The Local – a site on which you can read local (in this case German) news in English – is not a news source that I would expect to have a particular expertise on startups. Nevertheless an article titled How the Berlin startup scene is wasting its potential which was published there made the rounds last week, also among startup circles.
Some of the points raised apply to startups everywhere: I have yet to see a startup ecosystem which is not male-dominated (3.), including Sweden – which seems to be the author’s favorite. The Swedish startups mentioned by the author on a previous point (1.), Truecaller, Spotify and Tictail, are very much male-lead, having investors such as Atomico and KPCB, which are also male-dominated. Early-stage startups lacking experienced employees (4.) is the rule rather than the exception, too, and many of Berlin’s startups are still rather early-stage.
For some other points, I have seen examples of exactly opposite at startups in Berlin and I would argue that I have a more representative sample, being around a number different startups since late 2009, compared to the author Shaun Kemp, who seems to have worked for exactly one (!) startup (Twago) for 2 years, since he arrived in 2014, according to his LinkedIn. I have seen hierarchies that were anything but flat (5.), and I have seen innovation slowing down because of too much structure and hierarchy levels (7.) and (8.).
So what is actually going wrong in Berlin? First of all, I would say: not everything, or most things, as Kemp’s article seems to imply. Things are definitely not “ideal” though either. To give a current “case study”, consider Movinga.
Even if the startup had lived up to it is initial promise, it looks like a severe case of capital misallocation that this company was able to raise around 30 to 40 million Euro to date, in less than a year. In continental Europe, such amounts put you in the top-tier for capital raised as an early stage company. There was plenty of companies with more impressive technology, more qualified, experienced founding teams, interesting business models and traction around, yet investors flocked together to put their money on Movinga.
As it turned out, the company did not live up it’s promise, in several ways. While it was also in the “top-tier” for burnrate, nothing of much value appears to have been created thusfar. Many of the investors, such as GFC, Index and Earlybird, are well-known, and if they get it wrong so badly, it raises questions about their processes and what they call due dilligence, and consequently, about the sophistication of the ecosystem.
In June, Movinga fired a quarter of their employees and the two original founders (reported at Deutsche Startups, for example), the latter two also facing some legal problems. Usually politicians want to be seen nowhere near such a trainwreck, however in this case, they even decided to give them a prize! Very ironically, it is a prize for contributions to the Soziale Marktwirtschaft… One can only hope that the decision to give them the prize was taken before June and is, for some reason, irreversible. In any case, I guess this goes to show that the judgement of politicians is also not better than the investors’.
The problem is not that there are no good startups. The problem is also not that there is not enough money or resources to support rather, as was very fashionable to argue in the last years. (Not anymore.) The money and resources just often go to the wrong startups. Not only investor money and politican’s support, but also good employees end up at the wrong startups. And this, I believe, actually is worse than in some other places. One possible reason? Berlin is dominated by a small group of players in the industry, with rather homogenous backgrounds and expertise, which often tend to collude rather than compete, and startups do not have to compete or interact much with other meaningful industries here.