London versus Berlin – Which hub wins which vertical?

London versus Berlin – Which hub wins which vertical?

Written by Olga Usachovaon

“London preferred over Berlin by start-up founders on 4 verticals out of 7”

When considering European tech sector, London is usually the first city that comes to mind. Despite the still unfolding Brexit negotiations and the uncertainties related to it, the City still leads the Old continent rankings in terms of tech venture capital investments, with a whopping £4.07bn invested since the referendum to leave the EU June 2016 to Jan 2018.

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This amount is even more impressive when compared to the other top contestants: Paris (£1.14bn), Berlin (£814m) and Stockholm (£542m) did not collect together the same amount.

London’s booming tech sector has been fuelled mainly by Fin-tech (£1.7bn) and AI (£400m) verticals, with major deals as TransferWise (£211m) in November 2017 (London Partners).

Judging from the capital flow only, one must think that other cities with less impressive figures are destined to be perceived worse by the tech community and attract less talent. But what do start-up founders really think? Is London really perceived way better than its competitors? Those are the questions we will try to answer in the next paragraphs.

A Close competitor

Founders perception should be a strong indicator to take into account when evaluating the overall attractiveness of a city’s tech sector, as it might give a glimpse on the future shape of that city start-up environment.

We asked more than 500 founders to evaluate the top 3 cities to pick would they start their business venture all over again, and while London took (unsurprisingly) the first place with 40.6% of founders placing it as 1st, 2nd or 3rd choice, Berlin came to a very close second place with 39.9%. A distant third place is occupied by Barcelona (20.3%) and Paris (20.2%).

This result is also supported by the different reasons affecting the perception of start-up funders over the attractiveness of a specific destination. Our 2018 survey shows that while 76% of them rate as an important factor Funding availability, Industry connections (77.8%) and Talent availability (86.4%) have an even higher relevance.

Given the interesting results, it is worth to dive into the two main winners in entrepreneur’s hearts: London and Berlin.

Not so similar

With an overall gap of less then 1% in favour of London, it may seem like the two cities are on par in terms of popularity among start-up founders. But when comparing the two cities by industry verticals we found some interesting results:

The difference in popularity between the two cities rose close to 10% in most sectors, seeing one city leading on one vertical only to be distanced in another. While the results may seem sometimes intuitive (think of the role of the financial services industry for London) they are sometimes less expected (Big Data for Berlin).

London leads the ranking in Fin-Tech totalling 42% of preferences against 31% of Berlin, a difference of 11%. It leads also in Health & Bio-Tech (by 14%), in Ecommerce (11%) and SaaS & Enterprise software (10%).

Berlin leads in Tech/Hardware & IoT/VR totalling 48% of preferences against 36% of London, a difference of 12% that might be explained by the contribution of the German larger automotive sector. Berlin also leads in Big Data (by 9%), and in Consumer and Platforms (6%).

While the source of founder’s perception on a particular vertical might be difficult to explain or not correlated to the effective industry size, it is important to take into account this metric as it might effect the future success of a city tech environment.

Conclusion

To conclude, while overall a city might be preponderant in terms of general attractiveness, our data suggest that differences might persist when comparing two cities by verticals. Even European hubs that are not ranking on the top should take the opportunity to specialize in determined sectors to attract talent. Have a peak on how your city compares to the rest of Europe by downloading our full report here.

By Luciano Recupero, financial consultant with a multinational corporate in Budapest and our partnership lead.

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