Investment activity in German venture capital market is better than sentiment

• Deal volume in Q4 remained on previous quarter’s level, but number of deals decreased again
• Investment volume in 2023 quite solid in a long-term composition
• More growth capital again in Q4

Although the mood in the German venture capital market cooled off again in the final quarter of 2023, start-ups in Germany were still able to attract EUR 1.5 billion in 204 financing rounds. Deal volume in Q4 thus remained on the EUR 1.5 billion level of the previous quarter, but the number of deals fell significantly again (-19%). This was revealed by the current quarterly evaluation of the KfW Venture Capital Dashboard.

Across the year 2023 as a whole, EUR 7.2 billion was invested in German start-ups in 1,088 financing rounds. This means venture capital flowed more slowly than in 2022 (EUR 10.5 billion), but the investment volume was still quite solid in a long-term comparison.

“A variety of factors might help improve the situation in the German VC market in 2024”,

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

“The prospects of falling interest rates in the second half of the year might positively influence company valuations and, hence, exit proceeds, allay fundraising concerns and give new impetus to investment activity.”

The volume of growth finance increased again moderately last year and stood at EUR 705 million in the final quarter. Whereas a mere 28% – EUR 534 million – of the total volume went to the scale-up segment in Q3, that share was back to almost half the invested funds in Q4, at 47%. Overall, growth finance accounted for a deal volume of a good EUR 3.4 billion in 2023, after around EUR 5.2 billion in the previous year. That means the share of growth finance in overall VC deal volume was very similar in the years 2022 and 2023.

Since the global VC market began to cool off in early 2022, the share of venture capital from foreign VC investors in the German market has fallen. The share of US investors in particular has decreased. It was a mere 17% in Q4, bringing the total for 2023 to 25%, while it was still 39% in 2021. By comparison, the share of funds from domestic investors grew to 32% (26% in the previous year).

According to CB-Insights, in Germany there are 31 unicorns – start-ups with a market valuation of USD 1 billion and more. The latest addition was the Munich start-up Helsing in Q3 2023. That means including DeepL and 1Komma5°, three German start-ups were able to successfully achieve a billion-dollar valuation in 2023 despite the difficult market environment.

Measured by the number of exits, we can look back on a strong year 2023. At the same time, the exit activity of VC-financed start-ups in Germany continued to be mainly characterised by takeovers in Q4 as well. With 28 transactions, the last quarter of the year contributed once more to increasing the number of takeovers. But IPOs, the exit channel offering the highest returns, were absent. Possible interest rate reductions might provide a further boost to stock exchanges and give momentum to the IPO market in the second half of 2024.

You will find additional information here:
Venture capital market in Germany | KfW

The dataset:
The KfW Venture Capital Dashboard is a quarterly analysis of the transactions conducted in the German venture capital market based on data from Dealroom.co.