• Business situation assessments rose to all-time high, expectations remained just under previous quarter’s record high
• Fundraising environment virtually unchanged on highest level for third consecutive quarter
• Strength and quality of deal flow also received top scores

In the final quarter of 2021 sentiment in the German venture capital market remained on the previous quarter’s historic high of 41.6 balance points. Over the year as a whole, the VC business environment in Germany achieved by far the highest level last year since the barometer was launched. This was primarily the result of assessments of the current business situation, which improved all throughout the year. At the end of the year the corresponding indicator rose by 4.5 points to 45.4 balance points, while the indicator for business expectations fell moderately by -4.5 points to 37.9 balance points.

Among the individual sentiment components, quality and level of deal flow both rose to all-time highs. Demand for venture capital from promising start-ups was thus higher in 2021 than ever before. For the year as a whole, the fundraising environment was also better than it has ever been, maintaining the highest ever level in all four quarters. At the same time, the exit environment reached its highest ever level in the second quarter before deteriorating again in the course of the year, staying just above the previous top level of 2017 and 2018 on average for the year. In terms of exit channels, however, the environment for initial public offerings was outstanding in 2021, which was reflected in a high number of effective IPOs. By contrast, satisfaction with entry valuations fell to a record low in the second quarter of 2021. On average for the year, however, it was hardly any worse than in the pre-coronavirus years.

“Given the record investment we saw in 2021, the VC business environment was set to remain very good at the end of the year”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “The fact that the record level was maintained marks a fitting culmination. However, the prospect that the VC market will continue with a similarly strong volume in 2022 has dimmed. After all, the approaching central bank interest rate moves might cause investment activity to cool off. This might have slightly less of an impact on the German market because local start-ups meet with high international interest due to their innovative strength and entrepreneurial talent. Our dependence on non-European investors for large financing rounds, however, illustrates how important it is to continue building and expanding the local VC ecosystem. So I very much welcome that the first building blocks of the German Future Fund have already started operating.”

“2021 was a record year for the German venture capital market with a view to market sentiment and market figures. The start-up ecosystem and all of Germany as a technology and business hub took a big step forward”, added Ulrike Hinrichs, Managing Director of the German Private Equity and Venture Capital Association (BVK). “The strong assessments of deal flow demonstrate start-ups’ enormous demand for venture capital. Encouragingly, this demand is also being met with a growing supply of capital thanks to the outstanding fundraising environment. We are optimistic for 2022. The moderate decline of the indicator for business expectations signals a certain degree of stabilisation, which is actually healthy given the dynamic upswing in sentiment since the start of the pandemic.”

KfW calculates the German Venture Capital Barometer together with the German Private Equity and Venture Capital Association (BVK) exclusively for Handelsblatt. 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.