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How Berlin can become Europe’s No. 1 tech hub

TechCrunch TechCrunch 7/07/2016 Wouter Verhoog

Berlin is having a moment. In 2015, the city I live in was the fastest-growing startup ecosystem in the world and received the most venture capital investment of any city in Europe. Startups headquartered in Berlin, like Delivery Hero and SoundCloud, have become global giants, and many startups across the Atlantic run their European operations from here.

Seemingly overnight, we have become Europe’s next great tech hub. As a startup founder, I love the scene that has sprouted up here. It channels the city’s creative energy — which has contributed to vibrant art, film and TV, gaming and publishing industries — into solving problems through technology.

We are fortunate to enjoy a relatively low cost of living compared to other tech hubs like Silicon Valley and London. Living costs are 43 percent higher in London than Berlin, for instance. Berlin’s cost of living is very conducive to the early-stage startup salary (or lack thereof), and it helps that office space can be acquired for a reasonable price.

Before Berlin can stake its claim as Europe’s undisputed No. 1 tech hub, however, I believe there are several things that could be improved. Here are three in particular:

Forming a startup must become a streamlined process, not a complex bureaucratic exercise. As previously mentioned, Berlin is the world’s fastest-growing startup city. To put that in perspective, one startup is founded every 20 minutes in Berlin.

When my co-founders and I were incorporating BuddyGuard, however, I was mystified by how time-consuming and bureaucratic the process was. It took us roughly nine months from our first appointment with a notary until we finally got our VAT number from the tax authorities. During that time span, we had to navigate lots of appointments and a mind-numbing amount of paperwork, the majority of which needed to be signed in the presence of a notary. The laws are simply suffocating during this initial phase, and the exhausting effort to get our company up and running could have been better spent developing our product.

Seemingly overnight, we have become Europe’s next great tech hub.

We need to follow London’s example, where a company can be registered online. If we hope to be the de facto European city for technological innovation and continue enticing entrepreneurs to establish companies here, legislators need to drastically simplify this process and eliminate bureaucracy from the equation.

Investors need to develop an increased appetite for risk. Investors poured more than €2.1 billion (US$2.3 billion) into Berlin-based startups in 2015, outpacing London (€1.7 billion) and putting us atop the European leaderboard. Still, the investor climate here is tough, especially for early-stage hardware startups like mine where capital is critical.

Whereas SaaS startups are booming with $5 million seed rounds and often face the luxury problem of picking their investors, young hardware companies are struggling to scrape together $200,000. Naturally, physical products are a riskier bet than software development, but the gains are much higher and the markets are way less saturated.

We are grateful to have found investors who believe in our vision to make home security easy and intelligent, but the difficulties of raising funding reaffirmed that venture capitalists and angel investors in Berlin tend to be very risk-averse. If you have an out-of-the-box idea, it tends to be greeted with caution rather than interest. Most investors prefer to play it safe, which partly explains their willingness to fund startups like Rocket Internet that borrow from proven business models.

The silver lining in all this is that it teaches startups to be extremely prudent from Day One. While Silicon Valley startups have only recently started to realize the importance of cutting their burn rates, building a profitable business has been engrained into our operations from the very beginning.

The talent pool needs to expand, and the work approach could be refined. While Berlin is coming into its own as a tech hub, finding high-quality programmers and engineers remains a major challenge. This is obviously not unique to Berlin, and the hope is that as tech becomes an even more central part of Berlin’s identity, more people, whether they be Berliners or immigrants, will be inspired to join the movement here.

I also wonder how much faster our tech community could grow if we became a bit more industrious. Unlike Silicon Valley, working long hours is not a source of pride in “Silicon Allee.” Approach to work is heavily influenced by “der Feierabend.” While there is no direct translation for this term, it essentially promotes a lifestyle outside of work in the evenings. While I’m very supportive of work-life balance, this mindset makes it very difficult to get things done during those times when you need all hands on deck.

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