The big threat to Berlin's hot startup scene

Will a lack of financing stifle Berlin's startup scene?

Berlin is quickly becoming one of Europe's hottest destinations for tech startups. It ranks second, only behind London, for the number of startups founded in a European city. The city is also now home to about 2,500 tech companies -- including, more recently, tech giants like Google and Twitter -- that provide jobs for about 30,000 people.

The only problem? A lack of financing. There hasn't been a technology initial public offering from the city since 2006 and there have been few large acquisitions. Bloomberg explains the problem:

While it’s not difficult in Berlin to raise angel funding of a few thousand dollars and seed money up to about $1 million, the next round of financing -- essential for a growing community -- is a challenge.

“Companies may die even though they have good ideas, projects, and teams,” said Andre Eggert, a partner at law firm Lacore Rechtsanwaelte LLP in Berlin who advises entrepreneurs and their backers. “Early stage investors will be frustrated.”

Still, it's not necessarily devastating the startup scene. The city has plenty of positive draws. For one, it's a much cheaper place to test out business ideas than London -- office space rents in Berlin average 156 euros per square meter compared to 986 euros per square meter in London's West End, according to Bloomberg. Plus, there are some positive economic indicators. Berlin's revenue from from the information technology sector grew 20 percent last year, while the city's overall economy grew 1.2 percent, outpacing the overall German economy.

These are all good signs, but you need a steady cash flow from investors to continue to be a place where tech companies want to locate. If not, the startup scene might not mature like the city hopes it will.

Cash Scarcity Threatening Berlin’s Thriving Startup Scene [Bloomberg]

Photo: Flickr/Heisenberg Media

This post was originally published on Smartplanet.com

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