Starting up in Berlin
The German capital is one of the European centres of the start-up scene. But what ideas are actually successful, and how do young companies make their mark in business? International guests visit founders and sponsors.
Heating installation – it does not sound all that exciting. But Philipp Pausder would disagree, for him doing business with heating solutions offers huge potential. “It is an enormous market – but until recently there was little innovation, and it worked completely off-line,” says Pausder, two metres tall he was once a professional basketball player. Now standing in front of guests from abroad visiting Berlin in the framework of the Visitors Programme of the Federal Republic of Germany to find out about the start-up scene in Germany, he talks about his company Thermondo. Founded in 2013, the firm intends to do nothing less than to revolutionise the German heating market.
Thermondo has developed an algorithm for making customers a suitable proposal for their new heating system. Beforehand, potential customers enter information about their house and its occupants on the website. If after a call from a company specialist they are still interested, Thermondo sends round its own tradesman. In the Berlin headquarters alone the company now has some 100 employees of whom 25 are developers constantly refining the algorithm and the digital processing of business transactions. According to Pausder, earnings are in the double-digit millions.
Conquering new markets
The international visitors – journalists, scientists, and representatives of IT firms, start-up incubators, business associations and chambers of commerce – listen attentively. Though the business model sounds exciting, the experts have a lot of questions. “Could Thermondo also operate internationally?”, asks Daniels Pavļuts. The former Latvian Minister of Economics has founded a start-up association in his home country, and like most of those attending has a relatively narrow definition of the term start-up, namely firms with a really new business idea, that are also scalable, in other words can always conquer new markets. Thermondo founder Pausder smiles. Certainly they were thinking of also offering the heating installation services in other countries, “perhaps initially in France”.
The visitors also have questions about the financing. Pausder talks about the early days, when he and his two co-founders pooled their private savings. The money lasted for nine months, and after that they had investors, who later increased their support. After the successful start other sponsors showed an interest. In 2016, a third financing round amounted to €23 million.
“Support from the outset”
But how do start-ups in Germany manage when they have no savings of their own? “We support firms from the beginning,” the guests had heard in the morning from Investitionsbank Berlin (IBB). “In 2015, we awarded loans totalling €204 million and funding worth €84 million,” says Raphael Kube from IBB. Funding takes a variety of forms: for example, the bank finds mentors for the start-ups, and pays a large part of their fee. In another programme, it subsidises the salary of new employees for a year so that the young company is competitive when recruiting experts. Thirdly, financial support is given for feasibility studies or tests that the start-ups have commissioned research institutes to conduct. The funds for this are largely provided by the EU and the Berlin state government.
“How does that fit in with other funding schemes, such as the EXIST program?”, asks Daniels Pavļuts. EXIST is a support programme within the German government’s High-Tech Strategy. It primarily targets students and academics, who develop their idea for a company while still at university. The programme helps them prepare the start-up and work out a business plan. “Once they are a step further down the road, they perhaps come to us,” says Raphael Kube from IBB.
“Berlin Valley” in sight?
Avraham Weiss, publisher and editor-in-chief of the Israeli technology portal “Telecom News”, is familiar with EXIST. Israel is the programme’s first partner country, start-ups there are also incorporated into the networks and supported. Weiss admits that several years ago he advised the founders among his readers to look to Asia for funding. Investors from China and Japan are currently very active in Israel, he adds. But meanwhile – and in part following conversations he has had during this trip –Weiss sees the situation somewhat differently. “Berlin is an important hub.”
Florian Langenscheidt also believes Berlin is a good environment for start-ups. He comes from the eponymous publishing family, but felt the large company was lacking dynamism and the quick implementation of new ideas. Today, among other things, he supports young company founders, is active in the German Founders Award and publishes a magazine entitled “Berlin Valley”. Admittedly, they were still a long way from the innovative strength of Silicon Valley in Berlin, but what was wrong in pursuing ambitious goals, he says?
To get things moving forward, Langenscheidt relies on exchange between experienced entrepreneurs and young founders, between “champions” and “challengers”, as he calls them. He brings together entrepreneurial talents and people who have successfully managed companies for decades. Langenscheidt says the mentoring programme helps ensure sustainable start-ups. Certainly, daring is not in short supply. “The start-up spirit in Germany is growing.”
More on the Visitors Programme of the Federal Republic of Germany
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