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Press Release from 2021-05-21 / Group

VC market off to a good start in 2021 as sentiment continues to improve

  • Assessments of sentiment indicators for fundraising, appetite for new investment and exits have improved greatly
  • Deal flow quality and quantity marginally below all-time highs
  • Investors again significantly more dissatisfied with entry valuations

The positive development of venture capital sentiment has continued into the new year. In the first quarter of 2021 the sentiment indicator of the early-stage segment of the private equity market rose by 11.5 points to 27.8 balance points. Assessments of the current business situation improved much more strongly than expectations. The indicator for the current business situation rose by 16.4 points to 31.9 balance points, while the indicator for business expectations increased by 6.5 points to 23.7 balance points. With this rise the indicator moved very close to its previous all-time high of 34.5 balance points, which it reached in the third quarter of 2018.

Only a year after the coronavirus-induced downturn in sentiment, nearly all sentiment indicators for the market environment have turned positive – many approaching their all-time highs. Assessments of fundraising and exit opportunities improved particularly strongly in the first quarter of 2021. The fundraising climate has probably benefited from progress in the implementation of the future fund. A further reason that is likely to have influenced the strong improvement in assessments of exit opportunities is the arrival of the US SPAC boom in Europe. Special Purpose Acquisition Companies (“SPACs”) are shell companies that initially raise money in an IPO which they subsequently invest in a previously unspecified company. For the company to be taken over, acquisition through a SPAC is an alternative to a conventional IPO. Whether SPACs will be available as an exit variant in the long term remains to be seen, however.

The strong development in fundraising and exits also appears to have increased appetite for new investments. Their assessments have climbed to a new high – no doubt also because of the quality and strength of VC deal flow, the assessments of which have also risen to near all-time high levels. The high uncertainty about how severely the crisis was affecting start-ups weighed on entry valuations at the beginning of the pandemic. As many digital start-ups are likely to be among the winners of the crisis, however, investors gave the recently rising entry valuations increasingly lower scores again.

“The upturn in VC market sentiment which we saw at the end of the year 2020 continued in the first quarter of 2021”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “VC investors’ very good assessments of deal flow is particularly pleasing. After all, promising deal flow lays the foundation for promising VC investments. The indicators for deal flow quality and quantity are marginally below their all-time highs. This might reflect the fact that the coronavirus crisis accelerated demand for many start-ups because it has brought to light the needs for their innovative solutions. This opens up investment opportunities.”

“The rapid recovery of general market sentiment and of the most important indicators to historic all-time highs shows that venture capitalists and start-ups have finally left the coronavirus pandemic behind and are looking to the future”, said Ulrike Hinrichs, Managing Director of the German Private Equity and Venture Capital Association (BVK). “What is encouraging are the more optimistic assessments of fundraising conditions and the exit environment, which has long been eyed very critically. Rising valuations promise attractive sales prices. The stock exchange is again being seen as a realistic exit option thanks to a growing IPO pipeline and the SPAC debate. It is not surprising that venture capitalists are significantly more critical of the tax environment. With the Fund Location Act, the German Federal Government fell short of expectations and missed a great opportunity to introduce internationally competitive regulations both in the field of employee participation in start-ups and in the taxation of turnover of fund management services.”

KfW calculates the German Venture Capital Barometer exclusively for the Handelsblatt business daily together with the German Private Equity and Venture Capital Association (Bundesverband Deutscher Kapitalbeteiligungsgesellschaften – BVK). Detailed analyses with data tables and graphs illustrating the development of the business climate in the venture capital and later-stage segments can be retrieved at
www.kfw.de/gpeb (available in German only).


Portrait Wolfram Schweickhardt