The New Berlin Venture Capital Boom

A number of New funds and a diverse and experienced pool of entrepreneurs might very well be the tipping point for the German capital’s young startup scene. 2016 will see a new influx of VC money, while investors pull back elsewhere.

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It seems like the party is over… A number of industry experts have been busy in recent months highlighting crazy startup valuations, while calling for a more sensible approach to investing. And the signs are there: it certainly looks like we dealing with a significant cool-down. Tech companies like Etsy, Box, TrueCar, Square and others received a beating in the public markets or had their IPOs scrapped all together [for a bigger picture see this interesting analysis from Alex Wilhelm at Mattermark], showing institutional investors chasing yields that their unicorn valuations are not reflected in the market and might not materialize. Early stage investors are in fear of getting sacked by senior liquidation preferences and anti-dilution that allow these institutional investors in later rounds to safeguard their equity positions to some extent.

All signals indicate that in 2016 it will be much harder for US-based startups (and I am not only talking about Growth Stage companies here) to acquire Venture Capital than it has been in the past couple of years. Not so in Berlin. Unnoticed by entrepreneurs and the press, there have been a few interesting developments in the German capital that will enable the next wave of billion dollar companies and the development of impactful technologies, despite a cool-down elsewhere. This will largely be driven by two factors: a looming venture capital boom and a growing pool of experienced founders starting companies.

In 2015 we saw the first wave of significant exits in Berlin with Zalando, Wunderlist, Sociomantic, Fyber as well as a number of larger but unannounced Secondary transactions and smaller exits unlocking value for their teams and investors. This will not only flush a large number of eager entrepreneurs into the market that have experience and a track record for building successful internet companies, but also contributes to additional liquidity in the early stage investment environment.

Venture Capital in Berlin is finally maturing

Not only Angel Investors are the ones contributing to this looming wave of liquidity. An unprecedented number of new Berlin-based funds are currently competing for promising early stage deals. In the last twelve months or so about 15 new sizable $50M+ early stage VC funds based in Berlin have been raised or incepted. In the absence of an external shock these funds will be deployed in the coming 5–7 years.

• Lakestar just opened their brand new office in Berlin and announced a $385M raise for their second fund.
• BlueYard, the new vehicle from Ex-EarlyBird Partners Ciarán O’Leary and Jason Whitmire announced a $120M fund.
• Holtzbrinck Ventures raised $331M into their 6 fund.
• Acton — as of now the only major German fund without an office in Berlin — announced a fresh $200M fund for growth and early stage investments.
• Pointnine announced their new $60M sized Fund III, while Paua is aiming at a $65M close. b-to-v, as well as foreign funds with presence in Berlin like DN Capital and Partech all announced new funds in 2015.
• And of course did Rocket Internet just recently announced the first close of a $420M+ sized vehicle that is investing directly and indirectly into Berlin.
• Behind the scenes at least seven additional funds from former entrepreneurs and angels (with a few existing firms in the mix) are currently in closing. None of them are announced yet, so I will not take over their PR without being asked. ;)

In addition to the above, including all of the existing funds that are not fully deployed yet, are Corporate VCs and Strategics in the game for funneling capital into startups.

This is surely becoming a competitive funding environment. More and more US- and UK-based funds are also actively looking for investment opportunities in the German capital. Their Partners and Associates are increasingly seen bustling through Tegel Airport’s small and old school security gates.

Optimal environment for entrepreneurs to start and finance a company

Hello good times! For Berlin-based entrepreneurs this means ‘now’ is the best time to start a company. Given the capital flowing into the city it has probably never been easier to raise Venture funding in central Europe’s new boom-town of Tech. This is especially true for early stage rounds, while growth capital remains scarce and dominated by large international investors. For most entrepreneurs this will of course mean they will have to grow more cautiously than their Valley counterparts (and competitors).

For VCs looking for deals in Berlin this means that the days of sailing trips in the Mediterranean and waiting for inbound emails from acquaintances and angel investors are likely over. Increased competition for deals shifting power to the fast deciders, investors with real value add and those with superior deal sourcing capabilities. Good news for entrepreneurs: this will cut down the speed of fundraising and broaden the choice for the right partners.