F.OR BRITS Berlin is a city that is forever associated with David Bowie. When he lived there in the late 1970s, Bowie’s life was on the move. He was estranged from his wife, separated from his management and tried to reduce the surplus of rock stars. Berlin was similarly unsettled: a haven for artists, outsiders and switchmen on the Cold War front. Bowie lived anonymously over an auto parts store. He did some of his best work there.
The apartment block where Bowie lived with Iggy Pop, another celebrated rock star, still stands. Berlin remains a nervous place in between – it’s Germany’s capital, but not entirely German. And it remains a place where people try something new. It now competes with London and Paris as Europe’s leading hub for technology startups.
That seemed unlikely a decade ago. Berlin had no real industrial base. His early venture-backed successes were often counterfeit American e-commerce companies. Venture capital was tight. Berlin didn’t have large ranks of local tech freaks. Strangely, these and other shortcomings were strengths. Because Berlin does not have a competitive hierarchy for the decisive status. Paris has fashion and food. London has famous musicians. In Berlin the venture capitalists (VCs) and entrepreneurs are the rock stars.
Berlin VC The scene emerged in the years following the global financial crisis in 2007/09. The city had three things to recommend. First, it was cheap. Berlin was a poor capital by Western European standards. The only competing industry was government. So there was plenty of living and office space. If you were part of the early wave of startups settling in the city, you may be offered rent-free office space for several months. Second, it was hip. There were lots of cheap, cool places to eat and meet others. Part of the fascination was Berlin’s history as a bolthole for creatives like Bowie and Iggy.
A third factor is that Germany welcomes migrants. Berlin has always been a cultural melting pot. The high youth unemployment in southern Europe as a result of the debt crisis in the euro area was an incentive for migration. Many engineers came from Eastern Europe. The Swedish founders of SoundCloud, a music streaming site to which independent artists upload their outputs, started their company despite a vibrant scene in Stockholm in Berlin. Often the working language is English; but it could be Russian or Portuguese. Many people also came from other German cities. That reflects a cultural change. A talented engineer who used to work for BMW or Mercedes is now considering starting a company, says Ciaran O’Leary of BlueYard, a Berlin-based venture capital firm.
The idea that a capital city will dominate Europe is considered old hat. Berlin VC Companies typically invest in startups in other European cities, all of which are just a stone’s throw away. Much of the money they put in comes from outside Europe – America or Asia. In Berlin this is mostly seen as a strength, as an external validation. Another outdated notion is that Berlin is more a place for “flat technology” than for original ideas. This is in part the legacy of Rocket Internet, a Berlin-based “clone factory,” an incubator that mimicked the business models of American online companies. But Berlin had to start somewhere, and since then there has been a shift from consumer cloning to tech startups serving businesses.
The pandemic could be a kind of growing up for the Berlin tech scene. Two of the publicly traded alumni – HelloFresh, which sells meal sets, and Delivery Hero, a grocery shipping company – have been strengthened. Technology is more than ever a better choice than the old German industries like automobile manufacturing. Even the government has taken notice. The stimulus package included tailored support for startups. “It was the first time that the government listened to us and heard what we have to do to build a strong ecosystem,” says Christian Miele from the German Startup Association. There is hope of a change in the tax treatment of stock options, a bugbear from VCs. From a frayed and baffled San Francisco, the clumsy parts of the German model (bureaucracy, health care and social safety net) now seem to be rather enviable.
Over time, the hip becomes conventional. Bowie’s recordings from the Berlin period were not widely accepted when they were released. In the 1980s every other pop group in Britain claimed they were a huge influencer. Likewise Berlin VC Hipsters no longer look like outsiders. The tech scene is threatened by the mainstream.
This article appeared in the Finance & Economics section of the print edition under the heading “A New Career in a New City”.