According to Local.de, a new startup is founded in Berlin every 20 minutes.[i] Berlin startups are set to independently produce 100,000 jobs by 2020. The city is home to some of today’s startup giants, including Rocket Internet and Zalando, valued at $4 billion and $5.4 billion respectively.[ii] Why the success and exponential growth? Berlin offers a highly beneficial mix of location, living costs, labor, investment sources and community support to attract ambitious entrepreneurs.

First – location, location, location! Berlin is at the very heart of Europe and is the capital of the EU’s economic powerhouse. Germany’s sustained growth has enticed a high amount of skilled workers, considerable investment and has allowed for the development of top technology university programs. It is a short flight or train ride away from most major cities. Incredibly, despite its appeal, Berlin’s living costs have remained among the lowest of any capital in Europe. According to Numbeo.com, you would need around 2,940€ ($3,722) in Berlin to maintain the same standard of life that you can have with $5,400 in Boston (assuming you rent in both cities). The expectation of startup salaries for recent graduates can be as low as 800-1000€ per month! This is approximately equal to an annual salary of $13,600.

How can this be possible? In a nutshell, the lack of a working break between Bachelor’s and Master’s degrees means that the majority of late 20-year olds to early 30-year olds have little to no working experience. Since public universities in Germany are virtually free, graduates don’t have much debt and are open to low salaries for the first years of their careers. Additionally, the Euro Crisis that broke in 2011 sent waves of young workers from Spain, Italy, Portugal and elsewhere that can legally work anywhere in the EU. The abundance of young professionals seeking an entry-level position undoubtedly puts downward pressure on wages.

These factors all play to the advantage of the eager entrepreneur. Applications are numerous and payment expectations are low. Candidates are highly educated and speak multiple languages. Rents are also significantly cheaper than other cities (Numero claims that Berlin rent is 56% less than Boston’s).

In terms of capital, Berlin attracted 173€ million in VC funding last year.[iii] Angel investors, private equity firms, family offices and private wealth management funds hover over the Berlin scene looking for potential to invest in.

Finally, the high-concentration of startups offers great support to entrepreneurs. The community can be a source of cross-pollination of talent and connections to investors. There is a constant line-up of conferences, idea competitions and networking events for founders to meet partners and garner best practices.

However, not everything about Berlin is ideal. Its typical investor profile, mentioned above, means that investments are more risk adverse and come with more conditions. Large sums common in San Francisco and Boston are harder, if not impossible, to find. Because of investors’ relative inexperience with online businesses, they often want to be much more involved in the startup’s decision-making – which can be a help or a hindrance.

Furthermore, although the size of the labor pool is attractive, the inexperience of the workforce results in high training costs and turnover. Graduates need to learn the job’s tasks, but also the basics of office conduct and work ethic. In addition, German labor laws are much stricter than those of the U.S. If not careful with the writing of contracts and the documentation of employee performance evaluations, labor can start to represent a fixed cost.

Finally, Berlin is not a business city at its core. It is a musical, art and political hub – a city known for its laidback culture and edgy attitude. It can be difficult to find business savvy recruits and build a productive working environment.

The US startup scene is slowing starting to take notice of Berlin. Just this past June, Google invested $1.3 million in “The Factory” – an incubator for tech startups. Four IPOs are expected to take place this year. While it has its own set of challenges, Berlin eagerly welcomes entrepreneurs and should be considered a real alternative to the increasingly expensive tech hubs found in the US and elsewhere.


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