A Letter to the Berlin Startup Scene
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medium.com
Berlin has no money, investors don't come here. More than a couple of investors I jumped through hoops for eventually I made it all the way to the top decision maker who was forced to reveal "oh we don't have any money but in exchange for some equity we can hook you up with business connections." No small amount of equity. Double digits every time. And the same is true if you find an incubator willing to take you, expect very little money, a short tenure, and a double digit equity stake. This all is in line with the level of talent which exists here. If you take a look at the Berlin job market it's all about legacy systems, some PHP, maybe Java if you're lucky.
There's no help available from the government. In fact if you own a startup your taxes skyrocket. Your health insurance doubles. If you're trying to sort out a visa at the same time as all that, good luck! The government will subsidise a loan for you, but it has to be a personal loan. Which means banks are willing to give out risky loans. It's the same thing that happened in the housing crash. Which is why it needs to be a personal loan, your company failing means nothing you have to pay it back.
Letters arrive in your mailbox claiming you owe them money, which apparently isn't illegal. All scams. People you meet at networking events promise to hook you up with business connections for equity or money.
This is a market that sells shovels.
You want to buy a shovel and start digging there's a hundred people around selling them. But you better hope that shovel doesn't require Wifi because bars and cafes are held responsible for torrent traffic, which means none of them offer it. Therefore rent a co-working space [shovel] or an office [shovel].
Behind closed doors, people say "on the one hand, this is the hardest place in the developed world to start a business. On the other hand, if you manage to get something running in Germany, it will run everywhere."
But that's a process and when you've done it once it's just copy&paste for every n+1. Or you get an accountant to do it for you, which is apparently 50Euros/employee/year for all the paperwork.
Other than that it takes about half a day to register a business. Despite what people say, you'll always get by without /any/ paperwork if you don't have employees or revenue.
If there's anything missing in Berlin I'd say it's a really good university. Today's Silicon Valley survives on its symbiosis with Stanford. Before that, XeroX and a few other labs were probably nurturing, plus the hippie spirit of the 60ies that encouraged people to hang out and "do cool stuff".
Berlin does't have that industrial base because it was isolated for 40 years, causing large companies (i. e. Siemens) to leave. It's creating a good community but it's missing the exceptional people that can catalyze real innovation.
That doesn't mean that the German laws about liability for offering connectivity don't suck.
If the person thinks they have valuable business connections, then they should be willing to invest to then reap the rewards of the connection.
So, I would be very careful to give away equity for this 'promise'...
* Health insurance: When you're employed, your employer pays roughly half of your insurance premium. As a freelancer, you have to pay 100 % yourself. Currently, the minimum rate for a freelancer is about 350 € / month, which is still very reasonable in my opinion. Also, as a freelancer you can deduce a portion of this from your taxes.
* Venture capital: From my experience this is mostly true, as there are many people that try to appear as if they have very good connections and money, but in the end they offer pre-seed level investments for double-digit equity. A few of the international VCs have offices in Berlin now though, so my advice would be to stay away from the impostors and go to firms that have actual credibility and a history of funding successful startups.
* Public funding: There are some programs to help people start companies that can provide you with up to 100 T€ in capital (most notably EXIST), and there are various federal programs that provide money as well (e.g. the IBB).
* Visa: In my experience, Berlin has a very liberal visa policy for foreigners, so it's not very difficult to get a freelancer / business founder visa for three years without many strings attached (I have several friends that got one immediately when going to the Ausländerbehörde). So, compared to e.g. the US the process is still infinitely easier I'd say and the cost is near zero (60 € in fees I think).
* Loans to companies: As everywhere in the world, banks won't give you a credit without securing it appropriately. In Germany you can start a Limited (UG) with a risk capital as low as 1 €, so of course your bank will ask for additional security as otherwise you could just use the money and let the company go bankrupt afterwards. I'd be surprised if US banks were any different in this respect.
* Letters arriving in your mailbox: This is a scam that relies on your company being publicly listed in the company register (Handelsregister). Currently the register court already warns you about this when you register a new company. There is a legal effort to stop these people as well, but it's difficult since most of them just use an officially looking letterhead with an eagle on it, which is not per se illegal though it is misleading of course. Again, some common sense will help to not fall for this.
* Meeting investors at meetups / events: Forget about those, as they attract many impostors and people that will just waste your time. Probably not much different in SF or elsewhere. Knowing the right people will help here, but this of course takes time.
* Success: I agree that it's very hard to succeed with a startup in Germany, and there are very few big success stories in the startup scene here so far.
* Job market: Mostly true, although there are more and more well-paying jobs available as more established startups and companies come to Berlin. Six-digit salaries for good senior developers are not unheard of, though most people probably make much less. That said, the income distribution in Germany is not as steep as e.g. in the US, and the war for talent isn't as fierce, which means that salaries are lower as well.
Actually most of these scam letters ARE illegal and you CAN and SHOULD report them to the police. The bigger problem is that most of them aren't based in Germany and vanish as quickly as they pop up.
We actually fell for one of these scams because our bookkeeping was of course extremely messy when we just started out (and we bootstrapped, so we didn't have any mentoring other than the worthless IHK). However we lucked out: although there was no way to reverse the transaction (manually wiring money is not easily reversible) the scammer's account had already been frozen by that time, so the transfer bounced and we got to keep the money.
I have to admit the IBAN number even started with the country code "ES" because the bank was in Spain but we didn't notice it because the bank's part of the code started with "DE", so it was just close enough to trick an idiot in a hurry.
This actually changed my perspective on why phishing works: you don't have to be legitimately stupid -- they just have to catch you in a situation in which you're likely to be careless and distracted enough to be that stupid.
EDIT: To clarify: the reason people often believe they're not illegal is that they're not actual forgeries -- they use carefully crafted wording and official-looking seals that aren't actually official. But they're still obviously trying to trick people, which is illegal of its own right.
If you suggested a VC I might be able to tell you what my experience was with them in Berlin. It's entirely possible my startup just was bad. But I'd tell you what their problem was with us and it might help to flush out a bigger picture. Might be interesting. Kind of a delicate subject possibly though.
So, on the other hand maybe I should just speak generally.
All of them wanted to see sales before they would invest. That means they wanted to see market impact, we could show them all the imaginary projections and potential market impacts we wanted and it didn't make any difference. They wanted to see real world income.
That is hard to do if you don't have any capital. You can tell them all day what you'll spend the money on and what you predict will happen and they don't care. Meanwhile your product idea is being copied by the large company down the street who saw you pitch pitifully begging for a VC to pay attention to you.
That large company will make the same thing, worse but with capital. Then they'll sell it to the same people you are trying to convince to jump on board for a equity stake with you.
That is by far the largest hurdle. Before you have income they aren't interested, and if the other company never has income because the idea is too good or too unique or too hard to do. Then they'll pay attention to something easier. There is no attention being paid to innovation.
I've seen for example business loans in Germany which are given out to Flower shops. There are a million flower shops and kebab shops. But those are proven businesses. Real business loans, which means if the business fails the owners can just claim business bankruptcy.
That doesn't exist for tech startups in Germany you do not qualify. They want a tiny bit of income and no risks. Which to me says it isn't a startup hub.
When you're pre-revenue/pre-traction it's very hard to acquire funding, and even after you made initial sales the VCs are quite reluctant. Honestly, in Germany it's probably better to rely on government-funded investment programs, as paradoxically those tend to take on more risk than most VCs in Germany, at least if you're building something innovative and not just do another copycat of a US/Chinese startup.
And one generally gets very much the feeling that true innovation and creativity is not really apreciated in here. Goes pretty well together with the unfriendly business environment, where it was not possible to start a company with limited liability with less than 25 000€ In start capital until 8 years ago. So much hype in this "Berlin startup city" thing.
1) Founder's Grant
Coming from regular employment back then made you eligible to apply for an "Existenzgründerzuschuss" [1] (sorry, all links in German) with the Agentur für Arbeit [2]. It will pay you the equivalent of unemployment payments (~ 50% of your last brut salary) [2] +300€ for social security for six months. Tax free this is. I got this with my company founded & business plan.
2) Maintain Unemployment Insurance
You can continue to pay into unemployment insurance at the minimum rate (~30€/month) which maintains your payment tenure and status in case your startup doesn't work out.
3) Regional Govt Startup Support Networks
I was living in the north of Bavaria back then, where the "Netzwerk Nordbayern/BayStartup" [4] provided business plan competitions & coaching, workshops on all kind of topics, networking, investor pitches and liasoning, mentoring, plus an open ear. All free of charge. I was a mentor myself for some time and I only have praise for the effort they make to get startups on track.
4) Govt Financing
The KFW [5] provides a few financing programs for founders as part of the (yes) Marshall Plan's European Recovery Programm (ERP). Those are actual credit lines, burn at your own risk... plus you can only apply to those programs through a bank. It's been a while since I looked into the details - on a quick glance [6]:
program 067:
- up to 100k€
- from 2% p.a., no own capital required
- KFW covers 80% in case of loss, you're liable for 20% to your bank
program 058:
- up to 500k€
- from 0.4% p.a., 10%+ own capital required
- KFW covers 100% in case of loss
- "Eigenkapital-Charakter" ~ counts like own capital ~ bolsters credit rating
5) Tax "Breaks"
Germany is no low tax country for sure, but you can improvise. Like with a classic GmbH (limited liablity company, bold 25k€ required) you can appoint yourself as CEO without salary, forward your own credit lines (the are all private as you say), pay yourself interest only and no salary. This should put you in the minimum bracket for health insurance, too.
Anyway, my point is there is help available from the government.
And on a side note: those letters you are referring to everybody gets with every entry into the public company registry [8] - startup or not. Note the scammer warning they even had to put on their landing page.
[1] https://www.arbeitsagentur.de/web/wcm/idc/groups/public/docu...
[2] https://www.arbeitsagentur.de/web/content/DE/BuergerinnenUnd...
[3] https://de.wikipedia.org/wiki/Arbeitslosengeld_(Deutschland)...
[5] https://www.kfw.de/inlandsfoerderung/Privatpersonen/Gr%C3%BC...
[6] https://www.kfw.de/inlandsfoerderung/Privatpersonen/Existenz...
However, Berlin is a great place for remote work. Rents are relatively low and the city has a great vibe.
Many articles have been circulating since this summer about how how Berlin startups have taken in 2.4 million Euros in VC money.
Source: http://www.bloomberg.com/news/articles/2016-07-28/berlin-s-s...
So there's money somewhere no?
I haven't seen this money. N26 is a very very promising startup and I believe they recently got a load of money. My primary issue is that people are being lied to about Berlin being a lush place to launch just any startup. Rents are cheap and the vibe is good for artists, but it's expensive to your mental health as a tech entrepreneur.
There are one or two large companies which open "startups" of their own and then fund them, based on ideas they've seen in the wild around the city. Their concept is to build something rapidly at low cost and then sell it. This poses an additional challenge to those who want to assemble something that is perhaps a new idea. As capital isn't coming your way without paying customers first, which is a bit of a chicken and egg situation and where these large companies have a strong advantage.
The reason I brought up Wifi in cafes isn't because it's a huge issue, but it gives you a sense. It's a symptom of something which is more widespread. Tech is misunderstood more generally and engineers/entrepreneurs aren't really very highly valued, I feel they're being exploited where possible. If you manage to get something off the ground more than likely you have one or two large hooks in you by the time you've gotten there.
Unless you show up with a great deal of capital of your own to start, which I believe is what everyone is hoping for.
Where I worked, the way us junior people were treated was horrible, and I declined a full time position after completing my vocational training because of it. But talking to my mates in the industry back then we all encountered similar shitty exploitative attitudes.
I left in 2004 and have never looked back really.
Other cities are different in that respect: Munich has its engineering and IT tradition, hence a lot of founders have a rather technical background; Hamburg has quite a gaming industry, so in a way far more interesting as well.
There is some interesting stuff going on in Berlin, yet what is desperately needed are nerds founding companies instead of MBA graduates doing it because their peers do it as well.
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[1] I am using "goal-orientation" in Alan Kay's sense of not being able to evaluate an idea on its own merit but only in relation to some external goal, usually "career advancement" (here's another one of those made-up, pretentious business words), ego protection, or ego inflation.
There is a choice to make between experience and hipster points (because that's all you'll get as a junior employee in a Berlin startup) and a solid, stable (at least as much as the economy) job.
Just burning people like burning money to someday find either a big buyer or a sane business model -- really looks rather insane to me.
This touches on a lot of points, but it gets this one across too: http://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-pro...
Most people in the startup scene, especially those who found care about their future a lot. In a weird sense probably even more than people working in the big multinationals. In a startup I co-founded in Berlin, 2 of my co-founders matched the negative stereotype described in the article and in the comments very well. Ironically they cared a lot about their personal development. Already one month after working fulltime on the project my one co-founder indirectly (="nicely") threatened to leave the company. Eventually he left 1.5 years later, the other co-founder left as well, making the startup fail. I want to try my luck again some day, but definitely not with people who only care about their own development and not about that of others.
IMHO, they have unrealistic budget & business expectations for most of the developers. Because of that employees' burn-rate is really high and they switch jobs very often ( 6-8 months ).
New talent comes form mostly eastern Europe, but since it's obvious after 2 weeks working and a couple of tech events that you might find a better job ( maybe salary! ), they usually don't stay loyal to their first employer and quit within 6-8 months.
Now I see another flow of startups hiring people from countries that need VISA to work here. Which again sounds like another way to keep the employee ( will have more difficulties fixing papers if he/she quits ), without improving your business strategy. Anyway don't have any insights about this case, since I don't have a lot of friends like that in my network.
Also not every startup is look-a-like, but almost no startup will give you individual salary based on your experience level ( they usually will determine the paycheck by the position that you take +/- 10% ).
Nevertheless for a freelancer, Berlin is an awesome city to work in!
But the author is wrong concerning the cultural aspects, like "Club Mate" and art exhibitions and friday drinks. That stuff is critically important because it fosters communication across companies. With so many ideas being rapidly tested, some failing, some changing completely – and with mostly young people also changing, it facilitates the "optimal allocation of resources".
People meet at parties, get talking and often start a project together, with many being involved in several projects at the same time. They can easily shift time to where it's most productive and the cost of trying something is kept low. It's also a lot more fun than a cubicle at a bank.
What may be missing is (a) raw engineering talent in the way Stanford or (previously) Bell Labs produce it. You need a few people who are above and beyond everyone to start the really exciting stuff. And (b) possibly the funding infrastructure.
I would challenge that. Some universities in Germany are very strong in Engineerung and natural sciences at the same time. During my studies I have worked with incredibly talented people. However most of these stayed in academia because they found business too boring. Actually that used to be my plan as well, however due to a number of coincidences I didn't pursue a PhD.
One might argue it's a vicious circle: the strong engineers stay to a large proportion in academia, some of them leave into big companies. A tiny rest gets lost in the startup world. So the people who start companies concentrate on Club Mate e-commerce and weird business relationships - not attractive for other strong engineers to join etc etc... ;)
in startups i've seen it. countless low-pay-workers (students who need money) who do useless shit all day. devops who actually do 2 jobs for one salary. ceo's feeling special drowning in certain circles or think they accomplish sth when one of those useless shithead ministers come and look around, talk lies about how they'll improve investmemt regulation.
this city is one giant tourist multi cultural smoke screen.
there's not even one club playing good music (that is, music of my taste). everywhere it's all just weird electronic or rock/pop crap mixed by dirt cheap dj's who take the word "mix" too literally.
There was an excellent jazz bar that opened just off Kurfürstendamm, open every night of the week, and not only was the music excellent, but the bartenders were brilliant and cared about their whiskey. I wish we had a jazz bar like that in my hometown.
And while it's cheesy mainstream pop/rock, I loved seeing Unheilig and Bollmer perform live in Berlin, something I'd never see in Australia. (Totally worth the airfare.) An acquaintance of mine even moved from Australia to Berlin to build his recording studio there.
I'm really sorry you didn't find what you were looking for in Berlin :(
Care to elaborate? What's the smokescreen hiding?
It's almost always between bullshit promises of 'we are this close to go through the roof' and asking you to take a 20% cut on your salary, because everybody is, and at the same time bringing in new people every month.
They call themself startups, but they are not. They are businesses hanging on to straws, because of narcissistic people unable to admit they failed.
I've been contracting for the last few years, the pay is better and I know up front if things go downhill I'm going to be the first to go (1 week termination period). I would like to find something more stable as my wife and I are looking to start a family, but it seems I'm going to have to give up my free time and take a big pay cut, if I want a permenant job in the startup scene.
But there has also settled some notion today, to make making startups like having an assembly line. It is no more about having new ideas or about solving worlds problems -- it is solely about burning more and more cash and making new cash-cows from it. The idea itself, the customers and the people working on it, have become second nature.
All of it is of course hidden by a geeky, hip culture, where everybody can feel fine -- if he does not think to much about it.
About the "what_doyouthink" - why such inconsistent underscores?
But besides that it's nice, many alternative/left people.