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BERLIN (Reuters Life!) - Drawn by creative talent and a young, international workforce, entrepreneurs are increasingly choosing Berlin as a launching pad for internet start-ups, companies and industry observers say.
While none of Germany's top 30 companies are based in the city, its low costs and highly qualified labor pool have laid the groundwork for what many hope could develop into Europe's technology hub.
"Berlin is currently the hottest city in the European startup scene," Matthias Schrader, chief executive of SinnerSchrader one of Europe's biggest digital media agencies and chairman of the annual "Next" conference, told Reuters.
"Berlin has the perfect mix of creative potential, technical talent, low living costs and cosmopolitan flair -- a combination that exists nowhere else," he added.
A government report in June showed that Berlin is Germany's top location for innovative start-ups in the information and communication technology (ICT) field, beating the much wealthier cities Munich, Stuttgart and Hamburg.
One such company, Soundcloud, an online music sharing platform with millions of users including musicians Bjork, Foo Fighters and 50 Cent -- was founded by two Swedes drawn to the German capital.
Co-founder Alexander Ljung said the company, which opened in 2007, has seen its user numbers grow to 5 million users, and has no problems attracting qualified staff.
Mike Butcher, editor of trade publication TechCrunch Europe, said this is not surprising as Berlin is affordable and has a multilingual workforce that speaks English -- an extra incentive for investors.
"Start-ups which are getting visibility tend to have more of an international footprint and therefore attract the interest of the Silicon Valley venture capital community," he added.
U.S. actor Ashton Kutcher and pop singer Madonna's manager Guy Oseary turned heads in the tech industry when they invested an undisclosed amount in Soundcloud this summer.
Other venture capitalists known for involvement include Web heavyweights like Benchmark Capital, Index Ventures and Accel who have invested in Research Gate, a German idea exchange platform for scientists which also chose Berlin.
"Benchmark actually told us to go either to Berlin or San Francisco," Ijad Madisch, ResearchGates' founder who has just recently celebrated hitting 1 million users. Facing heavyweight competition in San Francisco, he said the choice was easy.
"Berlin has got lots of developers and overall costs are lower here," he said. "Thanks to the city's international crowd, we can find suitable people who speak multiple languages."
Along with the other international startups like Soundcloud and Wooga, Europe's largest developer of online social games, Madisch believes that Berlin has reached a critical mass that will help draw in more companies, German and international.
Additional reporting by Joanna Partridge, editing by Paul Casciato