When Jerome Feys moved from Paris to Berlin to complete his masters in management he did not imagine that he would stay on to found a business.
Feys relocated in part to hone his German language skills while studying at ESCP Europe Business School’s Berlin campus and thought he would return to Paris, or perhaps move again to London. He decided to remain in the German capital because he realised it was a better place to pursue his dream of launching a tech start-up. “I had ideas in Paris, but I could see how I could do it in Berlin,” he says.
Famously described by a former Berlin mayor as “poor but sexy”, the city has long been a draw for internet entrepreneurs with its cheap rents, relatively generous visa system and vibrant culture.
The arrival of private equity has also helped. Venture capitalists invested €2.16bn in a total of 264 equity deals in German-based start-ups in the first half of 2017, according to EY, the consultancy. That compares with €972m in 248 deals in the first half of last year.
Berlin is at the heart of this growth. A cosmopolitan city where English is widely spoken, Berlin has attracted large numbers of entrepreneurs from abroad.
According to the 2016 edition of Deutscher Startup Monitor, an annual industry report by consultancy KPMG, 30 per cent of all German start-up employees are not German citizens. But in Berlin the figure rises to 42 per cent.
The takeover in 2015 of Here, the mapping arm of Finnish tech group Nokia, by German carmakers BMW, Daimler and Audi for €2.8bn was a wake-up signal to the world that Berlin could produce significant exits.
The upswing in German venture capital activity this year has been largely the result of two big funding rounds by Berlin-based start-ups. In May, food-delivery service Delivery Hero took a €387m investment from South African internet group Naspers (and floated the following month in Frankfurt, raising €1bn). Also in May, used-car platform Auto 1 Group raised €360m from investors including Baillie Gifford and Target Global in a round that valued the company at €2.5bn.
Masters in management students at ESCP increasingly are interested in launching businesses, according to Andreas Kaplan, a professor of marketing and rector of ESCP’s Berlin campus. A decade ago only 1 per cent of the students on this course launched companies after graduation, but last year 14 per cent did so, he notes.
A problem for Berlin is the lack of local industry to support new tech ventures. Unlike London, which is a global capital for banking, education, media and fashion, Berlin’s main source of employment are jobs related to government. Which is why the entrepreneurial scene is so important to the city, according to Prof Kaplan. “Start-ups are the ones providing a lot of the new jobs,” he says.
The company Jerome Feys started with Jean-Baptiste Molle, a childhood friend from France, is called Vescape, a fitness app that turns an exercise bike into a controller for video games. While Feys was studying in Berlin, Molle had moved to the UK for a masters degree at the London School of Economics.
The pair compared their host cities to decide which was best for their fledgling venture. They chose Berlin, primarily because rents were three to four times cheaper than in London, but also because they felt the German government and the local community offered more support, according to Feys.
Within weeks of launching, the pair won a €100,000 prize in a German government-backed competition to support early-stage ventures.
Berlin’s growth as a start-up centre received a fillip last year from events affecting its largest European rival start-up centre, London. A day after the UK referendum vote in June to leave the European Union, a truck drove through central London carrying a billboard with the slogan “Dear start-ups, Keep calm and move to Berlin”. Its route included tech start-up neighbourhoods in the east of the city.
Berlin’s business schools have tried to capitalise on the city’s entrepreneurial buzz. At ESMT Berlin, a privately owned school in the heart of the city, masters in management students are asked to come up with business ideas, which they present during a start-up challenge competition as part of the curriculum.
Lisa Makarova and Ruben Portz met on this course, where they developed the business plan for JetEight, an automated booking system for private jet hire, which they launched in April.
Makarova arrived in Berlin from Moscow five years ago, originally intending to stay for a semester as part of her Russian degree course. But she liked student life in the city so much that she remained, transferring to a German university to complete her undergraduate studies.
Makarova also cites the low cost of living as an important attraction, noting that her €200-a-month flat on the edge of the city was better than anything she would get in Moscow. However, she also admits that other European cities offer different advantages for start-ups.
Although Makarova and Portz want to keep their base in Berlin, they are considering opening a second office in London because it is a global centre for the agents that rent out private jets.
“In Berlin it is easy to get support from other entrepreneurs and investors for your start-up,” Portz says. “But all our aviation industry contacts and partner relationships are in London.”