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.
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.”
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.
— Mayor of London (@MayorofLondon) June 25, 2016
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.
“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.”
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.