How Munich has carved out a niche as Germany’s alternative startup hub.

When the world speaks of Munich, it’s usually with reference to Oktoberfest, the superstar soccer team FC Bayern Munich, or sleek BMW cars. Residents of the wealthy Bavarian capital, meanwhile, often wax lyrical about its amazing quality of life and stunning natural surroundings.

Far away from the gritty cool of Berlin, Germany’s second startup hub is thriving. Munich’s newest companies have disrupted everything from travel (FlixBus) and food delivery (Foodora) to interior design (Westwing). The city now even hosts a unicorn – industry jargon for a startup valued at 882 million euros or more. Last June, Celonis, a local data-mining startup, secured 44 million euros in new venture capital and got that coveted status.

Andreas Bruckschlögl is a well-known local entrepreneur and a very big fan of the city. "Munich is one of the most liveable and beautiful cities in Europe," the native Bavarian says. He is quick to provide statistics on infrastructure, weather, and quality of life to support that claim.

Bruckschlögl has a vested interest, too. He is part of the brains behind Bits & Pretzels, a Munich-based founders conference that’s grown into Europe’s largest in the five years since it was launched. The conference has become a driving force in the Bavarian tech ecosystem (and by way of association, Bruckschlögl has, too). Bits & Pretzels takes place for three days right in the middle of Oktoberfest each year. In 2018, it brought together about five thousand founders, investors, and corporations.

According to EY’s Startup Barometer, annual investment volume in Bavaria doubled to more than 800 million euros in 2018. The state still trails Berlin in terms of investment in startups, according to the consulting group’s report. But Munich’s combination of top research institutes, influential blue-chip companies, and high density of venture-capital investors offers a "promising dynamic," according to the EY report. Take the healthcare sector. Bavaria outstripped Berlin when it came to investment volume in healthcare startups in 2018. Groups across the state attracted 131 million euros in investment, compared with the 85 million euros that flowed into health startups in the city-state of Berlin that same year, according to EY.

Peter Lennartz, head of the EY Start-up-Initiative, says it’s important to consider individual companies’ fields of business before trying to compare the volume of venture capital in the two hubs. Berlin is a leading location for e-commerce and financial technology, Lennartz says. A company like Zalando, for example, needs to  build up logistics from scratch, "and that costs a crazy amount of money," he explains. Many of Munich’s newest startups, by contrast, operate in the business-to-business sector. They might have a strong focus on deep data, artificial intelligence, or mobility.

Vivien Dollinger is one deep-tech founder who chose to set up shop in the heart of Munich. Back in 2015, she launched ObjectBox, a developer of on-device databases for mobile devices. The group recently raised 1.8 million euros from investors in a funding round.

This article was excerpted from ZEIT Germany 1/2019. Click here to read the entire issue in PDF format for free.

Dollinger, who has been based in Munich for ten years, has experienced the tech scenes in both London and Berlin first-hand as well. Sure, these two cities may have more community events and active venture capitalists, she says. But Munich is geographically at an advantage. Large German corporations as well as smaller but equally influential Mittelstand companies dot Bavaria’s landscape and carry with them a unique economic clout. And this translates into "more money for projects," she says.

Indeed, Munich boasts seven of Germany’s largest publicly traded DAX companies out of a total of thirty, and that’s a crazy amount, EY’s Lennartz agrees. "That’s good," he says, because a startup company "can work well with them."

These blue-chip giants create win-win relationships with their fledgling counterparts in the local tech ecosystem. Siemens, for one, founded a corporate venture-capital fund called next47 back in 2016. The previous year, BMW launched a subsidiary called Startup Garage. It buys into innovative products early in their development, with an eye to integrating the innovation in its cars.

Munich is also home to IBM’s Watson IoT headquarters; Allianz X, an incubator founded by the insurer; and a growing number of coworking spaces.