posted in Ecosystem thoughts, Most popular on February 11, 2013 by berlinvc

Recently a lot of talk has come up about 2013 being a make or break year for the Berlin tech community. I think both sides of the notion are slightly short-sighted, so I thought best not to comment on it and let it pass.

As it seems to be hanging around, and I feel partially responsible for waving the Berlin flag in international press outfits and therefore directly contributing to the “pressure”, I felt I owe everyone an opinion in this.

So here it goes. In short: tech ecosystems don’t make or break in a year, Berlin’s tech community is way too young of an ecosystem for it to be a “make” year and there are way too many folks building and growing great companies for it to be “break” year.

Like in any ecosystem there will be key milestones of course – failures and successes – there will be good years and bad years and we’ll have to learn to embrace and learn from both. I don’t know what 2013 will be, but frankly I don’t care so much about it. I have a preference for a great year.

What I do care about is the i) trajectory we’re on and doing everything to steepen it and ii) folks having the right attitude: Its not entirely reasonable to expect a flurry of multi billion businesses 2-3 years after Berlin becoming a relevant international startup hub (has been relevant for Germany-focused companies longer), its equally not entirely reasonable to assume the handful of great businesses already built, if exited this year, would lead to the tech ecosystem moving in to perpetual motion. For the record: I am not against great exits this year.

But let’s step back to where this all started. Everywhere in the world where a few startups gather politicians and press are quick to call out “the next Silicon Valley”. Same happened to Berlin. Berlin is not going to be the next Silicon Valley. Neither is London, New York, Stockholm or Tel Aviv. Silicon Valley is going to be the next Silicon Valley, with its unique set of ingredients difficult to (exactly) replicate elsewhere.

That doesn’t mean you can’t build highly relevant – maybe one day even more relevant – tech communities elsewhere. It probably matters more that you are relevant than the most relevant. I think each community needs a unique DNA, a few things its particularly good at. I’ve collected some thoughts on Berlin in this presentation that I don’t want to repeat here.

But there’s a bigger trend going on I am for the lack of better words going to call the “Urban Entrepreneurship Hypothesis”:

• The internet has liberated entrepreneurship in every way, also geographically. You can build and scale / distribute products and services from anywhere. E.g. Berlin: Soundcloud, 6Wunderkinder, ResearchGate, Wooga, Zalando etc are all global or very international companies, there are many more.

• Capital is increasingly mobile. We’re invested in a Berlin based seed stage company called Moped; we (Berlin based fund) led the round and our friends from Betaworks (NY), Lerer (NY) and SV Angel (Valley) joined in. Versus.io just raised from Dave McClure and a German semi-state fund (what a combo!). This has become standard, everywhere you look the source of capital matches the global profile of these companies. This is happening as early as seed and later stage companies are finding it even easier to attract capital from around the world. And then there’s AngelList, crowdfunding, etc. If you’re on to something raising capital from some good funds from around the world is becoming less of a problem, its becoming less and less relevant where you are based

• Key to building a tech company and a community of many tech companies however remains the ability to attract and retain top international talent

• International, talented folks have a strong preference for inspiring, english-speaking urban environments with a high quality of life

Therefore: inspiring, English speaking urban environments that offer a high quality of life are going to become increasingly relevant entrepreneurial hubs . San Francisco, New York, London, Berlin, …. For those of you who have not been to Berlin: good luck ordering that hand brewed coffee in German. English, Swedish and Hebrew are more likely to work.

The shift to urban centres is a long term mega trend and we’re in the middle of it here in Berlin. Long term.

But back to make or break. How long does it take to build a sustainable tech community? The internet has certainly shortened cycles, but let’s just look how Berlin stacks-up in terms of maturity to other communities. The years indicate since when these hubs have been producing internationally relevant, disruptive companies:

• Boston: 40 years +

• Silicon Valley: 40 years

• Tel Aviv: 20 years

• New York: 15 years

• London: 10 years

• Berlin: 2-4 years

Berlin is on the right trajectory but is not going to be a miracle ecosystem, it will take time. Even on a European basis Berlin’s ‘hot’ companies are on average very young (here are some frequently listed that are a bit more advanced, but not exited yet):

• SoundCloud: 3.5 years

• Wooga: 3 years

• Research Gate: 4 years

• 6Wunderkinder: 2.5 years

• Zalando: 4 years

The list goes on but 2-4 years is the bracket nearly all companies fall into. Let’s look at other “top” (sorry I’ve missed a ton for sure) European startups from elsewhere (same criteria – advanced but not exited yet):

• Just Eat: 12 years

• MindCady: 9 years

• Wonga: 5.5 years

• iZettle: 3 years

• Spotify: 7 years

• Rovio: 10 years,

• Super Cell:  2.5 years

• Criteo: 7 years

• Vente-Privee: 12 years

• Hailo: 3 years

• Klarna: 7 years

• King.com : 9.5 years

 

You get the picture – with few exceptions significantly older on average. Even within shortened internet driven cycles it takes time to build really big companies. It will take a long time in Berlin too.

Having said that, let’s not pretend there haven’t been any exits. Zalando’s secondary priced at $3bn, rumours have it some folks at SoundCloud were able to sell some shares at a significant triple digit million value, Brands4Friends sold for $200m, CityDeal for $1bn, DailyDeal for $100m. All this in our first 2-4 years of getting started.

These exits and the handful of companies slowly but surely inching into the really-valuable territory are our first shots, not our last shots at building great companies.

Lets have another look in a few years time.