KfW Research: Start-ups’ chances of finding investors have improved

• Business sentiment index: Venture capital investors are more positive
• Key interest rate cuts provide positive impetus

Good news for start-ups Germany: Their chances of attracting funding partners have improved. In the second quarter, venture capital investors were more optimistic about their current business situation and felt more positive about the future. This is one of the findings of the quarterly survey of venture capital investors conducted by KfW Research, the German Private Equity and Venture Capital Association (BVK) and the Deutsche Börse Venture Network.

Although sentiment around the current situation is still below average in a historical comparison, the trend is pointing upwards and the outlook for the future is positive again for the first time in two years.

“We can sense an upbeat mood in the German venture capital market, as sentiment indicators are broadly improving”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW. At the start of the summer, more venture capital investors reported that it was easier for them to attract capital than in the spring, and that they expected the situation to improve further in the near future. This view may have been bolstered by the European Central Bank’s key interest rate cut and prospects for further rate reductions. Lower interest rates make it easier for private equity investors to raise capital because the asset class becomes relatively more attractive.

The willingness of venture capital investors to invest in new start-ups grew significantly in the second quarter. Venture capital investors take an equity stake in the start-up in return for their financial contribution.

“In the course of the year, it should become easier for start-ups to attract venture capital investors than last year”,

said Dr Fritzi Köhler-Geib.

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

“Since the low at the end of the year 2022, the mood in the German venture capital market has shown a strong rebound for six straight quarters now. “One thing that makes us optimistic for the remainder of the year is that business expectations have already returned to positive territory. Another is that important indicators such as fundraising and exit environment, investment appetite and business cycle are all pointing to improvement. Along with the optimistic assessments of entry valuations and deal flow, this should also translate into further expanding investment activity and, most likely, the return of larger funding rounds. And if key interest rates continue to fall, this would give the market yet another boost.”

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.