KfW Research
Innovations and Start-ups
The current KfW Entrepreneurship Monitor for download
Professional venture capital investors have in-depth technology and industry knowledge, invest to generate returns and therefore play a key role in the allocation of innovation and growth capital. The expectations of German investors currently diverge across the various technological domains. Investors see very good growth opportunities for artificial intelligence, cybersecurity and dual use technologies. Climate tech evolved into the technological area with the highest deal volume in the German venture capital market in 2024 but growth expectations for 2025 are more muted than three years ago. Investors see relatively low growth opportunities in more mature markets, especially in e-commerce.
Venture capital – market trends in 2025(PDF, 450 KB, accessible)
After the slump in sentiment in the German venture capital market appeared to have been largely overcome, the business climate fell again at the end of 2024. The VC market sentiment indicator dropped to -4.1 balance points in the fourth quarter of 2024. This decline is primarily an expression of the setback in the assessments of current business conditions, while expectations improved. The improved expectations give reason to be optimistic that the business climate will soon gain new momentum. The initial outlook for investment activity in 2025 therefore remains good despite mixed signals from deal flow.
German Venture Capital Barometer 4th Quarter 2024(PDF, 348 KB, accessible)
The German private equity market was in the doldrums at the end of 2024. The sentiment indicator dropped to -44.6 balance points in the fourth quarter of 2024. Without the steep but brief slump during the COVID-19 shock in the first quarter of 2020, the indicator would have hit a new all-time low in the final quarter. The economic worries of small and medium-sized enterprises in Germany are obviously weighing so heavily on business activity in the private equity market that the recent key interest rate reductions failed to halt the further decline in sentiment.
German Private Equity Barometer 4th Quarter 2024(PDF, 329 KB, accessible)
The year 2024 gives cause for cautious optimism about the German VC market: In total, around EUR 7.4 billion was invested in German start-ups in 2024, moderately exceeding the deal volume of the previous year (+4%). In the final quarter of 2024, 484 deals were closed with a volume of EUR 1.4 billion. Overall, financing activity in the German VC market remains steady.
KfW Venture Capital Dashboard Q4 2024(PDF, 673 KB, accessible)
Further information in our Dossier Venture Capital
The economic situation is leaving its mark on the innovation activities of small and medium-sized enterprises. The key findings of the current KfW Innovation Report are as follows:
- Fewer SMEs in Germany are innovating. At 39%, the share of innovators is 3 percentage points lower than at the start of the COVID-19 pandemic.
- The share of innovators among large SMEs is recovering, while it is still falling among small businesses.
- Export-oriented businesses as well as R&D-intensive manufacturing enterprises have also scaled back their innovation activities.
- Innovation expenditure remains steady at just under EUR 34 billion.
The VC business climate in Germany has continued to improve and has returned to the long-term average level again. The sentiment indicator for the early-stage segment rose 8.7 points to -0.4 balance points in the third quarter of 2024. Business expectations stabilised with a slight increase but situation assessments improved significantly. The indicator dot that stands for current situation assessments has now also jumped from red to amber.
German Venture Capital Barometer 3rd Quarter 2024(PDF, 234 KB, accessible)
Sentiment in the German private equity market has deteriorated very significantly for the second straight quarter. The sentiment indicator plunged by 19.0 points to -39.6 balance points in the third quarter of 2024, a new four-year low. The only time sentiment was worse in recent years was during the COVID-19 shock. After current business situation assessments had already fallen in the previous quarter and the outlook had not yet worsened quite as much, expectations have now dropped as well.
German Private Equity Barometer 3rd Quarter 2024(PDF, 212 KB, accessible)
Going into the second half of the year, the German VC market sent out a positive signal, giving hope for a strong conclusion to the year in the coming quarter. In Q3 2024, the quarterly volume of investment in German start-ups exceeded the threshold of EUR 2 billion again for the first time in more than a year. Overall, German start-ups raised some EUR 2.5 billion from investors in 280 funding rounds.
KfW Venture Capital Dashboard Q3 2024(PDF, 1 MB, accessible)
Further informations in our Dossier Venture Capital
The German venture capital market continued trending sideways in the second quarter of the year. German start-ups raised around EUR 1.8 billion in 187 funding rounds in total. The second quarter almost matched the first quarter of the year in terms of deal volume. As was already the case in some of the previous year's quarters, the largest financing round in Q2 2024 was a growth financing transaction in the technology field of artificial intelligence.
KfW Venture Capital Dashboard Q2 2024(PDF, 1 MB, accessible)
Further informations in our Dossier Venture Capital
Sentiment in the VC market continues on its path of recovery. The sentiment indicator for the early-stage segment improved by 10.6 points to -8.9 balance points in the fourth quarter of 2024. Thus, the business sentiment ‘traffic light’ is about to jump from red to amber. Both subcomponents of the sentiment indicator, situation assessments and business expectations, rose at a similar rate.
German Venture Capital Barometer 2nd Quarter 2024(PDF, 326 KB, accessible)
Just before rising above its long-term average, sentiment in the German private equity market fell again. In the second quarter of 2024, the sentiment index declined by 20.6 points to -23.4 balance points. A similar drop was already recorded a year ago, in the second quarter of 2023. Assessments of the current business situation in particular were much worse again, after improving noticeably just in the previous quarter.
German Private Equity Barometer 2nd Quarter 2024(PDF, 325 KB, accessible)
Focus on Economics
Looking at Germany’s position in the field of artificial intelligence (AI), we find a mixed picture. Germany is not established as a provider of AI solutions and, in terms of the number of AI patents worldwide, lags behind leading countries by a considerable margin. However, academic research into artificial intelligence in Germany is regarded as being of high quality and German businesses are at the front of the field in Europe in the use of artificial intelligence. It is worth making efforts to improve Germany's position, as AI offers great potential for productivity increases, additional growth and support in overcoming challenges.
According to the KfW Entrepreneurship Monitor, entrepreneurial activity in Germany grew moderately in 2023. The number of newly founded businesses rose to 568,000 (+3%). Of this total, however, businesses launched on a full-time basis decreased to 205,000 (-8%), while part-time business start-ups increased again by 11% to 363,000. Overall, the economy did little to encourage entrepreneurial activity in 2023. Economic and labour market forecasts suggest not much impetus can be expected in 2024 either.
KfW Entrepreneurship Monitor 2024(PDF, 890 KB, accessible)
Further information on the KfW Entrepreneurship Monitor
In the first quarter of 2024, German start-ups raised EUR 1.9 billion in 195 financing rounds. After the consolidation phase that began at the beginning of 2022, the German VC market has leveled off at the current level for several quarters. A boom in investment activity this year appears possible, particularly due to the available free funds among investors.
KfW Venture Capital-Dashboard Q1 2024(PDF, 732 KB, accessible)
Further informations in our Dossier Venture Capital
VC sentiment bounced back to its path of recovery in the first quarter of 2024. Thus, although sentiment in the German VC market remained rather subdued at the start of the year 2024 as well, the improvement nearly made up for the slump in sentiment in the final quarter of 2023. The business climate indicator of the early-stage segment rose by 6.7 points to -20.5 balance points. Both subcomponents – current situation assessments and business expectations – improved at a similar rate.
German Venture Capital Barometer 1st Quarter 2024(PDF, 212 KB, accessible)
Sentiment in German private equity market continues on a path to recovery. The business sentiment indicator gained 5.1 points in the first quarter of 2024, reaching -12.0 balance points. Thus, the indicator for investor sentiment is about to jump from red to amber. What is pleasing is that the positive development is attributable to assessments of the current situation, which have improved noticeably.
German Private Equity Barometer 1st Quarter 2024(PDF, 212 KB, accessible)
Digitalisation activity defies the economy
Digitalisation push triggered by the COVID-19 pandemic in Germany continues. The key findings of the current KfW SME Digitalisation Report are:
- Share of small and medium-sized enterprises with completed digitalisation projects rises to 33%
- Digitalisation expenditure continues on a high level, at EUR 29.3 billion
- Digitalisation activities are heavily concentrated in large SMEs
SMEs’ innovation activity has flatlined
Innovation activity among SMEs did not profit from the end of the COVID-19 pandemic. The key findings of the KfW SME Innovation Report are as follows:
- Currently 40% of small and medium-sized enterprises have innovative products and processes
- Innovation expenditure remains at EUR 34 million, slight decrease when adjusted for inflation
- Innovation expenditure in the SME sector is heavily concentrated on large SMEs.
Focus on Economics
Filling vacancies is a growing challenge for small and medium-sized companies. Innovative companies, in particular, are finding recruitment more difficult. In addition to the general shortage of skilled workers, the reasons for this lie in the higher demands placed on applicants' skills. Innovative companies see their requirements as not being met more often than other companies, particularly with regard to mathematical and statistical skills, social skills and digital skills. These higher requirements are due to the fact that innovative companies use more modern technologies and are more modern in the organisation of their work and company. The requirements of their innovation processes also result in higher demands for the skills mentioned.
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 Q3, but the number of deals fell again sharply by almost one fifth. In a long-term comparison, total deal volume in 2023 was therefore quite strong at EUR 7.2 billion.
KfW Venture Capital-Dashboard Q4 2023(PDF, 461 KB, accessible)
Further informations in our Dossier Venture Capital
VC business sentiment fell again slightly in the final quarter of 2023. The mood in the German venture capital market thus remained subdued at the end of 2023, although it was better than after the slump experienced up to the end of 2022 as a result of the interest rate turnaround. The sentiment indicator of the early-stage segment fell by 8.1 points to -27.4 balance points. Expectations remain clearly more positive than situation assessments.
German Venture Capital Barometer 4th Quarter 2023(PDF, 274 KB, accessible)
Business sentiment rose again slightly in the German private equity market. The sentiment indicator gained 8.9 points to -17.3 balance points in the fourth quarter of 2023. Investor sentiment thus remained subdued at the end of the year. However, situation assessments and expectations both improved. In all, business expectations for the start to the new year are more positive than assessments of the current situation.
German Private Equity Barometer 4th Quarter 2023(PDF, 187 KB, accessible)
Private markets such as the VC market are characterised by the fact that they are relatively illiquid, so that external influences are slow to be reflected in observable market variables such as valuations and transaction volume. Furthermore, relevant information is publicly known in private markets to a limited extent only. Both of these factors hamper the real-time observation of market movements. Given that many market players actively communicate in social media, these constitute an interesting alternative source of information.
In order to examine the potential of social media posts for nowcasting global venture capital market sentiment, we have generated sentiment indicators using KI-based natural language processing methods. The findings suggest that the sentiment indicator thus developed allows changes resulting from market-moving events to be tracked and assessed with a high degree of timeliness.
Venture capital: Market observations using social media sentiment analyses(PDF, 549 KB, accessible)
Further informations in our Dossier Venture Capital
The quarterly KfW Venture Capital Dashboard presents the developments in the venture capital market in Germany.
German start-ups received almost EUR 1.8 billion in 232 financing rounds in the third quarter of 2023. The volume of deals decreased on the previous quarter, as did the number of deals. The decline in deal volume followed two consecutive increases in the first two quarters of the year. The German VC market thus continues to struggle for direction in 2023 while maintaining a sometimes significantly higher level than in the years before the pandemic.
In addition, the Dashboard provides deeper insights into VC finance activities for German start-ups, including by financing phase, investor origin, technological fields and exit activity. It also compares the market with major international benchmarks. The overview is rounded off by a look at the development of venture debt transactions.
KfW Venture Capital-Dashboard Q3 2023(PDF, 668 KB, accessible)
Further informations in our Dossier Venture Capital
Business sentiment in the German venture capital market continued to improve in the late summer of 2023. The sentiment indicator of the early-stage segment rose by 2.4 points to -19.6 balance points, trending slightly higher than in the previous quarter. Situation assessments slightly converged on expectations, which continue to be significantly more optimistic. The indicator for the current business situation rose by 7.3 points to -32.4 balance points, while the indicator for business expectations dipped slightly to -6.8 balance points (-2.5 points).
German Venture Capital Barometer 3rd Quarter 2023(PDF, 210 KB, accessible)
Sentiment in the German private equity market stabilised again after cooling down noticeably in the early summer. The business sentiment indicator rose slightly by 5.4 points to -26.4 balance points in the third quarter of 2023. The mood in the market thus remains lacklustre. Situation assessments partly offset previous declines, while expectations deteriorated again. Thus, the indicator for the current business situation rose by 14.4 points to -28.2 balance points, while the indicator for business expectations fell by 3.7 points to -24.5 balance points.
German Private Equity Barometer 3rd Quarter 2023(PDF, 245 KB, accessible)
The quarterly KfW Venture Capital Dashboard presents the developments in the venture capital market in Germany.
German start-ups raised just under EUR 2.5 billion in 266 financing rounds in Q2 2023. In the first half of 2023 the German VC market thus proved to be quite capable of adapting to the new environment of interest rate reversal, energy crisis and macroeconomic uncertainty.
The Dashboard also provides deeper insights into VC finance activities for German start-ups, including by financing phase, investor origin, technological fields and exit activity. It also compares the market with major international benchmarks. The overview is rounded off by a look at the development of venture debt transactions.
KfW Venture Capital Dashboard Q2 2023(PDF, 1 MB, accessible)
Sentiment in the German private equity market cooled off again significantly in the second quarter of 2023. The business sentiment indicator fell by -19.5 points to -32.0 balance points. Situation assessments fell steeply and expectations also deteriorated. Thus, the indicator for the current business situation decreased by 26.8 points to -43.0 balance points and the indicator for business expectations dropped by 12.3 points to -21.1 balance points.
German Private Equity Barometer 2nd Quarter 2023(PDF, 246 KB, accessible)
Sentiment in the German venture capital market improved again in the first half of 2023. The business climate indicator of the early-stage segment rose by 12.4 points to -22.2 balance points. That nearly made up for the downturn in sentiment recorded at the end of the year 2022. Situation assessments remain on a very low level, however, while business expectations were much more positive again for the second consecutive quarter. The indicator for the current business situation rose by a moderate +6.1 points to -40.1 balance points, while the indicator for business expectations climbed by +18.8 points to -4.4 balance points.
German Venture Capital Barometer 2nd Quarter 2023(PDF, 205 KB, accessible)
Innovator rate fell in the second year of the COVID-19 pandemic
The COVID-19 pandemic has left its imprint on the innovation activity of small and medium-sized enterprises. The key findings of the current report are:
- The innovator rate in the SME sector dropped to 40%
- At EUR 33.9 billion, innovation expenditure in 2021 remained steady from the previous year
- The proportion of innovative enterprises grows with the size of the company
- Easing the skilled labour shortage is key to more innovation
The quarterly German Venture Capital Market Dashboard published by KfW Research presents the developments in the venture capital market in Germany.
In the first quarter of 2023, a total of EUR 1.9 billion was invested in 254 financing rounds in the German VC market. For now, the market appears to be unfazed by the collapse of Silicon Valley Bank (SVB) in the US. However, given the persistently unfavourable overall environment (inflation, monetary tightening, dim prospects for IPOs), a trend reversal is yet to arrive.
The Dashboard also provides deeper insights into VC finance activities for German start-ups, including by financing phase, investor origin, technological fields and exit activity. It also compares the market with major international benchmarks. The overview is rounded off by a look at the development of venture debt transactions.
KfW Venture Capital Dashboard Q1 2023(PDF, 1 MB, accessible)
Entrepreneurial activity in Germany dropped to 550,000 newly started businesses in 2022. Of these, 222,000 were full-time businesses (40%) and 328,000 part-time businesses. However, nearly one in five part-time start-ups intend to scale their business to a full-time activity. The persistently strong labour market development contributed significantly to driving the decline. Looking to the future, the shortage of skilled workers will remain a major challenge for entrepreneurial activity. The number of female entrepreneurs in particular has fallen, while the number of male entrepreneurs has hardly changed.
KfW Entrepreneurship Monitor 2023(PDF, 511 KB, non-accessible)
Business sentiment in the German venture capital market improved slightly in the first quarter of 2023. The sentiment indicator of the early-stage segment rose by 7.6 points to -34.9 balance points. Sentiment therefore remains on a very low level after plunging in the final quarter of 2022. The insolvency of Silicon Valley Bank weighs on market sentiment.
German Venture Capital Barometer 1st Quarter 2023(PDF, 225 KB, accessible)
Sentiment in the German private equity market improved again in the first quarter of 2023. The business sentiment indicator rose by 17.7 points to -12.9 balance points. Situation assessments improved significantly and business expectations became much more optimistic. Thus, the indicator for the current business situation rose by 20.4 points to -16.7 balance points, while the indicator for business expectations gained 15.0 points to -9.1 balance points.
German Private Equity Barometer 1st Quarter 2023(PDF, 250 KB, accessible)
The second year of the coronavirus pandemic brought a significant boost in digitalisation but the divide between pioneers and latecomers threatens to widen
The key finding is that digitalisation expenditure peaked in 2021, but the share of businesses with digitalisation activities hardly increased compared with pre-pandemic times. Staffing problems affect digitally active businesses to a particularly large degree:
- Boost from the pandemic continues as businesses begin to tackle more complex projects
- Risk of a split into digital pioneers and small firms left behind is greater than ever
- Lack of digital literacy and IT experts is slowing progress
KfW SME Digitalisation Report 2022(PDF, 2 MB, non-accessible)
Sentiment in the German private equity market developed positively in the fourth quarter of last year. The business sentiment indicator rose by 9.2 points to -30.8 balance points. While situation assessments deteriorated again, the decline was more than offset by improvements in business expectations. Economic optimism is bolstering sentiment.
German Private Equity Barometer 4th Quarter 2022(PDF, 231 KB, accessible)
Sentiment in the German venture capital market cooled off considerably towards the end of the year. After the downward slide in market sentiment ended in late summer, confidence slipped again in the final quarter. The business climate indicator of the early-stage segment plunged by 25.6 points to -42.9 balance points. With the exception of the unprecedented coronavirus shock in the first quarter of 2020, the only recent time sentiment was worse was 20 years ago. Valuation adjustments at the end of the year weighed heavily on market sentiment.
German Venture Capital Barometer 4th Quarter 2022(PDF, 179 KB, accessible)
The German private equity market experienced yet another sharp loss of confidence in the third quarter of this year. The business climate indicator fell by 16.2 points to -40.4 balance points. The only time the level has ever dropped this low was during the financial crisis at the beginning of 2009 and the outbreak of the coronavirus pandemic in 2020. Expectations are significantly lower than situation assessments, indicating that private equity investors anticipate a continuing substantial deterioration of the business environment in the next six months.
German Private Equity Barometer 3rd Quarter(PDF, 201 KB, accessible)
KfW Research Position paper
Russia’s war of aggression against Ukraine and the COVID-19 pandemic have shaken the foundations of a rules-based world order and the German economic model. Even amid the necessary short-term crisis management, investments are key to successful adaptation to the changed environment. They make restructuring energy supplies and the green and digital transformation possible – and demand a joint effort by government, the business community and private households. The lion’s share of necessary investment will have to come from the private sector. The current burdens from high energy costs and uncertainties act as additional roadblocks. So it is all the more important to encourage and provide intelligent support for private investment. Government therefore has a key role to play: first, by formulating targets and setting frameworks and incentives and second, by investing in infrastructure and human capital, both of which are required for the productive realisation of private-sector activity.
A boost in investment for the transformation – what exactly is needed?(PDF, 220 KB, accessible)
Further information The coronavirus crisis and its impact
Sentiment in the German venture capital market stabilised in late summer. Market sentiment has thus stopped falling, although central banks again significantly raised key interest rates to fight inflation in the third quarter of 2022. The sentiment indicator of the early-stage segment remains virtually unchanged at -17.9 balance points (+0.3 points). Situation assessments and expectations have converged. Thus, the indicator for the current business situation dropped moderately, while the indicator for business expectations rose slightly.
German Venture Capital Barometer 3rd Quarter(PDF, 240 KB, accessible)
After coronavirus slump, number of start-ups recovered in 2021
The number of innovation- or growth-driven young enterprises in Germany has bounced back again. After the coronavirus-induced downturn in 2020, the number of start-ups grew to 61,000 in 2021. It has been found that entrepreneurs wishing to use venture capital are more likely to have characteristics that make it easier for them to access VC. They are more likely to combine an orientation towards innovation and growth, more likely to have an academic background and much more likely to have digital offerings, internet-based business models and international target markets. At the same time, however, female start-up entrepreneurs are less likely to seek VC finance.
The German private equity market experienced a further loss of confidence in the second quarter of this year. The sentiment indicator of the later-stage segment fell by 17.8 points to -24.7 balance points. Business expectations were more heavily affected than situation assessments. The indicator for the current business situation slipped by 13.2 points to -10.9 balance points. The indicator for business expectations plunged by 22.5 points to -38.5 balance points.
German Private Equity Barometer 2nd Quarter(PDF, 154 KB, accessible)
A historic interest rate increase by the Fed in the US and expectations of a tighter course by the ECB caused sentiment in the German VC market to continue nosediving in the second quarter. The business climate indicator of the early-stage segment dropped by 26.0 points to -18.5 balance points. Business expectations have fallen more sharply than situation assessments. The indicator for the current business situation dropped to -7.6 balance points (-20.6), while the indicator for business expectations fell by 31.4 points to -29.4 balance points.
German Venture Capital Barometer 2nd Quarter(PDF, 180 KB, accessible)
Focus on Economics
A recent study commissioned by KfW Research examines innovation activities, the obstacles encountered in the process and the positioning of six different types of SMEs in the German innovation system. The key findings are:
- Small and medium-sized enterprises contribute one-third of the innovation performance of the German economy.
- Innovative companies without R&D also achieve considerable innovation successes.
- The share of non-innovative companies has increased by ten percentage points over the past ten years.
- Shortage of skilled workers and high costs: Obstacles to innovation have increased significantly since the mid-2000s.
Focus on Economics
VC investors see a number of sectors becoming increasingly important in 2022. Above all, they anticipate that Greentech / climate tech, deeptech and cybersecurity will play a greater role. But investors are pessimistic about the e-commerce sector. With regard to the challenges they are facing, VC investors regard higher geopolitical and economic uncertainty for 2022 as the greatest burden.
Trends in market: War in Ukraine is affecting investor expectations(PDF, 235 KB, accessible)
SMEs that have a digitalisation strategy spend more on digitalisation and carry out a wider range of digitalisation activities. They also use ambitious digital technologies more often. In order to better tap into the digitalisation potential, it appears essential to raise awareness amongst SMES of the strategic importance of digitalisation.
After the pandemic slump of 2020, start-up activity in Germany returned to pre-crisis levels in 2021. Compared with 2020, 70,000 more newcomers (+13%) ventured into self-employment, launching 607,000 new businesses. The number of opportunity start-ups increased. Entrepreneurship has also become younger and more female. And with the experience of the coronavirus pandemic, significantly more business start-ups were digital and internet-based in 2021. Despite a declining rate of planners, entrepreneurial activity is expected to remain on a similar level in 2022 as in 2021.
KfW Entrepreneurship Monitor 2022(PDF, 540 KB, non-accessible)
The business climate on the German Venture Capital market has fallen again two years after the coronavirus shock. The business climate indicator of the early-stage segment dropped by 35 points to 7.2 balance points in the first quarter of 2022. This was likely due to the inflation-induced accelerating interest rate reversal and the heightened economic uncertainty caused by the war. The indicator for the business situation dropped to 12.8 balance points (-33.0), while the indicator for business expectations fell to 1.7 balance points (-37.0).
German Venture Capital Barometer: 1st Quarter 2022(PDF, 152 KB, accessible)
The business climate on the German private equity market cooled off drastically at the start of the year. The sentiment indicator of the later-stage segment slipped by 27.5 points to -7.2 balance points. The escalation of the war in Ukraine and resulting high economic uncertainty were likely the main cause for the drop in sentiment. The indicator for the current business situation fell by 24.4 points to 2.2 balance points, hovering just slightly above the long-term average. The indicator for business expectations plunged by 30.6 points to -16.5 balance points.
German Private Equity Barometer:1st Quarter 2022(PDF, 171 KB, accessible)
Current KfW Research study examines the development of digitalisation activity among SMEs during the coronavirus pandemic. The key finding is that the coronavirus has led to a digitalisation push but that digitalisation has not become a matter of course:
- 35% of SMEs have expanded their activity since the pandemic began
- The fear of customers permanently switching to digital offerings is a major motivation
- The full potential of digitalisation is not being raised: complex projects are rarely addressed
KfW SME Digitalisation Report 2021(PDF, 1 MB, non-accessible)
In the fourth quarter of 2021, German venture capital market sentiment remained on the record high level of the previous quarter. The sentiment indicator for the early-stage segment continued on 41.6 balance points, ending the year 2021 on an all-time high. On average for the year, sentiment was clearly the highest after 2018 since the barometer was launched.
German Venture Capital Barometer: 4th Quarter 2021(PDF, 196 KB, non-accessible)
After stagnating in the previous quarter, sentiment in the German private equity market resumed its upward trend at the end of the year. The sentiment indicator of the late-stage segment rose by 9.4 points to 20.2 balance points. Assessments of the current business situation improved for the seventh consecutive quarter and expectations were also slightly more optimistic.
German Private Equity Barometer: 4th Quarter 2021(PDF, 193 KB, non-accessible)
Business sentiment in the German venture capital market continued to improve in the third quarter of 2021. The business climate indicator of the early-stage segment rose by 4.9 points to 42.2 balance points, slightly surpassing the all-time high of the previous quarter. The indicators for fundraising and deal flow remained very good. Sentiment components such as exit opportunities and the tax framework, on the other hand, showed more pronounced variations.
German Venture Capital Barometer: 3rd Quarter 2021(PDF, 219 KB, non-accessible)
German private equity market sentiment continued on the same level in the third quarter of 2021. The business climate indicator for the later-stage segment remained nearly unchanged at 11.1 balance points. Assessments of the current business situation improved, while expectations were somewhat more pessimistic again. The individual sentiment components also changed little compared with the previous quarter and showed a positive picture overall.
German Private Equity Barometer: 3rd Quarter 2021(PDF, 193 KB, non-accessible)
The picture of a green economy is becoming increasingly real – ever since China and the US committed to the goal of climate neutrality last year. In future, entrepreneurial success will be possible only on the basis of climate-friendly processes and technologies. Whether Germany will emerge from the imminent upheavals stronger or weaker as an economic hub is as yet unclear. But there are various indicators that can be used for an estimate. Germany continues to be a market leader of green products but international competitors are catching up, particularly in Asia. Targeted measures that support green technologies and address the relevant stage of the innovation process remain important.
Focus on Economics
The digital transformation is an important driver of technological progress and growth. However, Germany is midrange at best in the use of digital technologies by the business community and the development of such technologies is also not among the strengths of the German innovation system.
The country will have to invest significantly more in these technologies to catch up with other major countries. In order to be on a par with with France, Japan or the UK, for example, Germany’s IT investment will have to at least double or triple – from currently EUR 49 billion to EUR 100–150 billion.
Focus on Economics
The market environment and SME’s corresponding competition strategies influence their approach to innovation and digitalisation. Innovative companies operate in particularly challenging markets. Short product life cycles, technological uncertainty and competitors from abroad mean that the affected enterprises focus heavily on developing new products. In markets served by companies with digitalisation activities, on the other hand, demand is very responsive to price. An enterprise’s strategic orientation plays a less important role for digitalisation than for innovation. Innovators and businesses with digitalisation activities both operate more successfully than businesses without such activities.
Coronavirus crisis weighs on start-up numbers – minor impact on start-ups that are open to VC
The coronavirus crisis has reduced the number of innovation- or growth-driven young enterprises in Germany. In 2020 the number of such start-ups dropped to 47,000. In comparison with the overall decline in start-ups, the number of start-ups open to venture capital remained relatively steady at 8,600. Women are clearly underrepresented in the start-up ecosystem. Female entrepreneurs make up 20% of start-ups on average throughout the years, which is only about half their share in overall business starting activity. This is due to persistent social gender stereotypes and established structures.
Focus on Economics
The impact of the coronavirus pandemic has hit the entire SME sector. A current study shows which groups of enterprises get through the crisis more easily and which ones struggle. KfW Research has published a position paper proposing economic policy measures so that Germany emerges stronger from the crisis. The coronavirus crisis has had a significant impact on the SME sector. The current study by KfW Research reveals that the crisis has not impacted all SMEs in equal measure but affects individual segments more than others. Small businesses, internationally active companies and enterprises that already had a weak credit rating in particular suffered declines in their equity ratios. By contrast, enterprises whose credit rating indicates well-developed management skills exhibit greater crisis resilience, as do those that carried out innovation and digitalisation projects already before the crisis.
Despite the fact that incidence rates are rising again, the vaccination programme and the risk-based relaxation of the containment measures offer hope that Germany will get on top of the coronavirus pandemic in the foreseeable future. Accordingly, questions about what happens next are coming more to the fore. At the same time, we are able to better assess the size of the challenge involved in transforming to a resilient, digital and climate-neutral economy. The need to change course is becoming ever more urgent if we are to make Germany future-proof. We see the greatest need in five key areas of action: Crisis resilience, climate neutrality, digitalisation, globalisation and Europe. A targeted approach is necessary in order to harness the crisis-management momentum for the change of course towards sustainable recovery. The aim of this paper is to highlight specific intervention points for solutions within the areas of action already identified.
KfW Research Position Paper August 2021(PDF, 241 KB, non-accessible)
The upturn in sentiment in the German venture capital market continued in the second quarter of 2021. The sentiment indicator of the early-stage segment rose by 10.5 points to 37.8 balance points, marking a new record high. The record high sentiment has been fuelled by the sentiment components fundraising, exit opportunities and strength of deal flow. All three achieved top scores. The IPO climate improved the most for the exit opportunities, which the well-filled IPO calendar reflects.
German Venture Capital Barometer 2nd Quarter 2021(PDF, 227 KB, non-accessible)
Business sentiment in the German private equity market continued to grow positively in the second quarter of 2021 and is back above the long-term average for the first time since the coronavirus shock. The sentiment indicator of the late-stage segment rose by 25.7 points to 13.4 balance points. Business expectation assessments rose one and a half times as strongly as assessments of the current business situation. Encouragingly, climate components largely demonstrate positive values, with fundraising leading the way.
German Private Equity Barometer 2nd Quarter 2021(PDF, 209 KB, non-accessible)
Focus on Economics
Digitalisation and innovation projects are regarded as key drivers of technological progress. A current study from KfW Research aims to shed light on the correlation between these activities. The central findings are:
- Digitalisation and innovation in businesses are closely correlated and mutually reinforce each other.
- Businesses that implement both digitalisation and innovation projects address their digitalisation more extensively and thoroughly than other businesses.
- These businesses achieve higher growth than those that only carry out digitalisation projects.
Start-up activity in Germany dropped in 2020 as a result of the coronavirus crisis. The number of business starters dropped to 537,000, hitting a new low for full-time start-ups. In 2020, entrepreneurs ventured into self-employment more often to seize a business opportunity. The number of opportunity start-ups has thus remained relatively steady. The coronavirus crisis dealt a particularly heavy blow to self-employed women because of the sectors they tend to work in. Still, the number of female business starters fell only marginally. Aspiring female entrepreneurs appear to have adapted to the new crisis conditions faster and ultimately realised their start-up plans more often than men.
KfW Entrepreneurship Monitor 2021(PDF, 669 KB, non-accessible)
Coronavirus crisis is slowing down innovation among SMEs
The coronavirus pandemic has left its mark on SMEs’ innovation activity. After a brief surge at the beginning of the pandemic, small and medium-sized enterprises further reduced their innovation activities. The key findings are:
- Three in ten SMEs reduced their innovation in 2020
- Financing difficulties and skills shortages are the main barriers
- The share of innovators in the SME sector rose in 2019 as a result of new OECD definitions
The positive development of VC business sentiment has continued into the new year. In the first quarter of 2021 the sentiment indicator of the early-stage segment rose by 11.5 points to 27.8 balance points. Only a year after the coronavirus-induced downturn in sentiment, nearly all sentiment indicators for the market environment have turned positive – many closing in on their all-time highs. Assessments of fundraising and exit opportunities improved particularly strongly in the first quarter of 2021. Appetite for new investments has climbed to a new high – no doubt also because of the quality and strength of VC deal flow, the assessments of which have also risen to near all-time high levels.
German Venture Capital Barometer 1st Quarter 2021(PDF, 146 KB, non-accessible)
In the wake of the coronavirus slump the recovery of business sentiment in the German private equity market recently improved only very slowly but it has now gained momentum. The sentiment indicator of the later-stage segment gained 18.7 points in the first quarter of 2021, rising to -12.2 balance points, remaining just barely in red territory. Although the various sentiment indicators for the German private equity market paint a mixed picture, most of them improved at the start of the year. Surging economic optimism appears to be leading to a generally improved assessment of the situation of SMEs, so that assessments of the quality and strength of deal flow are positive again, write-down pressure is falling and private equity investors are exhibiting significantly more appetite for new investments. The drop in satisfaction with entry valuations is therefore almost inevitable.
German Private Equity Barometer 1st Quarter 2021(PDF, 144 KB, non-accessible)
Focus on Economics
A recent study commissioned by KfW Research has examined what technologies are most promising for Germany in the medium term. The key findings: Overall, Germany has a differentiated technological profile but it does not include the information technologies that are necessary for digitalisation. Because these technologies are of fundamental and growing importance, building competencies is a matter of urgency. In the medium term, Germany has to become internationally competitive at least in the application of such technologies.
Focus on Economics
The coronavirus crisis really pulled the handbrake on in-company continuing education in 2020 because many companies do not have the money, time and planning certainty they need. A current supplementary survey under the KfW SME Panel revealed that nearly 40% of small and medium-sized enterprises reduced their continuing education activities last year, half of them down to zero. But the need for continuing education remains during the crisis. Indeed, it grew strongly in the area of digital skills in 2020. Lack of digital skills in the workforce is one of the most formidable barriers to the digital structural transformation, making the crisis-induced decline in continuing education all the more problematic for enterprises’ future transformational capacity and competitiveness.
The current KfW SME Digitalisation Report examines the development of digitalisation activity before and during the coronavirus pandemic.
The key finding is that digitalisation activity exhibited a mixed trend during the crisis:
• One third of SMEs expanded their digitalisation activities, while another third still did not carry out any digitalisation projects at all
• Most have put crisis management measures in place that could be implemented swiftly, while strategically oriented projects were more often postponed
• Large SMEs in particular have been ramping up their activities; the SME sector could break up into two groups
KfW SME Digitalisation Report 2020(PDF, 1 MB, non-accessible)
Focus on Economics
A current study commissioned by KfW Research identifies which technologies are the most promising for Germany in the medium term. The most important results are:
• Germany has a differentiated technological profile
• Good starting positions particularly for automotive and manufacturing, as well as environmental and climate technologies
• It is imperative to expand competences with regard to information technologies.
Focus on Economics
Artificial intelligence (AI) is seen as a future technology with strong growth potential and the qualities to be a game changer in many sectors. It is, however, not widely used in the SME sector. The focus on SMEs carrying out R&D highlights the challenges it currently still presents.
Sentiment in the VC market improved significantly at the end of 2020, fully offsetting the coronavirus-induced drastic confidence loss of the start of the year. In the final quarter, the business climate indicator of the early-stage segment rose by 26.7 points to 17.0 balance points. Business situation and expectations assessments improved at similar rates. The three business climate indicators thus appear to be unimpressed by the renewed lockdown and even exceed the previous pre-coronavirus level. Evidently, the experience from the spring was that the startup scene is less widely affected by the coronavirus restrictions than initially feared.
German Venture Capital Barometer: 4th Quarter 2020(PDF, 125 KB, non-accessible)
Sentiment in the German private equity market continues to recover at a sluggish pace. At -30.9 balance points, the sentiment indicator of the later-stage segment hardly improved in the fourth quarter of 2020 (+6.1). Thus, it made up for only around half of the downturn from the first quarter because the path of recovery flattened halfway out of the coronavirus slump. The coronavirus crisis thus continues to weigh heavily on sentiment and impacts on assessments of both the current business situation and expectations.
German Private Equity Barometer: 4th Quarter 2020(PDF, 125 KB, non-accessible)
Focus on Economics
The coronavirus pandemic caused a superficial push for innovation and digitalisation. However, as the crisis continued, the innovation efforts of SMEs deteriorated. As the crisis continues, this is also a threat to digitalisation. Long-term, strategic projects in particular are likely to be pushed aside or delayed as a result of the difficult financial circumstances.
Focus on Economics
In the coronavirus year of 2020, Germany’s SMEs were suddenly confronted with existential challenges and putting their plans for the future on the backburner – including transferring management to the next generation. Against that backdrop, KfW Research delivers a positive snapshot of SMEs’ succession activity. First, many entrepreneurs whose withdrawal is imminent are at least adhering to their succession plans even in the crisis. Second, they entered the crisis well-prepared and are staying the course with succession processes they had already initiated. Negotiations for almost half of the approx. 260,000 transfers planned for the next two years have been completed. But the longer the crisis drags on, the higher the risk that successions may fail. The crisis has further exacerbated a fundamental problem: the shortage of successors due to unfavourable demographics and weak entrepreneurial spirit. Removing barriers to entrepreneurial activity is key to a successful generational transition in the SME sector.
VC market sentiment continued to recover from the spring coronavirus shock. In the third quarter of 2020, the sentiment indicator of the early-stage segment climbed by 4.7 points to -9.5 balance points. VC investors rated both their current business situation and their expectations better than in the previous quarter, although situation assessments improved only very marginally. In the third quarter, the development of the market environment was mixed. In the fundraising climate as a key factor, however, the rebound from the second quarter continued, with assessments even back in the green zone. VC investors’ concerns over fundraising from the coronavirus crisis thus appear to have largely disappeared.
German Venture Capital Barometer: 3rd Quarter 2020(PDF, 98 KB, non-accessible)
The recovery of business confidence in the German private equity market from the coronavirus shock has stalled. The sentiment indicator of the later-stage segment stagnated at -37.5 balance points in the third quarter of 2020. Both current business situation assessments and business expectations remained nearly unchanged. The German private equity market environment has ceased to improve since the rebound in the second quarter. On the contrary, many sentiment indicators dropped again in the third quarter. Apart from the assessment of the promotional environment and tax framework, which are in the upper green band, most of the remaining indicators are deep in the red.
German Private Equity Barometer: 3rd Quarter 2020(PDF, 97 KB, non-accessible)
Focus on Economics
Many small and medium-sized enterprises use digital platforms. This shows that many enterprises have recognised the advantages of platforms for their business and that the barriers for their use are not excessively high. Early adopters are large SMEs and knowledge-based service providers, as well as R&D-intensive manufacturers. Also apparent is the fact that young businesses and companies with a high proportion of young employees are often active on digital platforms.
Which SMEs use digital platforms?(PDF, 214 KB, non-accessible)
The ERP digitization and innovation loan has currently been evaluated externally. As the evaluation confirms, the program addresses the key obstacles and helps to transform the innovation potential of small and medium-sized companies into growth. The funding has measurable positive effects on innovation and investment expenditure as well as on employment and sales growth, as could be determined using a modern statistical method. The funding is also characterized by high efficiency. A summary of the evaluation results can be found here:
Evaluation of the KfW Programme ERP Digitalisation and Innovation Loan(PDF, 2 MB, non-accessible)
Number of start-ups in Germany was steady at 70,000 in 2019 – impact of the coronavirus crisis is uncertain
The number of innovation- or growth-driven young enterprises in Germany has stabilised. After rising in 2017 and 2018, the number of start-ups stayed at 70,000 in 2019. It is uncertain how the coronavirus crisis will impact the development of start-ups in 2020. More businesses will close their doors and there will be fewer start-ups, probably leading to more internet-based and digital business models. One fifth of start-up founders plan to employ venture capital to finance their future growth. That is twice as many as in the previous year. The appetite for VC is growing.
VC market Germany: Ready for the next development stage
The market for venture capital has been growing in Germany for some years now. Since 2014, annual VC investment has grown from EUR 0.7 billion to EUR 1.9 billion. But the German VC market is falling further behind other countries, as their VC markets have evolved much better in relation to the strength of their economies. In order to catch up with the United Kingdom, the European champion, German start-ups would have to receive roughly twice as much venture capital each year and over one third more to reach the level of France.
Large financing rounds pose a particular challenge for the German VC market. Foreign investors are involved in nine out of ten financing rounds. For the German VC ecosystem, that increases the risk of start-ups that need finance leaving the country.
Proportion of businesses planning digital projects stagnates on a high level
KfW Group has surveyed enterprises about their digitalisation activities in collaboration with 19 business associations for the fourth time. The most important results:
- The current survey does not confirm the trend of the past years towards more businesses with digitalisation plans. But the coronavirus pandemic is set to give digitalisation a fresh boost.
- Large enterprises as well as wholesale and foreign trade businesses are pioneers of digitalisation.
- Seizing opportunities remains the most important motive for digitalisation. However, pressure from the business environment to step up digitalisation is clearly increasing.
Business Survey 2020 – Digitalisation (Summary)(PDF, 86 KB, accessible)
Economics in Brief
What does the coronavirus crisis mean for Germany’s VC market? How are market participants responding and what are the consequences? In a special survey, 24 VC investors gave their views on specific aspects.
Start-ups are grappling with losses in turnover, which has also increased the risk of failure. At the same time, the crisis is impacting on their financing situation as even deals already committed to have not been closed. The main reason for this appears to be the great uncertainty caused by the coronavirus shock. However, the threat to further deals not materialising because of the coronavirus should have passed by now. Nevertheless, how long investors will now remain focused on their core business will presumably depend on how well businesses and economies get through the crisis.
The German VC market was unsettled by the uncertain consequences of the coronavirus crisis at the end of the first quarter of 2020 but the initial shock has passed for now. Business sentiment clearly recovered from the all-time low. In the second quarter the sentiment indicator of the early-stage sentiment rose by 50.0 to -11.1 balance points, reversing more than half of the coronavirus slump. VC investors’ assessments of both the current business situation and expectations recovered. The various sub-indicators also improved. VC investors are breathing a sigh of relief with respect to fundraising, exit opportunities, new investment and value adjustments, for example.
German Venture Capital Barometer: 2nd Quarter 2020(PDF, 147 KB, non-accessible)
Confidence has returned to the German private equity market after the massive coronavirus slump. In the second quarter of 2020 the sentiment indicator of the later-stage segment reversed more than half of the first-quarter losses, rising by 45.6 to -40.6 balance points. Later-stage investors are again taking a more positive view of the current business situation and have higher expectations as well. Although sentiment has risen from its low, most indicators remain negative despite the rebound. Private equity investors are still disgruntled by the fundraising climate, exit opportunities and write-down pressure.
German Private Equity Barometer: 2nd Quarter 2020(PDF, 147 KB, non-accessible)
Focus on Economics
Many SMEs are reacting to the coronavirus crisis with innovations. 27% have already introduced process, product or business model innovations. If we include the companies who are still planning to do this, the share rises to 43%. This includes businesses who have suffered heavy losses in turnover in particular. The innovations tend to represent measures that can be adopted on an ad hoc basis rather than result from more long-term development processes.
Bolstered by cyclical and labour market growth, entrepreneurial activity in Germany picked up again in 2019 for the first time in years. The number of newly founded businesses rose to 605,000 (+58,000). This was primarily due to a significant rise in part-time business start-ups, while full-time start-ups dropped to a new low. At the same time, the number of opportunity start-ups grew by a disproportionately high 439,000. The number of internet-based and digital start-ups also rose. The outlook for entrepreneurial activity in 2020 was positive but the coronavirus pandemic is changing much of this. Many entrepreneurial plans, which had increased again, will now likely be put off. However, the crisis can be expected to result in more necessity start-ups.
KfW Entrepreneurship Monitor 2020(PDF, 623 KB, non-accessible)
Focus on Economics
Many small and medium-sized enterprises are responding creatively to the coronavirus crisis, with 43% adapting their product/service offerings, sales method or business model. When combined with businesses that still plan to do this, that percentage even rises to 57%. Companies that were hit particularly hard by the crisis and those that have previously innovated are leading the charge.
SMEs are responding creatively to the coronavirus crisis(PDF, 135 KB, non-accessible)
The uncertain consequences of the coronavirus pandemic have unsettled the German VC market. Business confidence has plummeted to an all-time low. In the first quarter of 2020, the business climate indicator of the early-stage segment nosedived by 72.3 points to -61.3 balance points – an unprecedented decline. VC investors’ assessments of both the current business situation and expectations have deteriorated dramatically.
German Venture Capital Barometer: 1st Quarter 2020(PDF, 131 KB, non-accessible)
The coronavirus pandemic has hit the private equity market hard. The German private equity market has experienced a massive loss of confidence. In the first quarter of 2020, the sentiment indicator of the later-stage segment plunged by 94.3 points to -86.7 balance points. Never before have later-stage investors been more pessimistic about both their current business situation and their expectations. The indicator for the current business situation dropped to -82.2 balance points, while the indicator for business expectations fell to -91.2 of -100 possible balance points. The fund-raising climate has now fallen from a record-high level in the previous quarter to just above its previous lowest level.
German Private Equity Barometer: 1st Quarter 2020(PDF, 129 KB, non-accessible)
Digitalisation projects are gaining traction in the SME sector but digitalisation expenditure has remained low for years
The most important findings are:
- 40% of SMEs completed at least one digitalisation project.
- Digitalisation expenditure was EUR 19 billion per year.
- SMEs spent an average EUR 17,000 on digitalising their business.
- The coronavirus pandemic will trigger a surge in digitalisation.
KfW SME Digitalisation Report 2019(PDF, 865 KB, non-accessible)
The German VC business climate has weakened again but remains good. The business climate indicator of the later stage segment fell by 8.0 points to 10.1 balance points in the fourth quarter of 2019. VC investors rated their current business situation significantly poorer than in the previous quarter, while business expectations remained relatively stable. The indicator for the current business situation decreased to 13.2 balance points (-14.3), while the indicator for business expectations stabilised at 7.0 balance points (-1.7).
German Venture Capital Barometer 4th Quarter 2019(PDF, 145 KB, non-accessible)
The business climate in the German private equity market hardly changed on the preceding quarter. In the fourth quarter of 2019, the business climate index for the later stage segment remained unchanged at 6.3 balance points. Later stage investors gave their current business situation and expectations nearly the same rating as before. The indicator for the current business situation was 11.1 balance points (-1.9), while the indicator for business expectations was 1.5 balance points (+1.9). On average for the year 2019, the business climate in the private equity market was on the upper edge of the normal range and thus remained well behind the two very good previous years.
German Private Equity Barometer 4th Quarter 2019(PDF, 146 KB, non-accessible)
Focus on Economics
Do digitalisation projects have specific characteristics that conflict with external financing? To answer this question, this study compares the financing structure of digitalisation projects with that of investments using a statistical procedure from evaluation research.
The central finding is that the financing structure of both types of projects differs significantly – even when comparing companies that are similar in size, age, credit rating and the respective project scope. This indicates that special characteristics of digitalisation projects are an obstacle to financing with bank loans.
The innovator rate in SMEs is falling to the lowest level ever measured by the KfW SME Panel. Since 2006 the share of innovators among SMEs of all sizes and sectors has declined. The loss of innovators affects both enterprises that produce market innovations as well as the broad mass of imitating innovators. Innovation expenditure is developing without a clear trend in the medium term. Innovation efforts are thus concentrated in fewer and fewer enterprises.
In order to ensure Germany's competitiveness, an innovation policy is needed that pursues two strands: On the one hand, the research and development (R&D) of new technologies must be encouraged. On the other hand, it is necessary to support the innovation activities of companies without R&D, which cannot be achieved through R&D funding measures.
The number of innovation- or growth-driven young enterprises in Germany has increased again. In 2018 there were 70,000 start-ups, after 60,000 in the previous year.
On average, nine in 100 businesses founded by men have start-up characteristics, as opposed to only three in 100 for women. Businesses founded by women and men differ primarily in how strongly they are innovation- and growth-driven. Examples of suitable measures for closing the gender gap include stepping up efforts to attract women to technical and scientific careers and teaching business skills to school students.
Focus on Economics
There has been a slight drop in the number of upcoming SME successions in Germany. Around 152,000 owners of SMEs want to transfer their business to a successor by the end of 2021. This is illustrated by recent data of the KfW SME Panel. One reason for the recent drop is that business starters have been showing greater interest in taking over existing SMEs. Besides, more enterprises already have a succession plan. Succession within the family continues to lose importance. On the other hand, there is an increasing demand for external buyers. Owners’ price expectations have also increased again. Looking ahead, demographic change will increase the need for successors. A growing number of SME owners who are ready for a transfer will be facing a shrinking number of potential successors. There are not enough emerging entrepreneurs to take over existing businesses.
The business climate in the German venture capital market has deteriorated. The early-stage segment indicator fell by 6.1 points to 16.8 balance points in the third quarter of 2019. VC investors rated their current business situation more positively again but pessimism around their expectations returned. The indicator for the current business situation rose to 26.5 balance points (+2.7), while the indicator for business expectations fell sharply to 7.1 balance points (-14.8).
German Venture Capital Barometer 3rd Quarter 2019(PDF, 136 KB, non-accessible)
Sentiment in the later-stage of the German private equity market continues to deteriorate. The business climate indicator of the later-stage segment fell by 3.3 points to 6.4 balance points in the third quarter of 2019. Private equity investors rate their current business situation almost as positively as before but have more pessimistic business expectations, so positive and negative assessments are now balanced. The indicator for the current business situation remains hardly unchanged, at 13.1 balance points (-0.7), while the indicator for business expectations fell to -0.3 balance points (-6.4).
German Private Equity Barometer 3rd Quarter 2019(PDF, 132 KB, non-accessible)
Economics in Brief
The number of creative business start-ups has dropped considerably in the wake of declining start-up activity in Germany: it fell from 178,000 in 2003 to 98,000 in 2018. However, start-up activity in the creative sector has trended positively and, after several ups and downs, was last at 18%. The decline in creative start-ups is particularly prominent among male business starters. This number has more than halved. As a result, the sub-market “software/games” has been particularly hit where, based on a long-term average, 80% of business starters are male.
The business climate in the VC market is recovering after two major setbacks. The business climate indicator of the early-stage segment rose by a strong 13.2 points to 23.2 balance points in the second quarter of 2019. VC investors are more positive about their current business situation but, in particular, they hold much more optimistic business expectations again. The sentiment indicators for the VC market environment, however, are increasingly deteriorating.
German Venture Capital Barometer 2nd Quarter 2019(PDF, 200 KB, non-accessible)
Sentiment in the later stage of the German private equity market has fallen for the fourth consecutive quarter. The business climate indicator of the later-stage segment dipped slightly by another 2.7 points to 10.1 balance points in the second quarter of 2019. Equity investors are more downbeat about their current business situation than before but again hold more optimistic business expectations. The indicator for the current business situation fell to 14.1 balance points (-9.5), while the indicator for business expectations climbed to 6.1 balance points (+4.1).But despite the cooling business climate, most assessments of the later-stage market environment remain in the green.
German Private Equity Barometer 2nd Quarter 2019(PDF, 200 KB, non-accessible)
For the 3rd time, KfW Group, together with 17 trade associations, has surveyed the businesses on their digitalisation activity. The most relevant results are:
- Two thirds of businesses (66%) have plans to implement digitalisation projects in the next two years. These plans can be observed in all business sectors
- Problems come in to focus with increased commitment to digitalisation
- Data security / data protection and lack of IT competences, including a shortage of qualified IT workers, as well as difficulty adapting the organisational structure and work organisation are the biggest hurdles
Business Survey 2019 – Digitalisation (Summary)(PDF, 416 KB, non-accessible)
Focus on Economics
Three types of innovators can be identified among the group of small and medium-sized enterprises (SMEs). This study examines whether there are any differences in business performance between the three groups.
The key finding of the analysis is that R&D-based innovators more often achieve higher growth rates. However, if we disregard enterprises with extremely high growth rates, there is hardly a difference in business growth between the groups. Small and medium-sized enterprises can be successful innovators even without own R&D.
Focus on Economics
The ways in which SMEs generate innovations are only rarely the subject of public debate. The new survey by KfW Research and the ifh Göttingen demonstrates that small and medium-sized SMEs can be divided into three types of innovators.
One innovator type mainly uses industry-specific practical knowledge. A second innovator type primarily relies on the sales market as a source for information, a wide range of in-company interactions and a well-developed error management culture. The third innovator type conducts its own R&D and uses scientific findings. Other sources include information from the business environment, a well-developed error management culture and the use of management practices aimed at stimulating innovation activity.
Innovator rate has fallen again
The share of innovative small and medium enterprises (SMEs) is returning to its long-term downward trend after a brief interim high. Since the middle of the 2000s, especially small SMEs with less than 5 employees have ceased their innovation activities. The central findings are:
- The innovator rate drops by 4 percentage points to 23%
- Innovation spending in SMEs continues to fall to EUR 30.7 billion
- Process innovations are developing positively against the trend - digitization is likely to be a focus here
- Research-based SMEs are launching market novelties seven times more frequently than companies without own research and development (R&D)
Please note: Up to the year 2018, our publication was called the KfW Start-up Monitor
Bolstered by a healthy domestic economy, start-up activity in Germany stabilised in 2018 after declining for many years. The number of business starters was 547,000, down slightly on the previous year. The number of business start-ups by women grew, while male start-ups continued trending downward. Start-up activity has been dominated by new business creation. The year 2018 saw more of it than ever before: Eight in ten business starters ventured into self-employment by setting up new businesses. But there has also been a positive trend regarding business starts through the takeover of existing firms for some time now. Business starters have invested noticeably more capital in their business on average in the past decade. Full-time business starters in particular are investing larger amounts. Overall, start-up finance remains a hurdle at which even many start-up plans fall.
KfW Entrepreneurship Monitor 2019(PDF, 572 KB, non-accessible)
Sentiment in the German private equity market continued to fall after the turn the year. In the first quarter of 2019, the business climate index of the German Private Equity Barometer dropped by 3.1 points to 64.7 balance points. At the same time, the VC business climate continued to be very good despite the decline, while the later-stage climate stabilised on what is still a “good” level. The market environment exhibited varying developments. The fundraising climate improved to just under its all-time high, while assessments of the level of deal flow rose to a new record. Furthermore, the pricing climate eased noticeably. On the other hand, exit opportunities deteriorated sharply and pressure on write-downs increased.
German Private Equity Barometer 1st Quarter 2019(PDF, 207 KB, non-accessible)
The Czech Republic has been regarded as one of Central Eastern Europe’s most attractive locations for many years. The country has a long industrial tradition and rests on a sound economic footing. It has also created noteworthy research infrastructure in the past decade. On that basis, Germany’s neighbour is now undertaking broad efforts to modernise its economy even faster with the aim of joining the ranks of Europe’s top innovators by 2030.
Czech Republic – focus on research and development is a sound strategy(PDF, 353 KB, non-accessible)
Digitalisation has reached SMEs. The share of SMEs that has successfully implemented digitalisation projects has risen to 30%, up 4 percentage points on the last period. Companies of all sizes have shown growth – and this in almost industries. Total expenditure on digitalisation has risen to EUR 15 billion but expenditure per company has stagnated at a low level. Furthermore, small companies invest less and less often in digitalisation. This gives rise to concerns of a potential divide emerging between large, heavily digitalised SMEs and small SMEs left behind in the digital transformation.
KfW SME Digitalisation Report 2018(PDF, 888 KB, non-accessible)
Sentiment in the German private equity market continued to decline at the end of the year. In the fourth quarter of 2018, the business climate index of the German Private Equity Barometer fell by 4.2 points to 67.9 balance points. But although confidence was lower in the second half-year, 2018 was on average the year with the best business climate since 2003 when the German Private Equity Barometer was launched. But sentiment was divided at the end of the year. While the business climate set a new record in the venture capital segment, it cooled yet again in the later-stage segment.
German Private Equity Barometer 4th Quarter 2018(PDF, 204 KB, non-accessible)
Focus on Economics
Fear of failure hampers start-up activity in Germany more than elsewhere. But the good news is that this fear is slowly fading. Fear of failure is mostly driven by fear of financial burdens, should things go wrong. Contrary to widespread assumption, fear of stigmatisation hardly plays a role. Financial risk is part and parcel of entrepreneurial freedom and must not be ignored. Improved teaching of entrepreneurial skills and basic economics, however, can provide potential business founders with the tools to more accurately gauge this risk and take away some of the fear – a knowledge basis that should be created early.
Focus on Economics
According to recent data collected by the KfW SME Panel, around 227,000 owner-managers of small and medium-sized enterprises want to place their business into the hands of a successor by the end of 2020. More than one third of these enterprises have already found a successor. A further quarter are conducting negotiations. The current generation of owner-managers is generally more aware of the need to face the challenges of generational change in a timely manner. Succession outside the family is generally on the rise. Most succession planners have a sound earnings situation, profitability and equity base. Nevertheless, not all will succeed in handing over their business. Time is running out for 36,000 SMEs in particular. They want to complete their succession in the next two years but have not even taken the first step yet. And the main bottleneck remains: The pool of emerging entrepreneurs is too small.
Status report on SME succession: Planning steady at a high level(PDF, 346 KB, non-accessible)
Focus on Economics
Migrants are more active entrepreneurs than the average citizen. For one thing, they have a stronger desire for occupational independence and for another they have lower formal qualifications on average and, hence, more limited labour market opportunities. Migrant start-ups are also different, as they have more co-workers and focus on the personal services sector. They are more strongly affected by certain start-up problems, such as financing. All these patterns are even slightly more pronounced among migrants who live in a non-German-speaking household. Language barriers play a role here and it takes time and support to break them down.
Migrant start-ups – a stronger desire for self-employment(PDF, 234 KB, non-accessible)
Focus on Economics
In 2017 there were around 154,000 ‘young’ social entrepreneurs with 108,000 social enterprises in Germany. That was a share of 9% of all young entrepreneurs. Besides seeking to make a profit, at the very top of their target system is a particular social or ecological concern for which they forgo possible returns. In addition, they also like to break new ground. Just under one third of ‘young’ social entrepreneurs offer new-to-market innovations that were previously unavailable in their target market and one in four develop technological innovations of their own to market readiness. That makes many social entrepreneurs pioneers of sustainable economic development. The share of social entrepreneurs is above average among older business founders. They show that it is possible to realise new plans even at an advanced age and that should be welcomed in the face of demographic change. Social entrepreneurs are more likely to be unsure about having the required business skills, so they should be supported in acquiring such skills.
Focus on Economics
Many businesses deplore that high costs, high risks and financing difficulties are making it hard for them to innovate. This study therefore examines whether differences exist in the financing of capital expenditure and innovation and whether these differences may be a sign of limited innovation finance opportunities. In fact, innovation finance is clearly distinct from investment finance. The findings confirm theoretical considerations that specific characteristics of innovation (such as uncertainty about success, difficulties in assessing projects and lack of collateral) are a barrier to external financing with bank loans in particular.
Publications from previous years can be found in our Download Centre or by using our Search.
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