Business confidence in German private equity market is breaking all records

• Confidence in venture capital market set new record in 3rd quarter 2017
• Assessment of exit opportunities clearly above record level
• Later stage: dissatisfaction with entry prices has risen for the sixth consecutive quarter

Sentiment on the German private equity market improved once again in the third quarter 2017. The business climate index of the German Private Equity Barometer increased by 4.9 points to 70.2 balance points, clearly beating its own record of the second quarter 2017. The indicator for the current business situation rose by 1.9 points to 70.5 balance points, while the indicator for business expectations climbed by 8 points to 69.8 balance points.

The trend shows new record high confidence in the early-stage segment of the private equity market. Here the sentiment indicator rose by 12.8 points to 69.1 balance points. Both the current business situation (+9.1 points to 66.7 balance points) and business expectations (+16.5 points to 71.5 balance points) improved greatly.

Confidence in the VC market is being driven by improved assessments of exit opportunities and available support schemes, which reached new heights. The fundraising and innovation climate has also remained very good. Moreover, assessments of the level and quality of deal flow and entry prices have stabilised on their respective levels after slipping in the previous quarter.

The business climate in the later-stage segment remained exceptionally good. The business climate indicator in the third quarter of 2017 was just slightly below its record high of the previous quarter, at 71.1 balance points (-0.4 points). Investors rated their current business situation marginally less favourable than in the second quarter, but their business expectations are somewhat more positive. The indicator for the current business situation dropped by 2.6 points to 73.7 balance points, while the indicator for business expectations has improved by 1.8 points to 68.5 balance points.

The still very good business climate in the later-stage segment is being sustained by nearly the entire market environment. The fundraising climate, the level and quality of deal flow and the exit climate received the highest assessments. Entry prices remain problematic. Investors’ dissatisfaction with the valuations ascertained has risen for the sixth consecutive quarter.

‘The exceptionally good fundraising climate has now reached start-ups as well’, said Dr Jörg Zeuner, Chief Economist of KfW Group. ‘Funding rounds are getting bigger. The latest figures from the German Private Equity and Venture Capital Association illustrate that more than twice as much was invested per start-up in the past two half years than in 2012 and before. The higher funding rounds are necessary to prevent domestic start-ups from falling behind their international competitors from the start. The situation still takes some getting used to for local VC investors, as we can see from their dissatisfaction with entry prices.’

Ulrike Hinrichs, Managing Director of the German Private Equity and Venture Capital Association (BVK), added: ‘What is particularly pleasing is that the very good mood and positive outlook on the future have now arrived in the VC segment as well. All stakeholders made great progress in the past years to move Germany forward in start-up funding. Looking at the generally high valuation level, we must admit that, thanks to Draghi’s special boost, the overall economic conditions, the low interest rate level but also the strong business results are contributing to these company valuations. However, this is not specific to private equity or venture capital if we take a look at German and international stock market indexes, which have been smashing records these days.’

KfW calculates the German Private Equity Barometer exclusively for the Handelsblatt together with the German Private Equity and Venture Capital Association (Bundesverband Deutscher Kapitalbeteiligungsgesellschaften –BVK). An in-depth analysis with data spreadsheet and graphic for the current German Private Equity Barometer can be found at www.kfw.de/gpeb