KfW Research: Geopolitical uncertainty is weighing on the German venture capital market

• Venture capital sentiment indicator dot has switched to red again and is now at -18.8 points
• No sight of rapid improvement in business situation
• Investment activity is still trending positive

Current geopolitical upheavals have led to an unexpected steep drop in investor sentiment in the German venture capital (VC) market. The VC market sentiment indicator lost 17 points in the second quarter of 2025. It thus plunged to -18.8 balance points, with the zero line representing the long-term average.

Assessments of the current business situation and expectations for the next six months deteriorated sharply. The narrow gap between the two indicators suggests that a rapid improvement in the business situation is not in sight. 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.

“Geopolitical events have brought great uncertainty,”

said Dr Dirk Schumacher, Chief Economist of KfW.

“They are the main reason business sentiment slumped noticeably at the beginning of summer”.

The fundraising climate deteriorated sharply in the first half of 2025. It had largely recovered to reach a positive indicator value again for the first time at the end of 2024. This shows that it has become more difficult for investors to raise new capital.

A similar trend can be seen in the exit environment. It also deteriorated significantly in the second quarter of 2025, plunging by 21.7 points. Thus, venture capital providers are now less confident that they will be able to exit from their investment at a profit.

Investment activity in the German VC market remains a bright spot. It was very robust in the second quarter of 2025. The volume of deals remained steady while the overall deal volume increased. Although expectations deteriorated sharply for the other indicators, the outlook for investment activity remains more optimistic than average.

“Contrary to what the sentiment trend is suggesting, investment activity did develop positively. Attractive investment opportunities still appear to exist but are seen as too expensive by many investors in light of the high uncertainty,”

said Schumacher.

“What we need now, both nationally and internationally, is reliable economic policy decisions. That would calm the situation and restore confidence in the capital markets.”

Ulrike Hinrichs, Executive Board Member at the BVK, commented:

“Venture capital investors appear to be keenly aware of the geopolitical uncertainties and VC-specific problems in the capital market. Nonetheless, we still have good reason to hope that sentiment will shift towards a recovery again by the end of the year. International investors have a growing interest in Europe, which is directing additional capital to the continent.”

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.