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Berlin – Europe's New Start-Up Capital

Low rents are attracting talented young people and company founders to Berlin. Over two billion dollars were invested there in 2014, in e-commerce and financial technology among other things. A situation report.

A small white robot with a childlike expression on its computer screen face circles uncertainly around the courtyard and is photographed by an excited group of women entrepreneurs. Curious investors wander around between the standing tables made of old oil drums on the site of the old carpet factory in eastern Berlin. Young entrepreneurs sit on wooden pallets and improvised sofas. In a beer tent, 3D printers chatter away. Tech Open Air (TOA ) is the Berlin start-up scene's annual summer festival.

Low Rents Are Attracting Talent to Berlin

In the last few years, Berlin has become one of the most important centers of the start-up scene, after San Francisco. The ideas emerging from Silicon Valley have shaken up whole industries. There is a good chance that some of the major innovations of the future will be coming from Berlin.

Catching Nikolas Woischnik for an interview today is no simple matter. Woischnik is the founder and organizer of TOA. In his business, contacts are everything and there is always someone who wants something from him.

Woischnik has been working with start-ups for five years. On the website, his colleagues joke about the fact that he's gradually going gray. "In fact, it all started with the low rents in Berlin. That attracted talented people to come here who were willing to abandon the traditional career path," he says.

Businesses Need Ideas, Start-Ups Need Distribution Channels

Traditional industry in Germany is not based in Berlin. This is where the offices are, but the production is done in the south. "For innovation and creativity, you do not necessarily need access to the old economy," says Woischnik. "But for distribution – in other words getting your products to people – you need well-established companies. And for them, it is exactly the opposite: They are good at distribution, but often find it difficult to innovate."

Woischnik makes his living from bringing the old and the new economies together. BMW's Mini, Axel Springer, KPMG – an assorted portfolio of brands that he calls the "old economy" – are bustling around at TOA. "Rewe, Lufthansa, Metro, Tengelmann, in fact all the major German companies, are having a look at the scene at the moment," says Woischnik.

A little further back, on a stand bearing the name "TechBerlin," there are three men from IBM, also in T-shirts and jeans. The mood at IBM is relaxed. Perhaps this is because, unlike other companies, the IT giant doesn't feel that it suddenly needs to make up ground in the digital revolution: IBM made one of the first PCs and is itself a key part of the digital revolution.

The company has picked out 30 cities around the world where it wants to keep abreast of the start-up culture. "New York was the first city, followed by Berlin, then came London, and in the past few months, they have been joined by Amsterdam," Ralf Heinke, representative for start-ups and cloud ISVs, explains. "The big players notice how business models are changing and that they have to do something to avoid being left behind."

USD 2.2 Billion Was Invested in Berlin

According to a study by the newspaper "Die Welt," Berlin attracted more venture capital last year than London. It found that USD 2.2 billion had been invested in Berlin and USD 1.5 billion in London. Investments in Berlin are growing faster: According to the study, the amount of investment more than tripled in Berlin between the first quarter of 2014 and the first quarter of 2015. In London, it increased two and a half times.

While, as a banking location, London concentrates more on financial technology (FinTech), Berlin has become Europe's e-commerce center. The Berlin start-up builder Rocket Internet accounts for a significant share of Berlin e-commerce. According to the study, the food supplier "Delivery Hero" alone earned half a billion dollars in 2014. And by the summer of this year, it is thought to have earned another half a billion.

The study shows clearly where the priorities lie in Berlin: Of the USD 2.2 billion, one billion went into consumer services (USD 572 million in London) and another billion into business and financial services (USD 680 million in London).

Financial Technology Start-Ups Are Being Mass Produced

Of the one billion dollars that has gone into business and financial services in Berlin, according to the study, a substantial portion must have passed across the desk of Jan Beckers.

Beckers is the founder of the company builders Hitfox and Finleap. Finleap's office in Berlin Mitte resembles that of a successful advertising agency: large, open offices, glass-walled meeting rooms, desks with a couple of Macbooks lying around.

Jan Beckers is 32, he's on first-name terms with his employees. "An appointment with Mr. Beckers? Oh, Jan, he should be here in a minute." Beckers has been founding companies since he was 20. One of them, the advertising tech company Fyber, was bought in 2014 by RNTS Media for around 150 million euros.

Beckers is now mass-producing FinTech start-ups with the company builder Finleap. "Even banks are facing a huge upheaval," says Beckers. "Transferring money from A to B is one example: In just a few years, banks have lost this lucrative business to FinTechs. Other business lines will follow."

Bit by bit, typical bank products were separated off from the portfolio, and then offered by start-ups specializing in precisely these products, says Beckers. It is entirely possible that these will be integrated into new businesses in the long term, he adds. "But the banking landscape will be fundamentally different," says Beckers.

Beckers thinks that Berlin's great opportunity is linked to the digital revolution: "Because there are no traditional industries here, it's very cheap. The new things that are emerging right now are what will dominate business over the next 10-20 years and beyond. In this respect, Berlin should be very grateful that this gap existed before," Beckers explains.

Reasonably Priced 3D Printers for Industry 4.0

René Gurka makes hardware. He is a co-founder and CEO of the 3D printer manufacturer BigRep. There are small-format printers on the market for modelers and consumers for a few thousand euros, and industrial 3D printers made by a US company that cost around USD 400,000. BigRep is positioning itself in between: The BigRep printers cost EUR 37,000 but can still print models up to a cubic meter in size.

In BigRep's office in a yard in Berlin's Kreuzberg district, there are even printed tables and chairs. "Our goal is that BigRep will be synonymous with good value, large format 3D printing in two or three years. We want to be the mass supplier," says Gurka.

It's not about switching the production of plastic parts, for example, from injection molding to 3D printing. Initially, Gurka says, the focus is on model building for architecture, prototypes, and customized products. "Every designer, engineer, and architect – they all work on a computer. But when it comes to making prototypes, for example in the automobile industry, they are still sculpted by hand from lumps of clay. For me, Industry 4.0 means digitally produced prototypes," says Gurka.

Next to him on the table, there's a piece of blue plastic, the base of a Japanese cleaning robot. "If the development department changes something in the plans now, they can print it out overnight and try it out the next morning." In the long term, Gurka believes there will be a combination of mass production and individual components: mass-produced cars with a seat that is specially made for a client's back, for example with a 3D printer. BigRep has been running for 15 months. In the first three months, they did testing and made prototypes. In the last 12 months, the company has sold around 200 printers.

Capital from Southern Germany, Ideas from Berlin

Many hardware start-ups have based themselves in the south of Germany, where large-scale manufacturing industry is also to be found. Much of the capital that BigRep works with comes from the south. The printers are also assembled by a company in the south. "We ended up in Munich because of our investors' contacts. As a start-up, it is hard to gain access to traditional industrial outsourcing partners. They would rather be assembling for Würth or Bosch or Siemens. Then they know that they can produce the same simple part for the next three years," Gurka explains.

Most venture capitalists in Berlin only invest in digitalization and e-commerce, says Gurka. It is much more difficult to find investors for hardware. But in terms of staff, according to the entrepreneur, Berlin is the ideal location: It appeals to talented young people and BigRep is well-known in the field. A young engineer walks past the glass box where the interview is taking place. "For example, he used to be with NASA," says Gurka, pointing him out. "He fell for an Italian woman and now lives in Berlin. He came to us because he thought 3D printing was exciting."

"Silicon Yard" or "Silicon Avenue" – plays on words are popular in Berlin's entrepreneurial scene. "What we don't have yet is a real Facebook or Google," says Jan Beckers, alluding to Silicon Valley in California.