London losing Its start-up appeal as Berlin offers more for less

London has long been one of the technology capitals of the world, its Silicon Roundabout hosting some of the biggest names in the tech industry. The UK’s capital city has churned out successful apps such as the Candy Crush Saga, which went to IPO this week. However, the city’s unique mix of corporate finance and indie innovation, which helped it become the leader in venture capital deals and tech acquisitions in Europe, is becoming increasingly uncompetitive in comparison to the region’s new growing tech hub – Berlin.

The German capital is seeing a growing inflow of high-skilled labour and start-ups, attracted by low rents and a generally cheaper standard of living despite offering similar wages to London. The city also still has a raw, creative feel, uncluttered by the commercial, mainstream success of London’s high streets and the wealth of global capital. Germany’s growing appeal is certainly being reflected in the numbers. According to Dow Jones VentureSource, Germany saw an inflow of £228 million in venture capital for 67 deals in Q2 2013 compared to £176 million for 77 deals in the UK over the same period. While the UK was still above Germany in total capital inflows for 2013, the Berlin-driven German landscape is quickly catching up.

Things are not helped by the UK’s increasingly strict immigration policy, which is preventing new talent from arriving to the island’s shores, especially from emerging economies. Brazilians, Americans and other non-EU citizens are finding it easier to obtain work permits in Germany. English is also widely spoken and is the primary language in cosmopolitan start-up offices, which was a surprise to German chancellor Angela Merkel when she toured local tech firms in 2013. Among the most notable digital players, SoundCloud, the international music service, is based in the city while tech giants Microsoft and Google are continuing expanding operations on the ground.

2014 has already seen a slew of deals for Berlin-based start-ups, suggesting a positive year ahead. Delivery Hero, a web meal delivery service, attracted £121 million, while menswear specialist Outfittery raised £11 million from the US. More deals are set to come as business transfer agents keep their eye on the burgeoning Berlin space. London’s status as start-up capital of Europe is certainly under threat as new, more price-conscious companies choose Berlin.

The UK market is important for Acuity but we have developed networks beyond the UK and try and have our finger on the pulse of growing European tech hubs, of which there are increasingly many. One of the recent deals we helped to complete, for example, was for Sense One Technologies who are based in Athens, and we look forward to one day adding a Berlin firm to our portfolio of satisfied clients.

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