Philipp Meindl, Investment Partner at TempoCap, looks at how Germany, and in particular Berlin and Munich, is continuing to develop vibrant startup ecosystems.
How often do we see the question “where will the next Silicon Valley be” or “where is Europe’s Silicon Valley”? Every so often, the hand wringing starts, as people who should know better complain that the rest of the world can’t compete with a relatively small strip of land in California.
The fact is that the days of Palo Alto, San Jose, Mountain View, and the rest being the only place from which unicorns could grow are long gone. Prior to the Coronavirus pandemic, many places across the world, from Dublin to Sydney, had local, entrepreneurial ecosystems that were not only starting up but flourishing.
For many countries, ensuring that continues in the post-COVID-19 era is critical. Consider, for example, Germany in late March announcing a historic virus package totaling more than 750 billion euros aimed at supporting both large and small companies.
The scope of this support might be unprecedented, but in many ways, it is safeguarding what has already been significant support for local entrepreneurs. In 2019, founders across Germany received €6.2 billion in funding, 36 percent more than in the previous year. The country is a hotbed of dynamic talent, with major centres of innovation across the country — from Berlin, long seen as Germany’s primary startup hub, to Frankfurt, Hamburg, Cologne, and Munich.
The swift action by the German government coupled with the collective response of the German startup community is particularly heartening during these times. It is this forthrightness and expedience to act that we believe is deeply impressive and suggests that this ecosystem will emerge from the crisis in a stronger position.
Perhaps traditionally known as a corporate and administration centre, Munich’s emergence as a home for innovation has been going on for some years. Once focused on software and deep tech, it now includes, fintech, transport, connected living, and e-commerce brands amongst the businesses based in the city, part of a thriving ecosystem that is worth an estimated $4.5 billion.
So, what’s helping drive this burst of innovation? Part of it relates to the global trend of more people wanting to be entrepreneurs, coupled with more established corporates opening up to new ways of thinking. This has helped inject money into the local ecosystem, which has been supported by a national scheme, the Digital Hub Initiative. Based around 12 centres of excellence, each with their specialisation, the programme connects large corporations and medium-sized companies, an area Germany has traditionally been strong in, with startups.
Berlin has long been seen as Germany’s digital startup epicentre. Perhaps initially more of a place for consumer-focused businesses, nowadays, you’re as likely to see a more balanced mix of business with plenty of B2B companies emerge out of the capital. According to one account, a new company is founded every twenty minutes in the city, with lower living costs in comparison to the likes of Paris and London helping attract entrepreneurs. This established scene also means that it has a high concentration of venture capitalists and supportive environments, such as co-working spaces and incubators.
The result has been some of Europe’s most dynamic new businesses. Takeaway business Delivery Hero was founded in Berlin and has been one of the more successful IPO stories of recent years, debuting on the Frankfurt Stock Exchange in June 2017. Elsewhere, TempoCap backed the Berlin-based air passenger rights advocate AirHelp in 2018.
In many ways, the breadth of ecosystems, from Berlin and Munich to Nürnberg, Dresden, and Stuttgart, demonstrates how there is no ‘right’ way to build a dynamic, entrepreneurial culture. Berlin is almost a city of two halves, an epicentre of creative license alongside its national role as capital. Munich, on the other hand, has a more corporate legacy. Yet both are proving to be ideal launchpads for billion-dollar businesses in a range of sectors.
It’s too soon to tell what a post-COVID-19 world looks like as lockdowns are being lifted over the next months, however at TempoCap, we are fully committed to continuing backing the German technology ecosystem. That’s why we are busy preparing the opening of our first office outside the UK in Berlin soon to be even closer to the game-changing entrepreneurs of Germany.