Berlin's buzzing with tech start-ups

There are signs that Berlin’s much-hyped tech scene is reaching a tipping point as the city’s creative regeneration gathers pace

AT FIRST GLANCE, the huge old soap factory by the River Spree looks dilapidated and run-down, the giant old chimney missing many of its red bricks, some of the windows boarded up, the walls covered in graffiti.

The old factory’s apparent state of disrepair could be seen as emblematic of modern Berlin’s chronic dearth of industry, except that today the factory goes by the name of Kater Holzig and is one of the city’s coolest nightclubs, a sprawling haven of techno and trance in a brilliantly refashioned post-industrial landscape. It’s impossible to imagine a more appropriate symbol for modern Berlin’s capacity for creative regeneration.

But that creative regeneration isn’t restricted to music and art. At the end of last month, the old factory played host to a two-day festival that welcomed some of the city’s brightest and most ambitious young residents, who came together to celebrate and assess the latest phase of Berlin’s reinvention, as it quickly becomes one of Europe’s leading technological start-up hubs.

The Tech Open Air Berlin (TOABerlin) festival, a sort of mini-Electric Picnic for the city’s booming chic geek set, attracted an international crowd of young entrepreneurs, designers, coders, investors and journalists, just the latest sign that Berlin’s much-hyped tech scene is reaching a tipping point.

“This is a special place in terms of critical mass, the trajectory it’s on and where it’s heading,” says Ciarán O’Leary, a partner with the German venture capital firm Earlybird, which relocated to Berlin last year to be closer to the burgeoning start-up scene that TOABerlin exemplifies.

“Since 2008, there’s been 1,500 new start-ups founded, last year alone it was 500. Which is at least in the top three worldwide – some people say that in terms of founding rate it’s number two behind Silicon Valley.”

O’Leary, an Irish-born, German-raised investor, is convinced that Berlin has many of the ingredients required to become one of Europe’s main technology start-up centres: “The scene as we know it today is very vibrant, very international. There are teams from the US, from Spain, from the UK, from Asia – you don’t just have the best German entrepreneurs, but you’ve got the best teams from around the world, which is a sign of approval.”

The tech scene in Berlin was originally dominated by the three Samwer brothers, whose controversial business model involves quickly building European equivalents to big US success stories such as eBay, Groupon and Pinterest, and often selling them back to the originators for big sums.

They are hugely successful, but the copycat nature of their approach lead to Wired magazine recently describing their company, Rocket Internet, as a “clone factory”.

But now the scene is developing, and the poster boys of Berlin’s start-up culture are Alexander Ljung and Eric Wahlforss, a pair of Swedes who founded online audio-platform Soundcloud in the city back in 2007.

Soundcloud has grown dramatically in recent years, maintaining independence and its Berlin base, making Ljung and Wahlforss the indisputable stars of Berlin’s tech community.

“It felt like the right place, even after one day here you can feel the sense of creativity here,” says Ljung of the spontaneous decision to move to the German capital. “That resonated with us, both Erik and myself have always had one foot in the tech world and one foot in the arts world. That was the cultural vibe we wanted for the company as well. That intersection of art and technology is what we were aiming for.”

If you didn’t know Ljung was one of the hottest commodities in the tech entrepreneur world, you might easily mistake him for a rock musician, and the fusion of the music and tech worlds is evident in the Soundcloud offices, where meeting rooms are named after stars such as Kurt Cobain and Janis Joplin, while the toilet doors are adorned with lifesize cutouts of Elvis Presley and Marilyn Monroe.

It’s typical of a community that sees itself as being ingrained in the city’s famously creative identity, with co-working spaces such as the Cafe St Oberholz, Betahaus and Ahoi serving as tech-scene equivalents of music venues or art collective spaces.

“This whole counter-culture thing is strong here – the mainstream way of doing things in Berlin is to do it different,” says Ljung. “Do it your own way – that’s really important, because that’s often what a start-up is about. There’s so much of that in Berlin that it helps that people don’t think of themselves as just working in a technology company. You see that in a lot of the products coming out of Berlin; they’re usually really well-designed, they have a great experience, and you can feel that somehow. That’s part of Berlin as well.”

Among attendees at TOABerlin, Soundcloud is often held up as the leading light of the scene, but there is a lot of love too for newer companies such as Gidsy, a “marketplace for authentic experiences”, Amen, an opinion-sharing service, and Moped, an ambitious new private-messaging service. All of them have attracted significant seed-funding and enthusiastic buzz, with the likes of Ron Conway, Betaworks and Lerer Ventures, as well as Earlybird, among the investors.

The founder of Moped, Alabama native Schuyler Deerman, has an interesting perspective on Berlin’s progress as a start-up capital – he also co-founded Silicon Allee, an English-language blog covering the scene that has given the community an official nickname.

“Berlin itself is like a start-up – it’s crazy, chaotic, it’s poor,” says Deerman, explaining the appeal. “There is that draw for creative people here, you have a really good quality of life and do your own stuff for not a lot of money. That’s something you really can’t do in San Francisco.”

Boyish and exuding a polite Southern charm, Deerman is typical of many of the entrepreneurs active in Berlin – young, self-possessed, articulate, and above all ambitious.

The scene, he admits, has benefited from a lot of publicity. “There has been lot’s of hype, but that’s fine. Having created part of this monster, and having stepped away from it a bit, I think that a bit of reality is setting in now.”

O’Leary, an investor in Moped, echoes Deerman’s point on Berlin’s advantages and disadvantages. “Unlike most other liveable cities in Europe, Berlin doesn’t have a huge big rigid economy with huge big companies and banks, and it also doesn’t have rigid society structures. To be part of the cool gang, you don’t have to work for McKinsey – here it’s quite the opposite. It’s a bit of a greenfield for creative people. Having said that, there’s a lot of homework left – there’s a lot of talk in the media of this being the next Silicon Valley, but it’s still a long way away from that. But the direction it’s heading in is pretty promising.”

Most of the attendees at TOABerlin are equally clear-eyed about how the current hype needs to be met with sustainable success, and the city’s senate is looking to take advantage, last week announcing a €500,000 marketing campaign for the scene. The festival’s co-founder, Nikolas Woischnik, sees this era as just the beginning of an industry that promises much for the city. “The benefits right now are very personal, people are very motivated and collaborative,” he says. “To be of more significance, there will need to be a big exit, as the investors say. It’s already generating employment, and bringing talented people to Berlin . . . but Berlin is still a very, very young start-up hub, so the city will need more time to make these visible successes.”

Hearing this explanation in the remains of a 19th-century soap factory serves as a useful reminder that Berlin really is in need of a new industry, and that sustainable success is hard to build. Only time will tell if the tech start-up scene will grow to fill that role, but the talent and vision is certainly not lacking.