23 Jun 2014

Berlin's Silicon Allee is challenging London as the next great European tech hub.

CB insight looked at Q1’14 tech exits in Europe and have dug into individual European tech ecosystems a bit.

Here's their report.

We will start with what some are calling the next tech hub of Europe, Berlin. Berlin, dubbed by some as Silicon Allee, has experienced explosive growth over the past two years in technology funding. In the past four quarters, upstart tech companies have raised over $650m across 100+ deals, up 202% from the same period a year ago, and up a massive 556% from the same period two years ago.

Early-Stage Funding Breaking OutBerlin has seen healthy levels of early-stage funding and deal activity which is a good first step in building a healthy ecosystem. Berlin early-stage venture financings totaled just over $160M in the past four quarters, up 228% from the same period a year ago, and 853% compared to the same period two years ago. Mid-stage startups (series B and C) totaled over $173M, up 143% from the previous four quarters, while late-stage startups (Series D+) saw over $289M, driven almost entirely from investments made in the past four quarters in Delivery Hero, Soundcloud, and Zimory. The early-stage funding growth rate was largely driven by Q2’13’s 31 deals including financings such as NumberFour’s $38M Series A in June 2013, Foodpanda’s $20M Series A in May 2013, and Motain’s $13M Series A in April 2013.Behind Zalando, eCommerce Captures Majority of Funding

While Silicon Allee is a growing tech hub, it isn’t necessarily a diverse one. Ecommerce, Internet, and Mobile Software & Services made up 95% of all funding over the past four quarters, slightly down from 99% during Q2’12-Q1’13. Ecommerce was responsible for the bulk of those dollars, accounting for 60%, behind Zalando’s $97M investment from Putnam Investment Management in November 2013, Delivery Hero’s $88M Series E in January 2014 and $30M Series C in July 2013, as well as online-optician Mister Spex’s $20.7M Series C in May 2013. Note: We’ve excluded Kinnevik’s investment in Zalando as this was a secondary market transaction.

Investor Analysis

Over 50 investors made more than one investment into Berlin-based technology startups in the past four quarters. High-Tech Gruenderfonds led the pack with more than 10 investments. Earlybird Venture Capital, and IBB Beteilgungsgesellschaft rounded out the top three. High-Tech Gruenderfonds is the early-stage investment fund behind investments into Zimory ($20M in July 2013) and Itembase’s $1M seed round in April 2013. Both Earlybird and IBB’s largest investments in Berlin unsurprisingly were eCommerce companys, with Earlybird’s being a $20.2M Series B for Auctionata in April 2013, and IBB’s a $17.8M Series B in Outfittery in February 2014.

Martin Varsavsky generalizes that “funding is more complicated in Berlin because Germans have a natural aversion to risk, which in turn makes it hard for their financial system to find a good way to consistently finance failures.” This has led many to discuss the importance of international VCs to participate in finances within Berlin. Unfortunately for Varsavsky and others, Berlin-based tech companies have actually seen a 6% decrease in international investor deal participation from the same four quarters a year ago. What many international investors may be waiting for is a large exit. With Zalando and SoundCloud potentially providing those in the coming years, we’ll have to keep an eye on Silicon Allee.