna. Other large companies are doing the reverse and setting up satellite offices like Amazon, Klarna, Groupon, among others.

Would you move to Berlin now?

Yes. I did actually move (back) to Berlin last year and would even do it again. Churn is high一a lot of friends from 2015 aren’t here in 2019, but there are a lot of great people here with common goals, dreams, and values.

While the housing shortage is a real issue, I’m eager to see how Berlin navigates it politically. The answer is out there: it’s always an all-of-the-above approach with housing: more housing units, progressive housing policies, and addressing NIMBY sentiment.

Takeaways

• Berlin is great to start a company.
• Compensation is better than most places, but still has a lot of work to do regarding shares.
• Berlin is difficult to scale talent-wise, but it’s a solvable problem and some people are able to do it successfully.
• It will be interesting to see how Berlin solves their housing shortage long-term.
• Techno is awesome.