Berlin is now in a position to usurp London as the startup capital of Europe
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Flag of Berlin CC BY 2.0 Conan via Flickr

Berlin was already surging to the top of the global startup city list, but with London’s status now in limbo, Berlin stands to benefit

Startups are not the only ones digesting the shock result this weekend. As political analysts predict Germany will take a larger role as a global leader as the most powerful country in the European Union, technology observers should expect the same for the country in the entrepreneurs’ realm. That is especially true of Berlin.

Last year, we compared Berlin to London and found that London was indeed still well ahead of its German counterpart as a European startup leader. Startup Compass ranked London 6th in the world, Berlin 9th, for top startup ecosystems worldwide in 2015. While Berlin was an attractive place for foreign startups to set up shop for a European headquarters, London was far more established and comfortable as an English-speaking city. But now people will look at London as outside the EU, even ahead of a formal exit.

While London’s economic clout is still substantial, over time we will see other cities market itself as the gateway to European commerce. Germany was always the historical hub for big manufacturing in Europe. Now, its wallet is well-known as keeping small economies like Greece’s afloat. Berlin is a hub for all sorts of new technologies, Frankfurt and Cologne are developing reputations for fintech and southern German cities like Munich and Darmstadt are making their satellites and communications’ prowess world-renown.

Berlin will have competition: Ireland offers strong tax incentives for foreign companies, while Estonia offers e-residency for companies to take advantage of some EU perks. But Berlin is the most well-positioned.

Brandenburg Gate lit up during Berlin's 2012 Festival of Lights. Photo credit: SA 3.0 Lotse via Wikimedia Commons

Brandenburg Gate lit up during Berlin’s 2012 Festival of Lights. Photo credit: SA 3.0 Lotse via Wikimedia Commons

Germany‘s nominal GDP was already about $1 trillion ahead of either the UK or France in 2014. German GDP per capita has outpaced British numbers the last three years according to the International Monetary Fund.

Germans get ready to pounce?

German tech leaders are well aware they are in a position to take advantage of the situation.

“Only since 2015 was Berlin able to surpass London, the previously dominant hub of Europe, in the number of and overall volume of financial transactions from startups,” German Startups Group CEO Christoph Gerlinger said in a public statement. “This development will now accelerate and the distance between Berlin vs. London will increase.”

Exits have been growing throughout Europe, but there was a noticeable amplification of German deals between 2014 and 2015. Of the 332 European tech acquisitions in 2014, Germans acquired 40 of those companies and Britons 33. In 2015, Germany made 119 and the UK 82.

Gerlinger continued, “We expect a significant decrease in new incorporations in London in favour of Berlin, as well as an influx of successful London startups. This will be particularly true of the especially dynamic [financial technology] sector.”

Berlin coworking space (CC BY 2.0 Heisenberg Media via Flickr)

Berlin coworking space (CC BY 2.0 Heisenberg Media via Flickr)

If those aren’t fighting words, it’s tough to know what are. Worries have seeped into all sectors of the public, noticeable by London Mayor Sadiq Khan’s Twitter reassurance.

But not everyone is writhing their hands.

“I think that Germany and its tech industry does not think that competitive at all towards London/England,” Kerstin Bock, co-founder of Berlin-based startup hub Openers told Geektime. “My Facebook stream actually has been full . . . with common sense that this is a real loss for international communities like the startup scene.”

Bock admits though that no matter if Berliners see this as an opportunity or a tragedy, more non-European startups will “probably” get warmer to setting up shop in Berlin if they’re moving to Europe.

“In that sense, Berlin has overall become more popular as the ‘European HQ’ for a lot of international companies . . . and this could be the ‘tipping the scales’ when it comes to making a decision.”

British views on immigration are a recipe for disaster

The thing that will ensure Germany can continue to grow is, and you should perhaps laugh both ironically and with a tear in your eye, immigration. Germany will have access to the best tech talent from throughout Europe with no complicated immigration hurdles. Immigration is arguably the top reason Brexit won the referendum, both the refugee crisis from Syria and the influx of Eastern European economies.

A41 Road along Oxford Street in London (Public Domain image by Ysangkok via Wikimedia Commons)

A41 Road along Oxford Street in London (Public Domain image by Ysangkok via Wikimedia Commons)

“Raising the minimum salary threshold for these workers would significantly reduce the talent pool for UK based startups, putting us at a disadvantage on the global stage,” Debbie Wosskow, the chairman of sharing economy body SEUK, told the Telegraph back in November. “We’re seeing more and more British startups compete effectively with Silicon Valley.”

Read more: London vs. Berlin: which startup ecosystem will lead Europe?

Overall, 33% of Berlin startups’ workers are not German, according to the 2015 Deutsche Startup Monitor. Germany has been opening up its immigration policies in general, while the UK was restricting professional visa allocations even before the Brexit referendum.

Still much more to consider

Venture capital is gaining steam in Germany while salaries and rent are still lower. It will be easier for German companies to grow, especially if investors now see the UK as an insecure investment for an extended period of time.

The British market is still large, and plans by many startups to move are likely not going to be upended overnight. The UK will still remain a part of the EU for at least two years, so we might not see noticeable changes in moves to London until 2017. Yet, Berlin’s growth could explode.

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  • Buckiballz

    Germans are useless.

    • bobthechef

      Well, they’re leeches. Germany pays into the coffers of the EU in order to basically pay for access to cheap labor from the East and to keep borders open to push its products without suffering tariffs Germany isn’t doing anybody any favors. It needs the EU more than anybody but keeps pushing propaganda that its others that need Germany (hah!). The result is that Germany experiences a net benefit but at the cost of draining the East of labor it needs to rebuild after the Cold War and stamping out competition in those countries by flooding the market with its products, thus stifling the growth of the economic base in those countries (turning a country like Poland into a giant German service center isn’t an economic base, it’s economic colonialism). This way, Germany maintains dependence and superiority. The EU is a scam. It uses bribery and blackmail to coerce countries into submission. The only solution for that region is to form the Intermarium to counteract German and Russian dominance in the region.

      • joames

        “Well, they’re leeches. Germany pays into the coffers of the EU”

        They are ‘leeches’ by subsidizing every other EU country?

        Wouldn’t that make all those countries receiving billions of Germany money to be ‘leeches’?

        Seriously, you have a funny view of the world.

        Whatever Germans are, they are not leeches.

    • Andreas Walter

      You sound like a Germanophobe.

  • NicConstantin

    Due to their Language, Germany or Berlin would hardly become a hub for international/intercultural creatives. Even though some Germans speak English, most locals are prone to stick to German rather to learn english. And Germany especially former East Germany is still quite a homogenous place, xenophobia, anti-Semitism and racism is very common among East Germans.

    • Michal

      I am not a Germany fanboy or anything close, but so far it’s UK who proved their xenophobia and racism for me, leaving the UK because of imigration.

    • TheSturMical

      This clashes with my experience. I live in Berlin since 5 years and the reason why I have not yet learned proper German is because it is basically useless and you can go on with normal and business life with just English. Everyone and their dogs speak English, even people you wouldn’t immediately expect (such as 65+ y.o. backers or such). Entire companies, especially startups, have impressive levels of internationality (up to 90%, citation needed, but I have worked in several of them). The level of homophobia and xenophobia is not zero, because zero can’t be reached anywhere, but it is sensibly lower than the other big capitals where I lived (Milan, Paris, London). This post is about Berlin, not Germany as a whole, in that case your comment would be a bit more in line with reality.

      • NicConstantin

        I myself lived and studied in Berlin for 2 years, I can tell, you haven’t experienced real Germans or you’ve been socializing only with foreigners either way Berlin is a great city but not comparable with London or NYC, rather very similar to Copenhagen or Amsterdam.
        PS. “homogenous” not homophobia.

        • Cole Morton

          I’ve lived in Berlin for over 3 years and I work as a software developer. I have many German friends here (I’m also in a sports team), and while they obviously prefer to speak to each other in German, it’s no problem for them to instantly switch to english.
          Let’s be frank here, the average German Berliner has a solid grasp of english.
          Day to day living is very comfortable with little to no german.
          I would like to note that my statement specifically applies to Berlin only.

    • kathrindisqus

      Have you actually been in Berlin recently? Does not sound like it. Certain industry sectors only hire English speaking talent these days, to service and grow their international clients base.

    • Andreas Walter

      Consider that 80% of Germans speak English, at least functionally. So many people do, in fact, that my relative there insist you don’t even need German to get around in cities like Berlin. 20% know French, and 10% know Russian, due to the historical ties to these nations. 20% of people living in Germany are either ethnically non German or of non native extraction. Germany is arguably the most heterogeneous demographic state in the EU. Much has changed since WW2.

  • RoRo

    And what about Paris ? well, ok germans speak better english than French people.
    In immigration you put ‘best tech talent from Europe’ and the migrants from middle-east which are not the same thing as they have not the same possibilities to move from one country to another and the same economic value. (And then ‘attractiveness’). Different rules will apply to them.
    But I think the consequences of the Brexit will be limited, a lot of agreements will occur, so in the end, nothing will really change. (for the best ? Probably).
    Nice article !