Nicolas Metzke examines the economic, historical, and georgraphical attributes of the two cities to make an initial assessment of which city is better suited as a startup hub.
This series is divided into three parts. I’ll compare Berlin and Paris expressing my very personal view. This is not another “Europe’s Top Capitals” article. I’ll focus on the simple historical and geographical facts in this first part, which will be followed by two others: the respective startup eco-systems and my personal outlook.
What if Paris and Berlin were start-ups?
Over the past weeks I have met several people in Paris who expressed interest in Berlin as the location for running their business. What is it that makes many founders, many talented people and VCs look towards Berlin, what is so special about this city that some consider moving to a country where they don’t speak the language?
Last week I went to Berlin’s Next Conference hoping to get insights about the start-up magic that surrounds Germany’s Capital currently. The conference theme was the Post Digital Age and how our connected lives are going to change with the Internet-of-things. Besides some entertaining sessions illustrating how my fridge becomes smarter than myself and my plants start sending me tweets to ask for water, it was a well organized, yet very typical web-conference with its keynotes, start-up pitches and workshops. For a summary about Next Berlin I recommend to read Frenchweb’s article[FR].
Thus I was particularly interested in exploring the differences between Paris, where I live and run my startups and business, and Berlin. Both are pretending to be metropoles of the Internet, both hosting high-profile conferences like LeWeb in Paris and Next in Berlin and both having given birth to renown start-ups with global aspirations like Criteo in Paris or Soundcloud in Berlin, just to name two. And both cities are so dramatically different, engaged in a competition about talent, VC money and wealth creation.
To be straight upfront with my judgement: Berlin really rocks and is on the fast track of becoming the European startup hub, relegating Paris and even London from the champions league into the national leagues. You’ll think that this is easy to pretend, right? After all, the most asked question during Next Conference was “is Berlin the Silicon Valley of Europe?”. Different people had different answers to this question, and I don’t think this point really matters a lot. Venture Village already wrote about it 6 months ago. My personal conclusion is based on several discussions that I had with entrepreneurs and VCs last week in Berlin, on some key facts that can’t be disputed as well as my very own experiences in France and Germany.
The facts you can’t ignore
As one VC told me over dinner, Berlin has space and is cheap. This sounds very trivial, but a lot of the dynamics of Berlin can be tied back to those two points.
First of all, non-expensive office-space is key to be able to scale your venture, which is what tech startups are about. As tech-investor you want to spend your money on value creation, not on real estate. Paris, as most people know, is on the opposite end of the scale: offices are anything but cheap and I hardly know any startup in Paris where space is not an issue as soon as the startup gets traction. While it did not strike me as the killer argument against Paris, it apparently is the first thing that came to mind when asking this non-Berlin VCs about the reasons for their high interest for Berlin as location to wach out for start-ups; there are many arguments for it being of strategic importance as you’ll see later.
A Q1 2012 report from BNP Paribas Real Estate confirms that rent in prime locations are 3,5 times higher in Paris than in Berlin. This number is confirmed by another study that compares the real estate purchasing power (the number of square meter one can buy with the city’s average income).You spend 4 times less on rent in Berlin or to present it differently: You get 4 times the space for the same amount. Yes, Berlin has free space available.
And secondly, it’s not only about the office rent, but also about the attractiveness for people. Some crowd-sourced price indexes that compare Paris and Berlin vary a little bit from one source to another, but they all show in common that the cost of living is more than double in Paris. This takes into account your rent, but also food, entertainment, personal care, clothing etc.
Add to this that Berlin is located almost within Eastern Europe, not in the political sense of course, but geographically. Its proximity to Poland and to other Eastern European countries, paired with the affordable cost of living makes it more attractive for talents than most other places in Europe, even compared to cities in Germany, like Munich or Hamburg.
Berlin had a vacuum
Even though Germany is Europe’s n° 1 economy, it’s political Capital doesn’t have a well developed economical structure. Berlin has predominantly administration and is lacking industrial production and doesn’t have a lot of services business. With the exception of some pharmaceuticals, Germany’s industry is located in the center and the south of the country, it’s financial services, consulting, advertising and media are in places such as Frankfurt, Munich, Hamburg or Dusseldorf, leaving Berlin with a vacuum that had to be filled.
Starting in the 90ties artists, galleries, DJs and other creative minds came to Berlin because of it’s cheapness and available space (see how it matters!), and paved the way for the “digital artists” who are now streaming towards Berlin from all eastern countries, but also from the nordics and other cities in Germany.
Step after step the city has transformed itself into a melting pot of different cultures and origins turning the weakness into something attractive for young people – drawing even more young talents, from all over Europe. Everything happened very quickly, within a few years only. Most people in Berlin’s start-up scene don’t come from Berlin, which does make everybody there a stranger or … nobody a stranger. English is the main spoken language in companies, where founders and employees very often come for abroad. There are also increasingly French people moving to Berlin’s start-ups, which has motivated French journalists to start a blog about Berlin in French: Berlin Maniacs
Asked about his startup dream-team a well known Super Angel in Berlin said on stage at Next Conference that he would take a CEO from the Nordics, engineers from Eastern Europe, business development from the UK or US and Finance from Germany. No word from Paris or France – and this wasn’t even the worst part of the message.
In Paris start-ups compete more than in other French cities with all types of businesses who can afford to offer higher salaries to technical people. Just think of banks, consulting firms or established tech-companies who all have a need for engineers. A lot has changed in the past years in Business Schools to teach the new generations on entrepreneurship. But Paris like most other places is missing technical skills. I have not met any founder or recruitment agency in Paris who would not confirm how difficult it is to find experienced developers; even non-experienced developers have jobs before they finish their school.
To conclude this first part: Berlin acts almost like a start-up in the new economy. It did not have much to lose when it started to attract talent a few years ago. The fact that it had this economic vacuum, low price level and an interesting geographic location turned into assets compared to other European capitals, like Paris. Of course it takes much more to be successful as start-up hotspot, and we will see with the comparison of the start-up ecosystems in part two that there is a lot happening, and also that Berlin’s start-ups very cleverly use the current hype to position Berlin as n°1 city in Europe. For good or bad … What do you think – can or shall Paris complete with Berlin? Stay tuned!