Maximilian Friedrich


Local VCs in Berlin — A Network Analysis

Over the last years, Berlin has been on the path of becoming Europe’s most active startup-hub. According to the Global Startup Ecosystem Ranking, which rates cities’ startup attractiveness, Berlin moved up from place #15 in 2012 to #9 in 2015. EY places Berlin even in front of London, as Berlin surpassed London in startup funding figures both in 2014 and 2015. With flagship companies like SoundCloud and the various Rocket Internet ventures, Berlin has been standing in international focus for years. Berlin-based Wunderlist was acquired by Microsoft in 2015, food service Delivery Hero is valued at $3.1 billion. In 2016, Berlin’s online bank fintech NUMBER26 raised $40 million from various (half of them being non-German) Investors, including Battery Ventures and Peter Thiel’s Valar Ventures. However, while these exits, billion dollar valuations and large late stage funding rounds are good news, they’re still quite rare.

While Berlin has a dozen of incubators and accelerators and is strong in seed funding, startups often still struggle to raise larger growth stage rounds.

In this article we’ll show that past-seed capital for Berlin-based startups indeed often comes from non-German investors. We’ll compare our figures via Social Network Analysis to the entrepreneurial role model, Silicon Valley. Using the term ‘role model’ doesn’t mean that every startup ecosystem outside of the US should copy everything that the Silicon Valley does or has done. It’s rather important that cities like Berlin, London, Stockholm and others grow organically and develop their own character. But there’s no question that Silicon Valley has produced the majority of the most innovative technology companies we know today and is pretty much unbeatable in terms of its VC funding environment. If we want to talk about Venture Capital in a maturing ecosystem like Berlin, there’s no way past looking at the rich story of the Valley.
After the Network Analysis and comparison there will be a — not even that gloomy — outlook on Berlin’s future, combined with some words on recent developments that play in our painted Berlin-VC picture.


Social Network Theory is an interdisciplinary method to illustrate, describe and analyze large data sets. It looks at connections and flows of information and resources between individual actors within larger groups (a.k.a. networks). Network Theory lets one conclude about developments, trends and behaviors shown by the actors within the network. 
 We’ll look at two networks: The networks of co-investing VCs in Silicon Valley and the respective VC network of Berlin. We’ll analyze the data and networks in terms of quantitative investment figures as well as by comparing the centrality (a statistic measurement we’ll introduce further below) values of each network. R Studio was used to process, analyze and visualize the data.


· Downloadable for free from CrunchBase (admission required)
· Analysis is based on funding data from Silicon Valley-based and Berlin-based
 Startups between 2010–2015
· Only funding of over 500.000$ per investment from VC to startup is 
 included in dataset (we want to look at past-seed funding)
· For reasons of comparability, Silicon Valley startups in the context of this 
 analysis are reduced to startups based in Menlo Park, Palo Alto, Mountain 
 View and Sunny Valley

Silicon Valley’s VC network

(1) Silicon Valley’s VC network (local VCs: red; Other US VCs: blue; International VCs: green), 2010–2015, Data: CrunchBase

Network (1) above shows the network of Venture Capital firms that have invested in startups in Silicon Valley. A VC firm (node) is connected to another VC firm (another node) if they both are co-investors in a startup. Just visually, it becomes clear how important local, Silicon Valley based VCs (red nodes) are for the network. They occupy most of the central space in the network, implicating that they are from particular relevance for startup funding in Silicon Valley (the actor with the most ties to another actor is located in the middle of a network). They seem to make the most startup investments, and are by that connected to many other VCs. The blue nodes represent outside-Silicon Valley US-based Venture firms. These are distributed pretty consistent over the network, but aren’t able to penetrate into the network’s center. International, outside VC investors (green) are overall pretty spare relative to US investors. They are mostly located at the outskirts at the network, implying a passive co-investor role in a minor number of VC-syndicates. They’re especially present in the sickle-like formation of VCs and small networks of VCs in the top right. In short: Local VCs seem to dominate the SV startup funding market, other US investors play a significant role, international investors don’t seem to be that important.

Berlin’s VC Network

(2) Berlin’s VC Network (Local VCs: red; Other German VCs: blue; International VCs: green), 2010–2015, Data: CrunchBase

By just visually comparing network (1) and (2) it becomes pretty clear that local (red) VCs play a much more important role in the Silicon Valley funding network than in Berlin’s. In Berlin, the local, and even the other German VCs, are outnumbered by international Venture Capital investors (green nodes) investing in Berlin’s startups. Altough one non-Berlin German VC is placed pretty much in the center of the network (it’s HoltzBrinck Ventures based in Munich), the international investors play the dominating role in network. They even form co-investment syndicates of their own. They can be found at pretty much every region of the network, close to the center as well at the outskirts. Local Berlin VCs (red) make up only 19% of all VCs that have invested $500.000+ in Berlin startups between 2010 and 2015. They occupy mostly regions around the center, but not directly in the center of the network. Judging by their positions and the rather small number of ties by which they are connected to other VCs (by which they have invested in startups), they are much less able to fund startups in Berlin in their later stages than many international investors and non-Berlin German VCs such as HoltzBrinck Ventures or High-Tech Gründerfonds (located in center-right bottom).

Berlin vs Silicon Valley: VC investment figures

(3) Share of amount of VCs investing ($500k or more) in Silicon Valley startups (2010–2015)

Out of the 949 VCs that have invested in Silicon Valley-based Startups between 2010–2015 in investments of over $500k, 346 (or 36.5%) were local VCs.

(3) Share of funding capital (in investments of $500k or more) received by Silicon Valley startups (2010–2015)

These 36.5% were responsible for over half of the total invested capital ($41 billion out of $71 billion, or 57.5% percent)

(4) Top 10 VCs investing ($500k or more) in Silicon Valley startups by number of co-investors (2010–2015)

The dominance of local, Silicon Valley based VCs gets also clear by looking at the list of VCs firms with the top 10 numbers of co-investors (and therefore implying a high pace of investment activity). The local Silicon Valley based VCs occupy 9 posititions in the top 10 VCs by count of co-investors. Index Ventures technically was founded in Geneva and is therefore seen here as an international VC.

The figures from (3), (4) and (5) all point to the assumption we formulated above while looking at the Silicon Valley VC network: Local, Silicon Valley based VCs play the predominant role in Silicon Valley’s startup funding. Local VCs invested in startups at the most frequent rate and provided over half of the funding capital (for investments over $500.000) that startups received between 2010–2015. VCs from other parts of the US also play an important role in Silicon Valley’s network as they made up 40% of the VCs that have invested in startups and provided 29% of the capital that flowed into startups. International investors on the contrary are only a minor influence in the network.

(6) Share of amount of VCs investing ($500k or more) in Berlin based startups (2010–2015)

Out of the 106 VCs that have invested in Berlin-based startups between 2010–2015 amounts of $500.000 and higher, only 21 (19,8%) were local VCs from Berlin.

(7) Share of funding capital (in investments of $500k or more)received by Berlin based startups (2010–2015)

These 19,8% contributed 22% of the total capital that Berlin based startups received in $500.000+ investments between 2010–2015.

(8) Top 10 VCs investing ($500k or more) in Berlin based startups by number of co-investors (2010–2015)

The ranking of co-investing VCs also paints a clear picture: The presence of Berlin’s local VCs in the Berlin-VC network (a.k.a. ecosystem) is far behind the leading German VCs investing in Berlin-based startups (HV and HTGF), which both are based outside of Berlin. Local VCs also get outnumbered by international VCs and only fill three of the ten top spots in terms of numbers of co-investors.

Like predicted from the network and judging from the funding data, Berlin’s local VCs are far from being as important in Berlin’s startup funding system as their local counterparts in the Silicon Valley are. While international VCs play just a minor role for startup funding in the Valley, non-German outside investors are essential for Berlins past-seed startup funding. International investors make up more than half active investing VCs investing $500.000+ and equip Berlin’s startups with over 60% of the total invested capital ($1.8 billion of total invested $3.1 billion).

Network Centrality Data

(9) Centrality values for the Berlin VC network and the Silicon Valley VC network

From a Network Analysis perspective, we now look at the centrality data of our two networks. Degree, Betweenness and Closeness are the most important and most used types of Network centralities:

  • Degree-Centrality quantifies the number of connections (ties) between actors (nodes). A high degree-value traditionally indicates the certain actor being of high relevance within the network. When visualizing the network, actors with high degree-values also occupy the center of the network, as they are connected to large number of other actors surrounding them.
  • Betweenness-Centrality looks at the flow of information within a network. The betweenness-value of one certain node is the number of the shortest paths between all other actors in the network that pass through that certain node. By that, there are a lot of information or resources going through a node with a high betweeneess-value. Through the access to large sums of by-flowing information, nodes with high betweeneess-values gain higher positions of power within the network.
  • The value of Closeness-Centrality is calculated by the position a certain node has in the network based on the number of ties through which he’s connected to all other nodes in the network. A high closeness-value indicates a node’s ability to interact with other nodes quickly through a low number of ties.

Silicon Valley
Looking at the three types of centrality data of the Silicon Valley VC network, the narrative of local VCs being the most important ones for Silicon Valley based startups raising $500k+ investments continues. The local Silicon Valley VCs have on average twice as much in local startups than other US VCs and over three times as much than international VCs (mean degree). Through their mostly central positions, they also achieve the highest betweeness score as well as the highest closeness score. Local VCs are by far the dominant capital source for startups in Silicon Valley.

Berlin’s centrality figures are a bit more tricky. In terms of degree-centrality, local VCs are placed second behind the international VCs, infront of other German VCs. Despite there being more non-German VCs in the network than local VCs. Why is that? If we take a look back a the network (2), we can see the local Berlin VCs positioning themself mainly around the middle regions of the network. Not particularly in the center, but also not at the furthest verges of the network. Somewhere in between. This gives them an advantage over other German VCs. Because besides HoltzBrinck and High-Tech Gründerfonds, which form the two centers of the network, the other non-Berlin German VCs reside mostly at the outskirts. Meaning that they didn’t invest as regularly as local Berlin VCs and therefore don’t connect as often to other VCs as co-investors.

HoltzBrinck and High-Tech Gründerfonds are responsible for the high (95,14) betweenness score of non-Berlin based German VCs. A very large number of shortest pathes cross trough them because of their central positions. Without HoltzBrinck and High-Tech Gründerfonds, local VCs would have the betweenness top spot.

But what’s up with the international investors? In our previous analysis it seemed to be clear that they are the most important players in Berlin’s funding ecosystem. By pure numbers and invested capital, they outmatched the local Berlin VCs. But in terms of the centrality data, they are on a nearly even level with local VCs. And they get beaten by Berlin’s local VCs betweenness and closeness centrality figures. Why is that?

The answer again lies in the strategic positioning of the majority of local Berlin based VCs: They are mostly to be found in the middle regions of the network, not purley in center but also not much on the outskirts. On average, a local Berlin VC invests and co-invests more frequently Berlin’s startups than international investors. These often ‘fly’ in for just one or two investments, but aren’t as intertwined with Berlin’s ecosystem as local VCs. While international VCs clearly outnumber local VCs and while over half of the invested capital comes from international VCs, on average these international VCs invest less frequently than local VCs. They occupy positions farer away from the center. They receive less information than local VCs and interact less often with other VCs. In fact if you look at the network (2) you’ll see that they often are the last nodes at the very outskirt of the network.
In other words that means…

that Berlin’s active local VCs are integrated in the network way better than international VCs, even if those invest more capital in Berlin’s startups.
Berlin’s local VCs already share some of the dominating characteristics of their Silicon Valley local VC counterparts. They beat international VCs and most non-Berlin based German VCs in terms of betweenness and closeness centrality.
In VC reality the high betweenness and closeness figures imply that Berlin’s local VC already receive more crucial information and resources (e.g. interesting deals, knowledge about talent, upcoming technological trends) than any other VCs in the network. Plus they are able to reach other VCs in the network (to share information, network, look for talent, find an investment partner) faster than international or German non-Berlin VCs can.
Keeping in mind that Berlin’s local VCs were only responsible for 22% of the funding, these qualities are very positive signals.
That being said, only two things hold Berlin’s local VCs from becoming as predominant in Berlin’s ecosystem as Silicon Valley’s local VCs in theirs: A lack of capital and a mere lack of quantity.

A bright look ahead

These two issues (a. not enough local VCs and b. a lack of capital) will only be resolved from within Berlin’s ecosystem. On an organic way, like demonstrated by the Valley.

A simple but crucial factor differentiates Silicon Valley and Berlin: Time. Silicon Valley’s tech industry is at least 60 years old. Berlin’s modern economical story only begins after 1989. When in the nineties Silicon Valley was in the midst of an internet-hype with million dollar startup valuations, one half of Berlin was freshly freed from a socialist government and just started to adapt basic principles of a capitalistic market economy. That’s quite the difference.

The core driver behind Silicon Valley’s ability to innovate and prosper is the fact that it’s a huge intertwined network of creative people, relevant institutions and resources like knowledge and capital that evolved all together over the course of the second half of the 20th century.

Local Venture Capital first was a by-product and later became one of the most essential forces behind the Valley’s success. Venture capital firms were mostly founded by prosperous entrepreneurs. Then there were a lot of spin-off VCs. People also went back and forth between academia, entrepreneurship and investing. Business angels stayed in the network and supported local founders with advice and capital.

On the contrary, Berlin’s ecosystem is young. It is maturing and, for the last years, maybe has been in its pubertiy. Besides numerous internet companies around the dot-com time, Rocket Internet was the first to really leave a huge mark on the city. You don’t have to paint them as saints, but the Samwer brothers and their companions from Zalando and other successful ventures definitely brought the ecosystem on a new global level. At the start of 2016 they closed the Rocket Internet Capital Partners Fund at over $420 million. The Zalando founders now are also very active business angels in Germany.

That is exactly what Berlin needs at this point: Organic ecosystem growth from within.

And here’s the good news: Berlin’s funding ecosystem is moving in exactly that direction. We saw a number of Berlin-based VCs being started by ex-entrepreneurs in the last two years. Like Cherry Ventures, Cavalry Ventures, The Angel Club and many others.

There has also been a wave of spin-off VCs where VC-partners have started their own firm. These include for example Join Capital, BlueYard Capital, Kompass Ventures and Fly Ventures.

After focusing on E-commerce for the last 5–10 years, Berlin is really starting to form its own, diverse, organic ecosystem character. The list of newly founded VCs above are perfect proof for that. Like over the course of the development of the Silicon Valley, Berlin’s successful ex-entrepreneurs are putting their money in funds and are giving back to the network. That’s also a positive sign for Germany’s risk-avers institutional LPs, who can trust someone with an entrepreneurial trackrecord.

Also there is a new generation of VCs coming up, who leave their original VC firms, raise capital and start investing on their own. With personal style and profile. Ciarán O’Leary’s BlueYard Capital, which focuses on blockchain and network technology that decentralizes and democratizes data, is a perfect and interesting example of this. As described above, there are many other cases of spin-off VCs, like we saw in the first decades of the Silicon Valley.
There are also examples for VCs starting a company themselves, like Stephan von Perger with Zenjob.

So while large parts of the network analysis above painted a rather dark picture of the state of Berlin’s local VCs, the city’s funding future looks bright. Even if outside investors made up most of the capital invested in later-stage rounds in Berlin’s startups from 2010–2015, the local VCs beat (nearly) each other group in terms of integrated-ness in the network. That’s a solid position the newly established investors can flourish from.

Becoming a ‘German Silicon Valley’ — like many German newspapers like to title — isn’t about believing in the illusion that Berlin is able to mass-producing tech giants like Apple just overnight. It is about entrepreneurial evolution. It’s about building a diverse network that also shares a collective identity. Through organic, internal growth. Company by company, VC by VC, year by year. That probably doesn’t make for an edgy Berlin-startup-headline in your typical German newspaper. But it’s exactly the path Berlin is on. And that’s exciting.

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