BERLIN (AP) — Berlin's budding Internet entrepreneurs received the closest thing to an industry endorsement Tuesday, with a €1 million ($1.3 million) investment from Google Inc. for a new 'hub' where startups can work, play and meet investors.
While the investment is unlikely to provide a material boost to Berlin's tech sector, it's a sign that a city which has so far been a secret tip for geeks hoping to develop the next big web hit is now on the radar of the industry's biggest players.
The German capital has for years been attracting a growing number of creative, young entrepreneurs thanks to its cheap rents and hip party scene. But the city has lagged behind rivals such as San Francisco and London, home to photo-sharing app Instagram and music streaming service Last.fm, when it comes to big-name launches.
Startups based in Berlin sold for a total €500 million in 2010 and 2011, compared with €8 billion for London during the same period.
"We're just at the beginning," said Simon Schaefer of investment firm JMES, which is partnering with Google to provide the new facilities located close to where the Berlin Wall used to divide the city during the Cold War.
One of those who will be taking up residence there is Benedikt Bingler, who is developing a wish list website called 'toast.'
The 29-year-old from the southern German city of Karlsruhe said one of the reasons he and his five collaborators picked Berlin was the low cost of living — a key factor for young entrepreneurs still waiting to break even. Berlin is about a 25 percent cheaper than other major European capitals, thanks mainly to lower rent prices.
For Dario Galbiati, another prospective tenant, moving to Berlin from his native Italy was an obvious choice to work on a new shopping portal called 'W views.'
"People in Berlin know the Internet scene but it's also a cool city so you can attract talent. This gives you all you need for a successful startup," he said.
Doing the same thing back home would have been unthinkable, said the 23-year-old. "Italy is so far behind, it's insane."
Still, Germany is by no means at the forefront of online entrepreneurship. The country's Internet economy generated a turnover of just over €75 billion last year, according to the Mannheim-based Center for European Economic Research. This amounts to about 2.9 percent of Germany's GDP — far behind the 4.7 percent share that the Internet contributed to the United States economy in 2010, according to Boston Consulting Group.