KfW Research: US policy is weighing on the outlook for the German venture capital market

• Investors are more pessimistic about the future
• Business climate index for the venture capital market still rose slightly
• Investable start-ups in Germany are of good quality

The German venture capital (VC) market is not immune to the deep economic uncertainty spilling over primarily from the US. Even so, the business climate index for the VC market improved slightly by 2.0 points in the first quarter of 2025. At -2.1 balance points, however, the index remains just under the long-term average marked by the zero line.

To be sure, investors rated the business situation slightly better in the first quarter of 2025 than in the previous quarter. But six-month business expectations, which in the past quarters were usually much better than situation assessments, fell slightly – for the first time since the end of 2023.

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.

“The development of the capital market is currently weighed down by profound economic uncertainty, to which the German venture capital market is not immune either. The erratic economic policy of the US is changing the scenarios investors and businesses must prepare for on an almost daily basis”,

commented Dr Dirk Schumacher, Chief Economist of KfW.

In the past two years, investors had taken an increasingly positive view of their fundraising options. Before that, the drastic interest rate increases at the time had made it significantly more difficult for VC investors to raise capital. At the end of 2024, however, investor sentiment in this regard was positive again. This uptrend has now been broken, with the fundraising climate sliding by a whopping 16.5 points to -11.0 balance points. One reason for this could be the interest rate rise in the wake of the Federal Government’s establishment of the special fund for infrastructure and defence. Higher interest rates on secure investments make fundraising harder for alternative investments such as venture capital.

“In the first quarter, investors became more dissatisfied with the interest level again. But we have seen a renewed drop in interest rates in Germany in recent weeks, so that is good news for the VC market going forward”,

said Dr Dirk Schumacher.

Sentiment around entry valuations developed positively in the first quarter. Investors regard the valuation level for new investments as favourable. In addition, the majority of investors are satisfied with the quality of investable start-up projects.

“The projects agreed by the new Federal Government in the coalition agreement could generate further impetus for the domestic ecosystem. These include the WIN Initiative and the Financing for the Future Act 2, which are likely to mobilise additional capital for start-up financing. This gives hope for the rest of the year – provided there are no further disruptions from the US”,

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

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.