Watch Out, Berlin

Could the Ruhr area be Germany’s next startup hot spot?

ruhrgebiet, ruhr valley, german startups
Going up? Source: DPA

As coal mines and steel mills of the Ruhr valley have shut down over the last decades, the once-proud heartland of German industry is struggling to adjust. Per capita GDP here is €1,500 ($1,753) lower than the rest of the state of North Rhine-Westphalia, and experts say its job market will remain in the doldrums for the foreseeable future.

But a ray of light is shining on the sooty brick facade of Germany’s largest urban area. The Ruhr area and NRW at large have promising startup scenes and, while hipsters of Berlin may scoff, some undeniable advantages.

Experts say the Ruhr area could play an important role in Germany’s drive to become a leader in smart manufacturing and the Internet of Things because firms based here are closer to more top companies and universities than their counterparts in Berlin. Of NRW’s 17.6 million inhabitants, more than 5 million live in the densely populated Ruhr area, which includes 15 cities, three of them major: Dortmund, Duisburg and Essen. It’s the largest urban area in Germany and one of the densest population centers in Europe.

“We have a gigantic catchment area here — we can recruit employees from the whole region because of the good infrastructure,” said Daniel Schütt, co-founder of e-learning startup Masterplan in Bochum. “We’re in touch with professors who point talented people out to us. There are many universities and technical colleges — an abundant pool of talent.”

And that talent is cheaper than in Berlin, said Philipp Heltewig, co-founder of Düsseldorf’s Cognigy AI, which designs chatbots for customers including BMW and Henkel. “By now every large company has a digital unit in Berlin — startups there are vying with (blue-chip) DAX companies to recruit programmers,” he said.

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The Ruhr area is reminiscent in spirit and in economic state to the American Rust Belt. Both regions saw steep declines in industry and manufacturing and drops in population in the latter half of the 20th century. Some of these post-industrial cities are bouncing back better than others, but the ground is fertile for entrepreneurship: The costs of living and land are much lower than in major metropoles.

A competitive edge for NRW

Consultancy EY reported startup financing in North Rhine-Westphalia surged to €129 million in the first half of 2018 from €54 million in the same period last year. Experts said that’s a trend, not a fluke. Investor Frank Thelen says he has faith in NRW. With its industrial base, the Ruhr area has a competitive edge over Berlin, he said. “If a startup is involved in biotech or industry, being close to established companies can become very important,” he said. His own venture capital company Freigeist Capital is located in Bonn, close to the Ruhr region.

Christian Lüdtke, founder and managing director of digital consultancy Etventure, said NRW has the biggest economy of all the German states, with 10 DAX companies and ties to industry, and that startups should capitalize on that. Bayer, Covestro, Lufthansa, Deutsche Post DHL, Deutsche Telekom, E.ON, Henkel, RWE, ThyssenKrupp and Vonovia are all headquartered in the state.

Mr. Lüdtke, who hails from Duisburg, is the startup coordinator for the region and wants to kickstart the sector with the new Data Hub Ruhr. Partners including coal-mining company RAG, industrial holding firm Haniel and specialty chemicals group Evonik will provide the hub with data that startups can mine for business potential.

german states startup investments

The region still has a long way to go. It still only ranks in the middle of Germany’s startup charts, and the notorious rivalry among its cities has prevented the emergence of a pan-regional business environment in which startups can thrive. Red tape remains a deterrent. Some of its mayors and bankers still have to learn to think big.

“The banks here aren’t geared to founders and then there are the bureaucratic hurdles, not to mention financing,” said Mr. Heltewig of Cognigy.

Mr. Thelen said NRW’s diversity was a strength as well as a drawback. “The focus is on the individual cities and less on the state,” he said. “As a founder it’s easy to lose an overview — more coordination could help to make NRW better known and more attractive as a startup location.”

Johannes Steger is an editor with Handelsblatt’s companies and markets desk in Düsseldorf. Grace Dobush in Berlin contributed to this report. To contact the author: steger@handelsblatt.com 

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