German-American future factory

It’s not long since Eric Schmidt visited 
Berlin. The head of Google wanted to be present at the opening of Factory, a new startup center in Berlin’s Mitte district, in which Google plans to invest one million euros over a period of three years. Norm­ally, Germany’s founder scene has its eyes fixed on America. There, investors provide venture capital on a scale that startups in Germany can only dream of. It’s there that Internet giants like Facebook, Google, Twitter and Amazon were created. And it’s home to Silicon Valley, the beating heart of the international founders community. But now it turns out that America is also looking to Germany – to Berlin, the German epicenter of the startup scene.

During his visit to Factory, Schmidt said that thanks to the potential of the digital world a new German economic miracle was at hand. Google would, he said, continue to support newly emerging Internet companies. “Supporting digital entrepreneurship is part of our DNA.” To Berlin founders, he had this advice to give: to become a global player, you need to have the courage to think globally. “When you think about your absurd idea, you need to think about it in the context of I’m going to do something based in Berlin for the world.”

That’s nothing new to the Berlin scene. Looking to America in particular is standard practice. Take the three brothers 
Alexander, Marc and Oliver Samwer. With their venture-building company Rocket Internet, they have specialized in copying successful U.S. business models to other markets. And they’ve been successful: we’ve just seen the IPO of online retailer Zalando, a company the Samwers built up; this was followed, shortly afterward, by venture developer Rocket Internet’s own stock market flotation. American investor Access Industries also has a stake in the company. But sometimes it’s the other way around: the big shots in America copy the small fry from Berlin. Take the Berlin startup Taptalk. The company has developed an app that makes it very easy to record and send photographs and videos that self-destruct after they’ve been viewed. Facebook and Instagram were evidently so interested that they quickly put together their own apps, which are very similar to Taptalk’s.

The startup boom in Germany would be scarcely conceivable without American investors. True, there is now a well-established funding network for young startups. And there are plenty of incubators helping young entrepreneurs to take their first steps – for example, Deutsche Telekom’s hub:raum and media company Axel Springer’s Plug and Play in Berlin. But when companies enter the growth stage and need sums that can run into hundreds of millions to finance their expansion, they often face a problem in Germany. That’s because here the venture capital market still has a long way to go compared with America. “In the U.S., the capital comes from collective investment undertakings, such as insurance companies or pension funds, which in Germany are not allowed to invest in startups,” says Florian Nöll, Chairman of the German Startups Association. Besides, in the U.S. stock market flotations of young companies are practically a weekly occurrence, he adds. Germany too, he believes, needs a stock market sector for startups again so that companies no 
longer move to the U.S. to raise money through an IPO or by other means. “American investors are a great asset to us. They are partners, investors – and they often take over German companies,” says Nöll, adding that the necessary growth capital for German startups is currently provided almost exclusively by American investors. “But then it’s not long before the German companies become American companies and disappear to the United States,” Nöll points out.

The international scene has now become so aware of Berlin as a startup location that it’s investing a lot of money here, says Sven Ripsas, a professor at the Berlin School of Economics and Law. “But German startups are still complaining that they get only between a seventh and 
a fifth of what young U.S. companies 
collect.”

There are currently some 20 companies, both German and American, working 
at the Google-funded Factory, which opened its doors in June. The U.S. microblogging service Twitter, for example, has a small branch office there, as does the Berlin startup Soundcloud, which now has some 250 million users worldwide. The music platform’s market value is estimated at 700 million euros, and Twitter of all people – Soundcloud’s 
new next-door neighbor at Factory – 
is rumored to have already shown in­terest in the Berlin company. Another interesting German-American Factory story: one of the tenants is the firm 6Wunderkinder, which was the first Berlin startup to receive money from U.S. venture capital firm Sequoia Capital to finance its to-do lists app Wunderlist. 
Sequoia Capital is the company that 
has had a finger in virtually every pie – from Apple to Instagram to WhatsApp – wherever an idea has turned out to be 
big and valuable. At the last count, 6Wunderkinder has gathered 19 million dollars, most of it from Sequoia Capital. The makers of the football app Onefootball have also received funding from America: 5 million euros from Twitter backer Union Square Ventures. And the Berlin travel portal GetYourGuide recently collected 25 million dollars from U.S. venture capital firms Spark Capital and Highland Capital Partners – who had previously invested 14 million dollars in the company.

More than half the venture capital provided by domestic and foreign com­panies in Germany goes to Berlin. In 2012, according to a study by BITKOM, the Federal Association for Information Technology, Telecommunications and New Media, German and foreign venture capital firms invested 133 million euros in startups in Berlin; this compares with a mere 24.9 million euros in the state of Baden-Württemberg, which was placed second. Nevertheless, says the German Startups Association, these sums still 
fall far short of the capital requirements. In Berlin, the doors are wide open to American investors. ▪

Henrike Roßbach