How Berlin Earns Its ‘Startup Capital’ Reputation

In this week’s edition of PYMNTS’ Weekly Tech Center Roundup, we head back to Europe to explore Germany’s “startup capital” and learn about the thriving ecosystem where a new startup is born every 20 minutes.

Before we jump into the post, here are a few quick facts about Berlin, Germany and its tech scene:

Berlin has an estimated population of 3.5 million, with nearly 40 percent of the city’s residents being under the age of 35.

Berlin’s GDP is EUR 124 billion.

Berlin is the 7th ranked city in Europe for its support of digital entrepreneurs, according to the European Digital City Index.

In 2015, Deutsche Startup Monitor found that a third of startups in Germany reside in Berlin.

SoundCloud, ResearchGATE and wooga are among some of the big tech companies from Berlin.

A study by consultancy firm McKinsey estimates that Berlin tech startups could generate as many as 100,000 jobs by the year 2020.

On average, approximately 44,000 new companies are founded in Berlin each year.

Not only does Berlin stand as Germany’s largest city, but it is also known for being the country’s startup capital. It’s no secret that on average, a tech-related startup company is founded in Berlin every 20 minutes – yes, you heard that right. Not only is Berlin attracting tech talent from around the world, but the city has the right mechanisms in place to foster homegrown innovation and talent as well.

While there are numerous studies out there that point to why Berlin is well on its way to being a top location for business startups and a place with significant tech growth potential, PYMNTS wanted to hear about the city directly from one of its own.

Valentin Stalf, founder and CEO of mobile-only bank NUMBER26, shared with us some of the reasons why Berlin holds its title as a startup capital and how the startup’s experience being based out of the city has impacted its business. Stalf describes Berlin’s startup community as “young, but growing up, and still very creative and tech-savvy,” which may just be the fuel to the growing tech scene’s fire.

An excerpt from the interview is below …

PYMNTS: What is it about Berlin that made it conducive to starting a FinTech company?

VS: We actually founded NUMBER26 in Vienna, our hometown in Austria. However, it was clear that we would move to Berlin or London very soon. Berlin has become one of the most important startup cities in Europe. People from all over the world move here in order to work in startups. For us Berlin is the best place in Europe to find great talents and the creativity to build a disruptive company. Furthermore, Berlin is a great city to live in.

FinTech is bigger in Berlin than in other German cities, but still small. One of the reasons for the success of NUMBER26 is that we are located far away from Germany’s financial center, Frankfurt. Look at the changes in the travel, TV or music industries – here digitalization was not driven by the incumbents. This distance gives us the freedom to create something disruptive.

PYMNTS: What is the government’s role in tech innovation in Germany?

VS: I think there can always be more done to encourage people to invest in great ideas. Especially in Berlin, there are some governmental funds that focus on early stage, which helps the community and fuels the scene. On the regulatory side [much more can still be done] to enable innovation.

PYMNTS: Does Berlin’s tech ecosystem provide any advantages or disadvantages to the startups and entrepreneurs operating there?

VS: The greatest advantage is that Berlin has a tech scene that already goes back several years. Over the last few years, especially with the IPO of Zalando, you also find the first role models for founders and there is a lot of know-how to build new companies.

Former employees of these companies are great additions to younger startups. Berlin has gained prominence on the radar of international investors in recent years, but there are still better places around the world to find venture funds.

PYMNTS: What helps Berlin to stand apart from other tech centers in Europe?

VS: Berlin is a melting pot of cultures, ideas and talents. This diversity is reflected in the team we employ and in the product we built, respectively. Berlin represents a certain individual freedom, which gives people the creativity to work on great products.

The success of startups like Rocket Internet and Zalando have certainly paved the way to create the foundation of talents. Furthermore, the success of every single startup over the years has put Berlin on the radar of startup lovers around the world. Today, Berlin is attractive for people all around the world who want to work in a technology company.

PYMNTS: How is NUMBER26 continuing to disrupt the traditional financial institution business model?

VS: We have built a highly scalable technology base using an extremely lean organizational structure to keep our base costs low. Now, we selectively partner with t FinTech companies around the world to offer a platform of products within a seamless, mobile-centric experience. We believe the value of the bank of tomorrow does not come out of its balance sheet, but it is the customer relationship that is defined by the mobile experience. Therefore, we leverage the innovation from all around the world and try to rebundle it within the NUMBER26 app, a good example is our integration of TransferWise. Now all our customers have a much better and far cheaper way to do foreign currency transfers with a simple click. Products within every dimension of a traditional bank will follow, the next ones in the pipeline are investment, saving and credit products, which will all be launched this year on our platform.

We now have an even greater set of investors believing into our vision to create the bank of tomorrow. We believe your bank can be so much more than customers today expect. Our funds will primarily be used to expand our FinTech platform to complete the banking experience. Also, we can accelerate our international expansion and we want to bring first class mobile banking to many more customers in Europe. Another aspect we want to invest in is machine learning. We think banking should be much simpler in the future, so maybe computers can help to achieve this.

This week’s other Berlin tech news includes:

Tech Open Air, an interdisciplinary technology conference and festival, will land in Berlin next month, expecting more than 7,000 attendees and 80 speakers. The conference will feature more than 175 satellite events, including hackathons, workshops, talks and networking opportunities.

With Brexit (aka the U.K.’s decision to leave the EU) now a reality, Berlin is reportedly ready to step up and lure tech firms its way. The bad news for Britain may be an opportunity for Berlin, Politico reported, noting that Berlin’s fast-growing tech scene may be a prime landing spot for uneasy tech startups post-Brexit.

London-based coworking space provider, Techspace, is looking to Berlin as the next place to expand its business to startups. The city’s tech ecosystem and the fact that it’s home to a growing number of well-known startups makes it a desirable location to expand its coworking locations, the company said.