KfW Research: Mood among venture capital investors in Germany is brightening

• Business sentiment index: Venture capital investors are much more optimistic about their current situation
• Fundraising situation is improving
• Exit options are still very few

Sentiment among venture capital investors in Germany improved significantly in the third quarter of 2024. After more than two years in negative territory, business confidence in the venture capital segment now reflects the long-term average again. Whereas business expectations stabilised with a slight increase on the previous quarter, current business situation assessments improved very significantly.

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.

Raising capital was easier for VC investors yet again in the third quarter. After fundraising expectations had shown a recovery for multiple quarters already, assessments of the current situation have now improved significantly as well. This is likely attributable to the ECB’s and Fed’s interest rate cuts. Still, the fundraising climate remains below average in a long-term comparison.

Venture capital providers continue to view the possibilities of exiting from their investments as difficult.

“Exit options are still very few. But satisfactory exit returns are important for the VC funding cycle”,

said Dr Georg Metzger, Senior Economist at KfW Research.

“Expectations suggest that exit options have been improving for several quarters. It would be desirable for the positive expectations to materialise quickly.”

Sentiment among VC investors has improved with regard to state support offerings. Whereas situation assessments remain stable, expectations improved considerably in the third quarter. This may also have to do with the WIN Initiative coordinated by KfW, under which policymakers, associations and businesses have come together to strengthen the VC ecosystem in Germany. In mid-September, a joint declaration of intent was signed endorsing measures that improve the tax-related, legal and financial conditions for venture capital in Germany.

“Although business confidence in the venture capital market dipped slightly this quarter, we are still moving down the right path. The indicators of deal flow and entry valuations, in particular, continue to demonstrate positive sentiment”,

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

“But exit opportunities remain on a low level, as they did already in the previous quarter. It is fair to say that we are seeing a generally positive development, which we hope will last until the end of the year.”

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.