While London is never likely to surrender its crown as the leading draw for fledgling start-ups, the German capital has much in its favour as an interesting Euro-centric alternative
Berlin makes convincing case for tech talent
Britain’s shock decision to exit the European Union in June last year divided a nation and left a continent reeling.
But the Brexit vote presented a gift-wrapped opportunity to pundits across the political spectrum, allowing them to pontificate about the nation’s future.
Some engaged in tub-thumping, depicting a proud Britain breaking free from a stifling Brussels bureaucracy to strike new trade deals. Others wrung their hands in dread, fearing rising prices, slowing growth and a loss of global power.
London came under particular scrutiny. Would it remain a truly global city, the European centre of operations for everyone from US tech majors to Chinese banks to Middle East property funds? Or would its influence dissipate, as corporates shifted people, capital and assets elsewhere – to low-tax Dublin, well-run Luxembourg, high-minded Paris, or freewheeling Barcelona, among others?
One city often and unfairly overlooked in this conversation is Berlin. Germany’s capital, isolated during the Cold War years, has spent the past couple of decades quietly reinventing itself. Artists were the first to fall in love with the low rents and raffish air of neighbourhoods such as Prenzlauer Berg and Friedrichshain.
But in recent years, Berlin has surprised many by becoming a haven for aspiring young entrepreneurs. Peter Barkow, the founder and managing director of the Düsseldorf-based Barkow Consulting, describes it as a “true start-up capital city”.
Berlin has been notably effective at attracting young corporates that focus on two strands of the technology scene. First, on thrusting young firms that offer support services to Germany’s export-oriented businesses. And second, on financial technology providers that specialise in innovation, disrupting an industry long controlled by mainstream lenders and credit card providers.
Of the two, "support tech" is probably the city’s biggest trump card. Germany’s industrial sector is by some distance Europe’s largest. Every domestic firm, from the nation’s army of mid-sized manufacturers up to blue chips such as Mercedes and Siemens, wants to cut costs and reach new customers by digitising existing products. But they also need to keep up to date with the latest regulatory changes. And only Berlin offers both: access to politicians; and to a growing universe of technology providers that cater to a firm’s every digital need.
But will Britain’s Brexit vote directly benefit Berlin at the expense of London? So far, the evidence is mixed.
Germany’s capital, barely a dot on Europe’s technology scene a decade ago, is now home to nearly 3,000 start-ups. Ernst & Young reckons Berlin start-ups raised €2.4 billion (Dh10.05bn) in venture capital funding in 2016, more than either London or Stockholm. And Berlin’s politicians have aggressively courted British tech talent; on one notable occasion, the liberal Free Democratic party hired a bus to drive around London bearing a slogan that urged UK start-ups to "keep calm and move to Berlin".
Some firms have indeed swapped the Thames for the Spree that flows through Berlin, and London’s Anglophonic multiculturalism for polylingual and Euro-centric Berlin. Konetik, a mobility management expert that tracks fleets of electric vehicles, was formed in London but made the decision, in the wake of the Brexit vote, to swap the United Kingdom for Schöneberg, a rising district in central Berlin.
The Konetik co-founder and chief executive Balazs Szabo said the plan had always been to open a sales and marketing office in Berlin – but that the UK referendum had expedited the process. “After Brexit, we decided to relocate our entire headquarters to Berlin,” he says. Some of the reasons were financial – most notably Berlin’s relatively inexpensive cost of living. Others were more strategic: as a logistics firm with a large base of German-speaking customers, it made sense to build a new home in the heart of Europe’s largest car market.
But hopes that Brexit would jet-propel Berlin, helping it to overtake London have, so far at least, fallen short of the mark.
The UK capital may have lost a few start-ups here and there, but it remains the European destination of choice for the big technology beasts of Silicon Valley. Google is building a 92,000 square-metre "landscraper" near King’s Cross, from which it will serve the European market. Apple has leased 50,000 sq metres of office space at Battersea Power Station, while Facebook is hiring hundreds of highly qualified UK-based engineers. All announcements were made in the months that followed Brexit, reinforcing the sense in London that it is business as unusual.
Then there is fintech, where Berlin is, in domestic terms at least, the unalloyed leader. At the end of 2016, it boasted 179 fintech start-ups, according to data from Barkow Consulting, against 62 for Munich, 58 for Frankfurt, and 53 for Hamburg. Between the start of 2012 and end-September 2016, investors put €734 million (Dh3.07 billion) to work in Berlin-based fintech start-ups, against €212m in Hamburg and €155m in Frankfurt, Germany’s traditional financial hub.
But again, predictions of a mass Brexit-inspired displacement of UK fintech talent were premature. In the days after the vote, German tech leaders declared fintech all but dead in London. One executive at a leading Frankfurt payments firm went so far as to tweet that London had “committed suicide as a leading fintech centre”.
The reality was far more prosaic. Fintech investment in London wobbled a little, then regained its momentum. Last month, Yoyo Wallet, Britain’s fastest-growing mobile payments app, raised £12m (Dh57.3m) from investors to finance its expansion into the United States. Among the Fitzrovia-based firm’s roster of investors are German retailer Metro Group and Taavet Hinrikus, co-founder of TransferWife, a money-transfer firm that considered moving to Berlin from London after Brexit – before shelving its plans.
So far, then, Britain’s decision to make a clean break would appear to have had precious little impact on either city. London remains the focal point, in Europe at least, of the technology giants of Silicon Valley. And it has lost none of its start-up swagger. An April 2017 report by KPMG found that London accounted for five of the 10 largest European fintech investments in the first quarter of the year. “If we look at Europe's fintech landscape, London is in a league of its own”, streets ahead of its regional peers, says Mr Barkow. He dips into a football analogy, comparing London with Real Madrid, a regular Champions League winner, and Berlin with Bayern Munich, a worthy and classy combatant that, more often than not, comes in second.
Berlin acts as a different kind of magnet, luring tech talent keen to live in a city offering high culture, low rents, a broad array of employment opportunities and a bohemian air. And it is working. Germany’s capital accounted for three of the largest European fintech investments in the first three months of the year, according to KPMG.
Barring an irreparable breakdown in relations between the UK and Brussels over the next few years – an outcome that, to be sure, remains highly possible – it is hard to see London losing its lustre. “I don’t think there will be a drastic change,” says Mr Szabo. “London will remain one of the most important financial capitals in Europe in the short to medium-term.”
In truth, there is probably room for both cities on the map: one a genuinely global city, the other a European capital of culture and technology well on the way to becoming the continent’s premier political and commercial power. Both vie to attract the best young tech talent, and the money that funds their ambitions.
Brexit has not broken London. But neither has it done Berlin any harm.