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Can Berlin's 'Silicon Allee' take on London as Europe's hi-tech hub?

By Caroline Bayley
BBC Radio 4's In Business

image captionBerlin's growing tech-hub district is located in an area that was once part of East Berlin

Berlin is the home of choice for many new hi-tech entrepreneurs from around the world. With global giants like Google now opening offices in the city, the German capital's "Silicon Allee" is now rivalling London's Silicon Roundabout as Europe's tech hub.

Berlin has always been fashionable, edgy, artistic and in search of a role for itself. Sliced in two by communism and then re-united when the Berlin Wall came down in 1989, it is now re-inventing itself as one of Europe's leading hi-tech hubs.

Cheap property plus a young, talented workforce are attracting entrepreneurs from all over Europe and even the US.

"Berlin is a start-up in itself," says Zoe Adamovich, a Pole who co-founded her app search engine Xylogic in Berlin.

"You can be an artist, a student or an entrepreneur and if you are a bit creative you found a start-up... this is somehow the DNA of the town," she says, speaking to Radio 4's In Business.

This feeling is shared by many of the start-ups operating out of Berlin.

"Berlin is a fantastic city. It's an old city, it's culturally and historically really rich, but it's also very young," says David Noel, head of community at SoundCloud, an audio sharing website.

"When the wall came down, it was basically a re-set for the city."

Cheaper than London

One of the earlier firms to establish itself in Berlin, SoundCloud now has 20 million users worldwide. It was started by two Swedes, who launched the company in Berlin five years ago.

image caption"This building used to be in another country" - an office in east Berlin's tech district sums up the changes the city has undergone

Back in 2007, SoundCloud's founders Alex Ljung and Eric Wahlforss went on a tour of European cities looking for the ideal place to base their company - and Berlin won them over.

"They quickly realised that coming to Berlin, [there was] some magic that the city offered which they were looking for - a great quality of life, super vibrant, attracting lots of talent," says Mr Noel.

"It's cheaper to live here than in London, with a very comparable quality of lifestyle... the city really marries arts and technology."

Berlin's association with technology is not entirely new. The city established itself as a hub for computer hacking in the early 1980s, when the Chaos Computer Club, now one of the world's largest hacker organisations, was founded.

But when the internet first took off, German start-ups often tried to emulate the successful American firms of the day. Today, this early wave of German-centric firms has been replaced by start-ups with a more international outlook, says investor Ciaran O'Leary.

"Berlin became one of the coolest places in the world to live and that attracted an entirely different crowd - creative people, people who were willing to try something new and most of these people were also from other countries," he says.

A partner at German venture capital firm Earlybird, Mr O'Leary, originally from Ireland, has spent most of his life in Germany. Earlier this year the company moved office from Hamburg to Berlin when it realised that the hi-tech community was taking off there.

Mr O'Leary estimates that around 500 start-ups have been formed in the city this year - a third of the 1,500 or so formed since 2008.

Reluctant German investors

However, most of the money that Earlybird raises to back Berlin start-ups has come from outside Germany. Mr O'Leary says the problem is that Germans are naturally cautious about venture capital - or "risikokapital" as it is known.

"Why should you invest in something called risk capital? It sounds risky," he says.

This lack of faith does not seem to have hindered Berlin's young start-ups, which are fuelling a shift in some areas of Europe's creative and technology industries.

"The full potential of Berlin hasn't been reached yet," says Ben Kubota, the German founder of Moviepilot, a website which provides information about new films, adding that it could be a serious challenger to London's tech district - the so-called Silicon Roundabout.

"The heart of web development was in London but it has moved to Berlin," he says, while warning that "some companies will not survive the current growth phase, but it will help to establish all the talent and the infrastructure that we need to then develop the next generation of start-ups."

Cost seems to be the key factor. Swedish entrepreneur Henrik Berggren raised the finance for his company in London but chose to locate the business in Berlin.

He says the backers for his e-reading company Readmill thought he had made "a great choice" because Berlin is so much cheaper than London.

"If we can run twice as long with the same amount of money, they obviously think that's a great deal," he says.

The next bubble?

But there is concern that a growing wave of new start-ups with venture capital backing them could lead to a bubble in Berlin - and Mr Berggren is aware of the dangers.

"There's always a risk of the whole thing getting too much hype and people react negatively because of that.

"But what one needs to realise is that building great companies takes a long time and we're just in the beginning."

But could successful companies outgrow Berlin, and seek greener pastures - as some UK firms have done - and head to Silicon Valley in the US?

Ms Adamovich of Xylogic does not think this will happen. She, too, says the current cheap cost of working out of Berlin is a huge plus, and talented staff are readily available from all over Europe.

But she stresses that companies must be prepared to forge links with companies and backers in the US to succeed.

"It is vital to be present there and we visit Silicon Valley a lot, and most Berlin start-ups do, but it is not necessary to be there - and there are advantages of being in Berlin, especially if you're at an early stage."

Hear the full report on In Business on BBC Radio 4 on Thursday, 29 November at 20:30 GMT and Sunday, 2 December at 21:30 GMT.

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