Berlin: Germany’s Venture Capital
The German capital is famous for its start-up scene and trumps the rest of the country – and most European capitals – when it comes to investments. That’s why international venture capital funds are flocking there.
In April 2021, the early-stage venture capital (VC) fund Antler, originally from Singapore, opened an office in Novalisstrasse in Berlin’s Mitte district. When the VC launches a new cohort of fledgling businesses, there is a flutter of activity, with up to 60 founders eagerly awaiting the start of a thrilling ten weeks ahead.
In the first phase of the Antler cohort program, founders meet and team up with other potential cofounders in order to jointly develop their idea and test business models. A few weeks later, they will pitch their idea to an investment committee composed of partners from the local and global Antler team as well as top local VCs.
Antler has run two cohorts so far under its Central Europe Fund which is targeted at EUR 50 million. It plans to invest in 160 companies over the next four years. Among the start-ups Antler Berlin has already supported are cryptocurrency robo-investor Pecalla, marketplace-as-a-service provider randevu and clare&me, a cognitive behavioral therapy-inspired AI application for voice coaching.
“I am personally very excited about the entrepreneurial talent across the region and the opportunities this presents to us as an early-stage investor,” says Sarah Finegan, director at Antler Berlin. “Berlin was an excellent choice for Antler, not least given that the city is one of the biggest start-up ecosystems and an emerging tech hub in Europe.”
The Bottom Line
Berlin is Germany’s most significant start-up hub by a huge margin. Domestic and international entrepreneurs establishing a physical presence in the capital will benefit from proximity to a new crowd of VC investors.
Exponential capital growth
Antler is one of a growing number of VC funds to establish brick-and-mortar offices in Berlin. The German Private Equity and Venture Capital Association (BVK) estimates that there are now around 70 VCs in Berlin in total, with a substantial number incorporated outside of Germany.
Typically start-ups go where the money is, but now the opposite is the case. The BVK and Brussels-based Invest Europe calculate that Berlin’s annual total VC investment volume rose from EUR 109 million in 2010 to EUR 987 million in 2020. Approximately 50 percent of VC investment in German companies goes to Berlin, dwarfing the amounts raised by Germany’s second and third largest start-up hubs in Bavaria and North Rhine-Westphalia.
More to the point, the once-modest financing rounds sought by young Berlin-based companies have ballooned – these days often amounting to hundreds of millions. And the main driver of this exponential growth is Brexit.
“London used to be the place to be for international VCs, but this is changing, not least because London-based VCs can no longer benefit from the significant contributions the European Investment Fund [EIF] shoulders in the financing of small and medium-sized enterprises,” explains BVK executive board member Ulrike Hinrichs. “VC investors see the EIF’s involvement as an official seal of approval for an early-stage target, and the German government’s Future Fund shows that state tailwinds are also stiffening for later-stage support.”
Established in 2021, the EIF is a European program aimed at supercharging VC investment in promising young businesses and has a total of EUR 10 billion to invest up to 2030.
“Berlin is a dynamic city with a strong creative spirit”
Interview with Johan van Mil, founder and managing partner of Peak venture capital
Why did Peak set up an office in Berlin?
Typically, we’ll get to know a start-up for three to six months before we talk about investing in them. The early-stage investment process is pretty much a rollercoaster. We rely on both deep data and gut feeling. To manage the latter, it is helpful to talk face to face. We really want to personally meet the founders, feel their energy and get to know the people who drive innovation in Germany.
What can German start-ups expect of Peak?
Peak is fully funded and founded by entrepreneurs. We bring with us our networks and expertise, as well as positive and negative experiences. We actively help start-ups with everything they run into like hiring talent or next-round funding. We leave our phones on overnight, so we’re there for them. Another important aspect is internationalization. If you want to create a real unicorn, you’ll need to conquer foreign markets, not just Germany. While the size of the German economy makes it easy to scale up a business, it tempts founders to neglect internationalization. Peak is from the Netherlands, so through their dealings with us, German start-ups inevitably take on an international focus.
Will the investment bonanza be over once the world’s major central banks tighten monetary policy?
No, it won’t. If benchmark interest rates go up, less money will flow into the stock market. Some of that money will flow into the start-up ecosystem because investors are looking for a healthy return while solving the world’s urgent need for new technological solutions. We are now experiencing the emergence of a next-generation start-up scene, as the first and second employees of the likes of Zalando, Rocket Internet and HelloFresh are now launching new start-ups or investing themselves.
Anglo-American VC discovers Berlin
One fund that recently established a presence in Berlin is UK-founded DN Capital. In November 2021 it opened an office in the Mitte district, following the fund’s successful investments into a slate of German start-ups including used-car platform AUTO1, vacation-home platform HomeToGo, optical company Mister Spex and restaurant reservation platform Quandoo.
Another new arrival is Verdane from northern Europe, which opened its Berlin office in late 2019. In July 2021, Verdane announced that the total number of investments supported by its local team in Berlin had risen to a dozen, underscoring the importance of the German market in its growth strategy.
Finally, US-based Activant Capital and Netherlands-based Peak opened Berlin offices in mid-2021. Peak, which focuses on start-ups in the software-as-a-service (SaaS) marketplace and platform business models, says face-to-face interactions with Berlin’s bevy of start-ups is important.
“We invest very early in companies, and for that it is extremely helpful to get close to the founders as opposed to dealing only with them via video calls from Amsterdam,” says Johan van Mil, Peak’s managing partner. “Berlin is a very dynamic city with a strong creative and techie spirit, which matches perfectly with our own entrepreneurial mindset.”