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Press Release from 2023-05-17 / Group, KfW Research

KfW Research: VC investment in “green” start-ups is picking up in Germany

  • Climate tech finance has grown strongly in Germany since 2009
  • Peaking at EUR 2.6 billion in 2021, it slipped to EUR 1.6 billion in 2022 amid downturn in global VC markets
  • Deal volume of start-ups active in US market is roughly 4.7 times higher than in Germany

Venture capital finance for start-ups operating in the area of innovative climate technolo¬gies has experienced a very positive trend in Germany in recent years. The total volume invested by venture capital firms in climate tech start-ups rose from EUR 53 million in 2009 to around EUR 1.6 billion in 2022, the second strongest year in history. The only year that recorded a higher deal volume in the segment was 2021, when it was a sharply higher EUR 2.6 billion, according to a current analysis by KfW Research of transaction data from the platform Dealroom.com. The recent decline is mostly due to the significant deterioration in conditions resulting from the interest rate reversal and the overall economic downturn. So even if another rise should not be expected in 2023, “green” VC investment is clearly gaining ground.

The term “climate tech” refers to new technologies that are designed to prevent or reduce greenhouse gas emissions or assist in adapting to the impact of global warming. These include, for example, solutions for low greenhouse gas energy generation and storage and more efficient use of resources. These are often highly innovative technolo¬gies that provide opportunities for giant leaps in innovation. An international comparison shows that climate tech investment is traditionally of relatively high importance for the VC market in Germany. Climate tech already accounted for an average 8.9% of the total German VC market in the 2009–2012 period, a much higher share than in major compa¬rison markets such as the US, the UK and France. In the 2019–2022 period, average climate tech investment in Germany already represented 13.3% of the overall VC market, again a much higher market share than in the UK and the US, where it made up around 8% each. At 13.6%, only France exceeded these shares by a slim margin in the same period.

In relation to the country’s economic performance, however, the overall VC market in Germany is smaller than in major comparison markets. Climate tech start-ups in Germany therefore have access to less VC, as evidenced by the invested deal volume per climate tech start-up. In relation to the number of climate tech start-ups active in the market, deal volume in the US was around 4.7 times higher per company than in Germany, at EUR 13.6 million vs. EUR 2.9 million.

Ensuring the financing of “green” start-ups, which have a disproportionately high need for capital already during the development phase, therefore remains a major challenge. German climate tech start-ups continue to be heavily reliant on foreign investors, particu¬larly in large-volume financing rounds in the high-growth segment. In the years 2019 to 2022, around 45% of seed capital funds came from investors domiciled in Germany, but in later rounds in the scale-up segment it was down to a mere 17%.

What is also striking is that VC funds do not proportionally flow into the sectors that contribute the most to carbon emissions in Germany. This imbalance can also be observed at global level. In Germany, an average of only around 7% of VC investment in climate tech went to the industrial sector between 2019 and 2022, although it is the second largest source of carbon emissions and precisely the sector that still has great potential for reducing emissions through technical innovation.

A supplementary survey conducted by KfW Research among venture capital firms domiciled in Germany also highlighted the opportunities and risks associated with climate tech. Almost all investors believe that the growth opportunities in this area are fairly signi¬ficant (34%) or significant (62%). That makes climate tech the technological field which investors currently believe has the greatest growth potential. At the same time, investors also associate climate tech with slightly above-average technological and regulatory risks compared with other technological fields. They perceive risks involving the development of products that are aligned with demand in the market as well as long maturities and high funding volumes required by climate tech start-ups as particular challenges. Nonetheless, VC investors regard investments in the technological fields of health tech, biotech/life science, FinTechs and blockchain/crypto as significantly riskier.

“Germany wants to become climate-neutral by the year 2045, a target that requires giant leaps of innovation. Many sectors are currently working hard to develop new technolo¬gies to achieve climate targets and contribute innovative solutions for a climate-neutral world. The German VC market has increasingly picked up on this trend in recent years”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “In order to be able to seize the major growth opportunities of climate tech in the future as well, it will be crucial to strengthen demand-oriented financing offerings for start-ups in Germany even further. What is also key is a climate and sustainability policy that provides the framework so that businesses have planning certainty and the necessary investments have an attractive risk-return profile. That is the best incentive for start-ups and businesses to invest in the transformation.”

The current study can be downloaded from