08.09.2016 | Berlin rides the tech wave

The gentrified neighbourhoods of East Berlin bustle with activity. Caf├ęs, trendy clothes shops and fancy restaurants line the wide boulevards, serving hip young Berliners. Amongst them are a growing number of entrepreneurs who are redefining the capital.

In the years following Germany’s reunification, artists and musicians flocked to East Berlin, drawn largely by cheap, spacious apartments.  The bohemian, free-spirited atmosphere they fostered, coupled with the relatively low cost of living and the widespread use of English, have attracted a further wave of creative types in recent years.

Digital wizkids from all over Europe are joining forces with local techies to set up online businesses that are establishing Berlin as a dynamic startup centre.  Some here quip that there are only three types of people working in the city these days: artists, politicians and entrepreneurs.

At The Factory, one of the city’s best-known tech hubs, the changing face of Berlin is plain to see.  Within sight of the so-called death strip, where those trying to flee to the West were shot by East German guards, this refurbished brewery provides swathes of co-working space for ambitious entrepreneurs and a base for established companies and household names, including Uber and Twitter.

The Berlin government has been keen to develop the startup scene.  New businesses benefit from tax incentives as well as state-funded seed and growth capital schemes.  Corporate giants have also recognised the potential.  A Google programme for entrepreneurs helped to launch The Factory, while Microsoft and Deutsche Telekom run accelerator programmes to support fledgling companies.

There were just a few dozen tech startups a decade ago.  Now there are around 2,500, covering a broad range of sectors, from e-commerce and consumer apps to bitcoin.  The diversity has drawn a growing volume of venture capital – just over2 billion euros last year, exceeding VC investment in London’s thriving digital sector.  Although Berlin is yet to produce a mega technology company, there have been some notable successes. Fashion e-tailer Zalando, founded in a flat in 2008, is now listed on the Frankfurt Stock Exchange.

But some believe Berlin’s emerging tech reputation has been overhyped, pointing out that the number of homegrown investors and successful entrepreneurs, as well as the size of the talent pool, remains small.  It seems the city has a long way to go before it can rival other big international startup centres such as Silicon Valley and London’s Silicon Roundabout.

However, with British entrepreneurs expecting the Brexit referendum to curb investment and access to skilled European techies, Berlin is sensing an opportunity to strengthen its digital credentials.  A few days after the UK voted to leave the EU, a German political party cheekily arranged for a truck to drive through London with a sign urging startups to “Keep calm and move to Berlin”.

Berlin is particularly keen to acquire a bigger slice of the financial technology market that London has long dominated.  The German capital has about 100 fintech companies, which use software to provide financial services, disrupting the traditional banking model.  In July, just weeks after the Brexit vote, Cornelia Yzer, Berlin’s economics minister, attended London Fintech Week, a big industry gathering, to lobby businesses. “Every twenty hours, a new startup is founded [in Berlin],” she declared, reeling off a host of incentives the city offers those willing to jump ship.

She is looking to capitalise on fintech companies’ concern that London’s role as a financial powerhouse might diminish if Brexit prevents City banks from “passporting” their services into Europe.  It is a worrying prospect for British fintech entrepreneurs, but some are now eyeing opportunities elsewhere.  Cameron Stevens, the chief executive of Prodigy Finance, has suggested the sector consider focusing on emerging markets, which could offer significant untapped potential.  Others believe London’s fintech expertise is such that it will ride out the Brexit storm.

But that is unlikely to deter Yzer.  She told the fintech event that more than a 100 London startups were considering relocation to the German capital in the wake of the referendum – and she urged others to do the same, “Berlin is open for business and is the place where you can live your dreams.”