Press Release from 2025-02-11 / Group, KfW Research

KfW Research: VC capital providers experience a setback in sentiment

  • Business sentiment index has dropped again after recovery phase
  • Conditions are rated more negatively, but outlook is better than in the previous quarter
  • Investors can access capital more easily again

After the slump in sentiment in the German venture capital market appeared to have been largely overcome, the business climate fell again in the fourth quarter of 2024. The business sentiment index for the venture capital market shed 3.7 points to now -4.1 balance points, with the zero line representing the long-term average. In particular, venture capital investors had a more negative view of the current business situation than in the previous quarter, but their expectations were more positive than before.

This is one of the findings of the VC Barometer which KfW Research, the German Private Equity and Venture Capital Association (BVK) and the Deutsche Börse Venture Network prepare on a quarterly basis to gauge the sentiment of venture capital investors in Germany.

Investors found it easier to raise capital again in the fourth quarter. The fundraising climate improved for the eighth consecutive quarter. In particular, investors expect significantly better opportunities to raise money in the future as well. One major reason for this is the key interest rate cuts by the European Central Bank, which make it easier for venture capitalists to raise funds.

Venture capital providers continued to view the possibilities of exiting from their investments as difficult. Exit sentiment has now been in the red for eleven straight quarters, longer than ever before. Encouragingly, however, it improved in the fourth quarter by 12.9 points to now -22.2 balance points.

Investors are also more willing to undertake new investments again. The related expectations component rose considerably. This bodes well for investment activity in the first half of 2025. What is problematic, however, is that investors are significantly more dissatisfied with the quality of start-ups that request capital than just a year ago. Investors also regard start-ups as less innovative, although they expect this to improve.

“The recovery in sentiment in the German venture capital market dipped at the end of the year. But the further improved expectations give reason to be optimistic that the business climate will soon gain new momentum. The fundraising and exit situation is showing signs of easing. Both are important elements of the VC funding cycle and are sure to be factors for the growing investment appetite”,

said Dr Georg Metzger, venture capital expert at KfW Research.

“The current dip in sentiment was probably just a brief spell”,

added Ulrike Hinrichs, Managing Director and member of the Board of the German Private Equity and Venture Capital Association (BVK).

“Business expectations and more positive views of a number of sentiment factors rather point to investor optimism. The improving assessments of fundraising, exits and valuation adjustments in particular give hope for a successful venture capital year 2025.”

Note: KfW produces the quarterly German Venture Capital Barometer in cooperation with the German Private Equity and Venture Capital Association (BVK) and the Deutsche Börse Venture Network (DBVN) exclusively for the Handelsblatt business daily. For detailed analyses with data tables and graphs on the development of business sentiment in the venture capital and private-equity segments, go to www.kfw.de/gpeb.