Young Israeli Entrepreneurs Are Flocking to Germany

Rabbi Shmuel Segal of the Jewish education centre looks up at the Chanukkah lights in front of Brandenburg Gate in Berlin, Dec. 20, 2011. Odd Andersen/AFP/Getty

When Elad Leshem graduated with an MBA two years ago, he immediately started a company. So far, so conventional. But Leshem, an Israeli, launched his business career in Berlin.

"In Berlin there are a lot of resources available, including grants, subsidies and incubators, and the city is still relatively cheap," explains Tel Aviv-born Leshem. "That allows you to kick-start your business without a lot of capital. That's not possible in Silicon Valley. And the city is groovy, with a lot of young people."

Leshem, 33, is not the only young Israeli who has discovered the joys of Berlin. "When I moved here to go to university, people at home said, 'Why are you moving to Germany? I'm never going to visit you,'" recalls Asaf Moses, 31, a fashion technology entrepreneur from Ra'anana outside Tel Aviv. "But since then the number of Israelis has increased at an incredible rate. Today you can easily build a company here with just highly qualified Israelis. Berlin has become the international symbol of cool instead of a symbol of the Holocaust."

It's no surprise that Israel, with its approximately 4,800 startups at any given time, is seeing some of its entrepreneurs try their luck elsewhere. As far as Leshem, Moses and their fellow entrepreneurs are concerned, choosing Berlin is simply a matter of business opportunities and the cost of living, just as it is for all budding entrepreneurs. Leading venture capital firms such as Sequoia Capital and Kleiner Perkins have recently invested in Berlin startups, and SoundCloud, the popular music-sharing service founded by two Swedes, is also based here.

Though there are no reports quantifying the number of Israeli-run startups, incubators and businesses, schools all report a growing Israeli presence in the German capital. Israeli commercial attaché Hemdat Sagi alone receives around 150 inquiries from Israeli entrepreneurs and companies each year.

"Israeli companies understand the potential of operating in a market of 82 million consumers, and it's only natural for them to try and penetrate this market, which is also not so far from Israel," Sagi explains. "Israeli companies, not just startups, offer innovative solutions in various sectors, which are synergetic with the abilities of the German industry."

Yakov Hadas-Handelsman, Israel's ambassador to Berlin, notes it takes less time to fly from Berlin to Tel Aviv than from New York to San Francisco.

Among the Berlin-based creations are InFarm, which allows people to grow micro-vegetables indoors; Capsuling Me, which helps organizations target their marketing based on their users' online profiles; and Screemo, which allows concert audiences to choose a band's next song by voting with their mobile devices and seeing the result appear in real time on large screens.

Berlin accelerators, including media conglomerate Axel Springer's Plug and Play, and incubators now feature Israeli startups. "The [entrepreneurs] basically just have to step off the plane and everything is set up for them," says Axel Menneking, international director at Deutsche Telekom's incubator, hub:raum, which already has five Israeli firms on its books and is aiming for more. "Large German companies have started approaching budding Israeli entrepreneurs as well," he adds. "It's in their interest to support this trend."

Berlin's grants and subsidies to entrepreneurs form part of a deliberate strategy to position the city as an attractive business alternative to other European capitals and indeed to Germany's own business capital, Frankfurt. The effort makes sense for this relatively poor metropolis with a per capita gross domestic product of $40,000, compared with London's $66,000, as startups require relatively little investment and Berlin already boasts a young workforce. Israel, for its part, keeps producing talented would-be entrepreneurs.

"The Israelis learn very useful skills during their conscription in the armed forces, particularly those who serve in intelligence units, where they're constantly exposed to problems that they know nothing about, and yet they have to come up with solutions," observes Menneking. "That's exactly what you have to do in a startup."

The German-Israeli Chamber of Commerce has spotted the trend, recently launching an initiative called BETATEC (Berlin Tel Aviv Technology and Entrepreneurship Committee). The program will help Israelis start companies in Berlin but also send German entrepreneurs to Israeli incubators, where they'll receive mentoring. "The idea is that this will help the German economy, but indirectly it will help the Israeli economy as well," says Mickey Steiner, BETATEC's director and the former Israeli CEO of German software giant SAP. To further increase Berlin's attractiveness, BETATEC will also help Israeli firms expand more easily in Germany and beyond.

Still, Berlin isn't an entirely obvious alternative to Silicon Valley or London for ambitious young entrepreneurs. "If an Israeli does business with a Brit or American, of course it's good, but it's just business," observes Hadas-Handelsman. "This is much more. The destinies of Israelis and Germans are connected because of our past. That makes the startup trend important in itself, and it goes both ways, with Germans going to Israel."

Hadas-Handelsman hopes it will help increase trade between the two countries, one of which is the world's fifth largest economy. He recognizes the unconventional nature of the trend, noting that "some people in Israel don't view it favorably." But, he adds, "we have nothing against it; on the contrary, it's a win-win for Germany and Israel."

Entrepreneurs are not the only Israelis moving to Berlin: Artists and scientists are also putting down roots. The city now features Israeli restaurants and even a German-language Israeli online magazine. Daniel Barenboim, the pianist and conductor who was born in Argentina but who holds Israeli citizenship, is music director of the Berlin State Opera. According to one estimate, 40,000 Israelis live in the German capital today; in 1925, before the rise of Nazism, there were 160,000.

According to Steiner, Israelis' risk-taking nature contributes to their startup success. It is a quality that gives Israelis a competitive advantage in Berlin, says Leshem, who recently founded a second company following the demise of his first one. "Israelis are pushy and loud, while Germans are more conformist and quiet," he elaborates. "Israelis have a 'Let's do it' attitude and less fear of failure, like you see in the U.S. When an Israeli innovates, his attitude is 'Let's build a fucking great company that we can sell for 1 billion euros.' Germans are more thorough and stable. But in a startup it's more about fast and dirty than slow and clean."

There's just one thing Leshem doesn't like about doing business in Berlin: the need to speak German. "It's really easy to start a company here, and it just costs you 200 to 300 euros [$270 to $400], but to get all those wonderful subsidies you have to fill out a lot of forms in German," he says. "German authorities don't care whether you're Bill Gates. They want you to fill out the forms in German."

Other entrepreneurs point out that the city's incubators aren't (yet) at the same level as, for example, San Francisco-based Y Combinator, which spawned Airbnb.

Moses, who speaks fluent German, calls German-language skills a prerequisite for startup success in Berlin. He knows what he's talking about, having grown his fashion technology company, FitAnalytics, which he co-founded with a German friend four years ago, to 15 employees, who work in the trendy neighborhood of Kreuzberg.

But Israeli engineers with no immediate plans to start their own companies need not bother learning the language. "There's such a shortage of engineers here that you'll get a job the day after you land," Moses says. According to VDI, the Association of German Engineers, each unemployed software engineer in Germany has 3.7 jobs to choose from. On top of that are Berlin's fast-rising costs, especially rents, which increased by 2.6 percent last year. Still, the average rent is less than $8 per square meter, a bargain compared with the current range of $60 to $120 per square meter in central London.

Despite the language barriers, Leshem, a German citizen thanks to his German-born maternal grandparents, who fled to Palestine before the outbreak of World War II, has no plans to leave Berlin. He says he feels he's taking revenge on the hateful political creed that was responsible for the death of so many, including several relatives. "Today's multicultural Berlin is history's joke on Hitler," he says. "Berlin of 2014 is the happy opposite of the dark Berlin of 1934."