Berlin has solidified its status as a hotspot for tech startups. But it's more than just the likes of SoundCloud and EyeEm that call the German capital home. The city is becoming a hub for medical tech startups—but what is it about Berlin that is attracting developers and founders in the dHealth space?
The reason? Goderma, a startup that is part of the Berlin boom, says it's the result of a two-faceted need. They knew they needed the U.S. as a market. However, expanding to the U.S., especially in a space as regulation-heavy as tech-based medicine, is a huge leap.
"We started in Germany as a test market, but from the beginning we wanted to build a global company. So getting the regulations right all over the world—being able to move our product worldwide—and now focusing the market to really localize was a challenge we had," says Bolz.
He describes the moment when it became clear that a two-market startup was absolutely necessary. "Our whole team was sitting in front of our Geckoboard in our then still shared office space in Schöneberg. Our U.S. test campaign had just launched two days before and numbers were already beating the German market performance (which had been live for weeks)," says Bolz. "We actually said to each other, ‘Let’s go U.S.A. or go home.’"
However, before the team made its move to address the American market, they had to learn how to build a medical-focused startup and do it globally. In the process, they learned a thing or two.
Bolz says one the first keys was to find investors who were more focused on the vision than on the difficulties of international regulatory wrangling.
"Especially in medicine, there’s a lot of regulations everywhere—regarding diagnosis, regarding treatment. But if you really think about the bigger picture, we want to change how doctors and patients communicate with each other. The most important thing is getting the right investors who share the belief that technology is going to change the way medicine is working," he says.
His advice for how to spot that kind of investor? Listen carefully to the questions they ask. "If an investor starts asking the right questions about why your product, why your vision, why you think it will succeed from a consumer’s perspective and a doctor’s perspective, you understand" that they are the right kind for you, Bolz says.
However, he explains, if they just start asking questions about regulations right off the bat, they’re probably not right. "If they're [of that mind-set] you have somebody at your back who always will occupy your mind. This is something I think is really important for the medical entrepreneurs to understand."
While Bolz doesn’t pick investors who just focus on regulation, he does think the topic plays an important role in hiring. At least part of your team should be made up of people who understand it. "You should have people on your team who understand the regulatory stuff—being aware of how far you can go and what would happen if you would break some boundaries," he says.
"There has to be somebody who understands the day-to-day life of doctors. You need somebody who understands the day-to-day life of patients. And you need somebody to understand the payers. These three stakeholders will define your product," he explains. And whether you will be successful or not.
HIPAA compliance is a giant pain for U.S. dHealth companies. Bolz and his team realized just how tricky it was when they started researching how to build their server stack—without breaking the law or the bank.
"We had been doing research for over a month on how exactly to build our server-side infrastructure stack for compliance. At Amazon Web Services they offer servers which are HIPAA compliant. They are very expensive, more expensive than regular servers because they’re HIPAA compliant. They start at $2,000 a month. But then you have to have someone to set them up for HIPAA compliance on a technical level, on an administrative level, and on a physical level," he says.
"We spent a month researching this. Then we found a company called Catalyze.io. We just found them a couple of months ago when they were in alpha. They pretty much solved that problem completely and they do everything for you. That saved us a lot of money in the monthly fees. And also saved us from from employing two more developers who would have been responsible for only dealing with maintaining and monitoring server infrastructure. They cost even less than AWS hosting."
His other most important tip for helping new med tech entrepreneurs cut corners? Find an angel who is the top expert in your field—one who has played globally and understands the differences between markets.
"We cut a lot of corners around which markets we were going to and which people are we talking to in the U.S. because we found ourselves a business angel who was a CEO in biodermatology," he says.
"He told us to go to the U.S. first because, from a payer structure [perspective] the U.S. is a market where people are willing to pay more than in other markets for health products. Also that the market is more advanced than in other parts of the world," says Bolz. "He told us we should go to Brazil next because it’s very interesting in terms of the vanity about health."
"He also told us a lot about different markets like Russia," Bolz explains. "In Russia for example, products against acne are a supermarket thing. In France, they’re all at the dermatologists and prescription-based. In France, it’s seen as a disease if you have acne so you have to go to a doctor and he treats you, even though from a regulatory perspective it could be sold in the supermarket. But it’s the way the people think. It’s the same with different products."
Even if skincare isn’t your area, it is worth considering: Do you know this much about the cultural expectations and values around your product? How might the nuances you don't know affect your growth? Bolz points out that getting up to speed on the cultural nuances that drive consumer behavior has been really important for his company. And it can happen a lot faster with the help of an expert angel. "The tip here is to think about giving someone a chance to be an angel investor to a good condition in the beginning who knows more about the market than you do," he says.
Bolz also seeks advice from another of his early investors, angel Christophe Maire—a name worth knowing.
In many ways Maire is the quiet force behind the Berlin boom. He is known throughout the startup scene as a man with the golden touch when it comes to picking winners. We talked with him about why companies focused on medical innovation are on the rise (hint: it's a huge whitespace in Europe) and what makes the Berlin innovation so hot right now.
"Medical tourism doesn’t play as big a role in the U.S. as it does here and in the rest of the world," Maire says. "Medical," he explains "is an example like that [of a whitespace in Europe versus the U.S.].
One notable example he gives is MEDIGO, a platform for medical tourists—people that seek treatment at medical clinics abroad. Medical tourism is a $150 billion phenomenon, with sites like MEDIGO acting as a sort of Trip Advisor for medicine. "It’s a good example of the kind of business that emerge from Berlin."
Maire also talked about other hot companies coming out of the city, and why European business models are something to keep an eye on (hint: the good ones migrate to the U.S.).
"The quality of the ventures coming out of Berlin is going to be surprising to some. There are already a few companies that are already in the unicorn league. You have the obvious like ResearchGate or SoundCloud. But you also have the next wave like GetYourGuide for local activities or GoEuro, which is a Kayak for trains and buses. And then you have companies like EyeEm which are doing very well; it’s a photo app but they have cracked the code on monetizing crowdsourced photo stock. I’m quite enthusiastic about the new batch of companies," says Maire.
"It’s interesting to see Europe as an emerging market," Maire says, "but I think in tech at least there are undiscovered and under-discovered ecosystems here. I think you will see the potential for a number of significant businesses to be created here."
When it comes to business models? Germany and Europe’s have it going on.
"A friend of mine invested in a company called Farfetch, which is in the fashion business. Klarna—I think Sequoia invested in them. It's an example of an original, they give people instant credit for buying online. That’s a model that emerged here. They are really good examples of models that are somehow a product of the way things are being done in Europe. And that being taken and adapted to the U.S," Maire says.
As to what makes German Berlin startups interesting, both Maire and Bolz agree that it has a lot to do with global teams. And that Berlin is attracting top talent.
"You find today Berlin has become a magnet for talent across Europe," says Maire.
Bolz goes even further than that. He explains how the low cost of living and creative boom in Berlin is helping to draw and keep top talent, giving startups lots to draw from.
"If you start a startup in Berlin, you are international or global just because of the people who are here. We have a very international team. We have people from Eastern Europe, from San Francisco, from Spain, from Asia. You’re bound to find a developer from Spain because all the talent from Europe is either going to Berlin or London. But mostly here because Berlin is still affordable, and London is not. Now we even have one or maybe two people who have come from San Francisco. They are coming here accepting pretty much a third or a quarter of their salary because living cost here is so low."
Bolz also explains that the confluence of low cost and creative culture might well be one the core reasons for the success of German innovation.
"Here you can get by with small money and try things out," say Bolz. "You can be a little bit more radical about your ideas maybe without having so much experience being a serial entrepreneur. Like in the Silicon Valley if you did things before—maybe two failed, then one was successful, they would start giving you more money. Here you actually can start building something with your money, maybe easier than somewhere else.
"That’s always the reason artists move to cities," Bolz adds. "New York 30 years ago was the same: it was broken down, it was poor, there was a lot of heroin and everything. But it was cheap. And a lot of cool things were happening. So the creative people started to live there. This is something that makes a city more innovative."