KfW VC Dashboard: German venture capital market defied unfavourable conditions in the first quarter

• Deal volume grew by 15%, for now ending the gradual decline from the second half of 2022
• Number of deals fell by 8%
• Scale-up segment accounted for nearly two thirds of investments
• New product by KfW Research analyses VC market trends every quarter

In the first quarter of 2023, 254 financing rounds were completed in the German venture capital market with a volume of around EUR 1.9 billion. That was an increase of around 15% on the final quarter of 2022, based on transaction data from the provider Dealroom.co. The gradual decline from the second half of the previous year has thus ended for the time being. The number of financing transactions, however, fell slightly by 8%. A major driver of the increased transaction volume were successful financing rounds in the scale-up segment, that is, follow-on financing operations to fund further growth. With a volume of EUR 1.2 billion, this segment accounts for almost two thirds of the total market, up from the 43% recorded in the final quarter of 2022. Furthermore, after only three mega deals worth more than EUR 100 million during the entire second half of 2022, six such deals with a particularly high volume were observed again in Q1 2023. This is highlighted by the KfW VC Dashboard, the new regular analysis of the VC market published quarterly by KfW Research.

The significant growth at the start of the year means the German VC market was able to buck the trend in Europe. Across the continent, deal volume in Q1 2023 fell by 1.3% on the previous quarter. According to data from CB Insights, the number of German ‘unicorns’, enterprises with a market value of EUR 1 billion or more, increased by one start-up with the addition of the online translation service DeepL.

The market for new listings of VC-financed start-ups remained static in the first quarter of 2023 as well, with no initial public offerings (IPOs) recorded. It remains to be seen whether the market environment for exits through IPOs will improve.

“The increase in VC investments in German start-ups at the start of the year is a really welcome signal from the market”

, said Fritzi Köhler-Geib, Chief Economist of KfW.

“After all, the second half of 2022 was still marked by a significant slowdown in investment activity. The insolvency of Silicon Valley Bank in mid-March added great uncertainty for some time. What is positive is that we are seeing more successful follow-on financing operations in the growth segment again. However, the start of a trend reversal in investment activity may be a while coming. Recent interest rate moves and persistent economic uncertainty mean that at least in the second quarter, there was no fundamental improvement in the conditions for the VC market.”

KfW Research publishes the quarterly VC dashboard exclusively for the German business newspaper Handelsblatt. Detailed analyses with data and graphs on the development of the venture capital market are available at Venture Capital-Markt in Deutschland.