Yet a lack of local money does not seem to have held Berlin’s ecosystem back—because venture capital is increasingly mobile. Historically, Silicon Valley VCs would not invest in a firm they could not drive to. Now a few make regular trips to Europe and often end up in Berlin. Well-known American funds have started investing there: other than Benchmark, these include Index, Kleiner Perkins and Union Square Ventures. In fact, in the second quarter of this year, German start-ups raised €273m ($371m)—€62m more than British ones, according to VentureSource, a data provider.
Berlin may not have many local venture-capital firms, but it boasts two sorts of institutions that are hard to find elsewhere—and which need to be understood in the German economic context. One is corporate accelerators (or incubators). Germany is full of big successful firms, but they have realised that they may not be innovative enough. One way they hope to solve this problem is by investing in start-ups, providing them with a home and giving them support. Even non-tech firms have jumped on the bandwagon: in May Fielmann, a big German optics retailer, launched an incubator.
Many of these corporate breeding grounds for start-ups are in Berlin. One is Hub:raum, which was set up by Deutsche Telekom in 2012 and has already invested in six start-ups. “We can no longer invent everything in-house,” explains Peter Borchers, who runs the outfit. Hub:raum, he hopes, will allow Telekom to tap the “innovation power of the start-up scene”.
The other sort of institution is “company builders”, perhaps the biggest innovation that has come out of Berlin so far. Chief among the is Rocket Internet. Critics decry it as a “clone factory”, which just copies start-up ideas thought up elsewhere—and sells them to the original for top dollar. In 1999, for instance, the founders, the Samwer brothers, launched Alando, an online auction site, which they sold on to eBay 100 days later for $43m. In 2010 Rocket repeated the trick by selling CityDeal, an online-coupon site, to Groupon for $126m.
But Rocket can also be seen in a different light: as a reaction to the lack of a start-up culture in Germany and a model of the country’s penchant for going about things methodically. When Rocket kicked off in 2007, Berlin had not much of an ecosystem to speak off, says Christian Weiss, one of the firm’s founders. So the idea was to build a think-tank that could identify promising ideas and help start-ups implement them.
Today Rocket is a hyper-efficient assembly line for e-commerce start-ups: it can launch new online stores within weeks. The core of its business model is to take proven ideas, optimise them and export them to countries where they have not yet taken off. Rocket now controls a network of 75 firms globally, which together have more than 20,000 employees. The pick of the bunch is Zalando, which is modelled on Zappos, the American shoe and clothing site now owned by Amazon.
Because Rocket had become such a machine, Mr Weiss and some colleagues left the firm in late 2011 to start their own company builder, Project A. Equipped with $50m from Otto Versand, a big German catalogue and online retailer, Project A has since invested in 20 firms worldwide. It wants to merge Rocket’s efficiency with the creativity of the rest of Berlin’s ecosystem—which is also the goal of another company builder in the city, Team Europe.
Combining German efficiency with Berlin creativity could indeed be the ecosystem’s destiny. Some start-ups are also giving it a try, such as Monoqi, an e-commerce site that sells designer wares. Such a fusion would also help to overcome the split that has long characterised Berlin’s ecosystem: those who work for company builders and the creative crowd do not mingle much and form essentially two separate ecosystems.
London, for its part, does boast a few corporate accelerators, notably Wayra, which is part of a global network of such start-up schools set up by Telefónica, the Spanish telecoms giant. But company builders have yet to emerge. What comes closest are Seedcamp andPassion Capital. At the core, both are early-stage venture funds. But Seedcamp also provides all kinds of services to its portfolio companies. And Passion Capital operates White Bear Yard, a co-working space in Clerkenwell.