How the closing of one of Berlin’s top nightclubs underscores its evolution as a Startup destination

Oct 15, 2013
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You may never have been to Berlin, but you’ve certainly heard about the change it’s been undergoing. Whether or not it’s producing the next Facebook may still be in question; however, the massive influx of artists, entrepreneurs, developers and young, jobless hopefuls from Eastern Europe, Scandinavia & the rest of the world set the stage for what would be the biggest overhaul to a city. Home to few enterprise headquarters and even fewer internationally renowned engineering Universities, Berlin doesn’t fit your typical profile for a budding startup ecosystem.

My first visit to Berlin, back in January for hy!Berlin, was marked by the enthusiasm & spirit that somehow every entrepreneur & investor had seemed to have coordinated at some secret meeting before my arrival. The evening’s festivities began at 11PM and went until I decided I wasn’t going to make it as late as my confrères, and so I descended the graffiti’d hallways & stairwells, each flight of stairs allowing me a glimpse into a Jazz Bar, a hip-hop club, and what I can only imagine was a Dub-Step club in the bottom floor.

Indeed, my first visit to Katerholzig was not unlike many others’; however, little did I know that I was experiencing an ephemeral experience…

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Real estate spikes, rent hikes, and Facebook likes

Katerholzig announced earlier this month on their Facebook Page that after just three years of being open in what was an abandoned soap factory, one of Berlin’s staple clubs will be closing at the end of the year, as their lease comes up. While it is not uncommon for brick & mortar clubs to come and go with the year, Katerholzig was not just another club, but the embodiment of Berlin – rebellious, unkempt, nocturnal.

Its closing comes not from a lack of funds or a lack of desire to renew the club’s lease, but in fact they are being kicked out by the factory’s owner, who apparently has been trying for quite some time to find an excuse not to let them renew their lease. This lies in the fact that, in the three years since Katerholzig began gathering Berlin’s counterculture inside its walls, the real estate prices have reportedly jumped 30-50%, nearly double of what they were just 8 years ago. Berlin is listed among cities like Paris & London as Markets to Watch in the real estate sector, according to PwC, and it seems Katerholzig’s landlord realized he could get more value out of his real estate by refurbishing it than by continuing to rent it out to rebels.

An evolution for startups, a filter for its founders

As the once-low cost of living normalizes with other popular destination cities, Berlin’s art school dropouts and young entrepreneurs may find that a 50K€ seed round doesn’t buy them what it used to. Will Berlin lose its attractivity once the very selling point that its investors & entrepreneurs use to sell the city disappears? I don’t think so; however, it may act as a filter on a startup city ripe with pre-seed and seed stage startups, but lacking in Venture-funded (non-eCommerce) startups.

Indeed Berlin is evolving, for better or for worse (depending on your burn rate), and combined with the sentiment of ‘no longer wanting to be a Hipster city,’ Berlin may soon get its wish as its hipsters see their rent prices jump in the coming years. The scrappy artist startup model doesn’t work in San Francisco, London, or Paris – you have to pay to play – and Berlin startupers have been skipping the Big Blind for the last two years. The startups who are willing to pay may become more interesting to VCs; however, will VCs be chomping at the bit when deal-flow of Germany’s capital begins to dwindle?

Out with the old, and in with the new. It’s all “innovation” these days.