Written by 10:00 Financial Centre

KfW VC Dashboard: German venture capital market significantly stabilized in H1 2023.

In H1 2023, the German VC market experienced a pleasing stabilization. Transaction volumes increased for the second quarter in a row, although the number of deals declined slightly. Growth in the start-up segment was particularly encouraging, while growth financing remained stable. In addition, there has been a remarkable recovery in the venture debt market, following the challenges posed by the bankruptcy of Silicon Valley Bank.

In the second quarter of 2023, German startups raised a total of almost EUR 2.5 billion. Compared to the previous quarter, the deal volume has thus increased for the second time in a row (+25%). The number of financing rounds carried out was 266, a slight decrease of 23 deals. Viewed over the entire first half of 2023, 555 financing rounds with a volume of EUR 4.4 billion were realized. After the deal volume on the German VC market declined significantly in 2022, investment activity has thus stabilized again in the course of this year to date.

There was positive movement in the market in Q2, particularly in the start-up segment, i.e. Series A and B financing rounds. Here, just over EUR 1 billion was raised, almost double the funds raised in the first quarter of the year (EUR 520 million). At around 42%, the share of financing in the start-up segment of the total deal volume was thus above the level of previous years.

Due to the upturn in the start-up segment, only just under half of the funds invested were in the area of growth financing (scale-up). This had come under particularly heavy pressure in the course of the market downturn of 2022, but stabilized very clearly in the 1st half of this year. A brightening of the exit environment, i.e. for the sale of shares, will be important for the further financing prospects in this segment.

The prospects for a successful exit are crucial for investor interest in startups. In 2022, a similar number of exits of VC-funded startups were observed as in the boom year 2021. In Q2 2023, exit activity remained at a similar level with 24 transactions in Germany. However, it is apparent that IPOs, which are particularly promising as an exit channel, have failed to materialize in the last three quarters. Buyouts, i.e. the purchase of company shares – often by members of management – also did not take place in Q2 2023. Instead, all exit activity was accounted for by buyouts. These have become more attractive on the buyer side due to downward revisions in valuations during the cooling of the market since last year.

With the product and infrastructure provider for climate-neutral houses 1 Komma5°, another German start-up has reached a valuation in the billions. This brings the number of German “unicorns” to 30.

"The German VC market has shown robustness so far in 2023 as it adjusts to the new market environment. In terms of invested funds, the first half of 2023 is above the average of all years preceding the exceptional global year 2021"

“Overall, however, the environment remains challenging, which is currently reflected in the number of deals being observed. The further development of the economic, monetary and geopolitical framework conditions will probably continue to cause uncertainty for the rest of the year and thus continue to dampen investment activity. Positive impetus, on the other hand, is likely to come from promising technological trends – for example in the field of AI or climate tech – which currently offer a wide range of entrepreneurial opportunities.”

Venture Capital Market in Germany

In the dashboard on the German venture capital market, KfW Research explains developments on the market for venture capital in Germany on a quarterly basis.

Source: KfW Press Release
Image: Dilok via stock.adobe.com

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