German venture capital investor sentiment improves but exit challenges persist

Banking & Financial Services
Webp 1q4db0ts0vys8410a6z27g6s4suf
Wolfram Schweickhardt Spokesman | KfW Group

Sentiment among venture capital investors in Germany has shown significant improvement in the third quarter of 2024. According to the VC Barometer, prepared by KfW Research, the German Private Equity and Venture Capital Association (BVK), and the Deutsche Börse Venture Network, business confidence in this sector now aligns with long-term averages after over two years of negative outlook.

The report indicates that raising capital has become easier for venture capital investors during this period. The current situation assessments have improved significantly, likely due to interest rate cuts by the European Central Bank (ECB) and the Federal Reserve (Fed). However, despite these improvements, the fundraising climate remains below average when viewed over a longer term.

Venture capital providers continue to face challenges with exit options from their investments. Dr. Georg Metzger, Senior Economist at KfW Research, stated: “Exit options are still very few. But satisfactory exit returns are important for the VC funding cycle.” He also noted that while expectations suggest improvements in exit options over several quarters, it is crucial for these positive expectations to materialize soon.

State support offerings have seen improved sentiment among venture capital investors. Although current situation assessments remain stable, expectations have increased considerably in the third quarter. This change may be influenced by initiatives like WIN Initiative coordinated by KfW, which aims to strengthen Germany's venture capital ecosystem through enhanced tax-related, legal, and financial conditions.

Ulrike Hinrichs, Managing Director of BVK, commented on the overall market sentiment: “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 continue to demonstrate positive sentiment.” She added that despite low levels of exit opportunities persisting from previous quarters, there is a generally positive development expected to last until year-end.

The quarterly German Venture Capital Barometer is produced exclusively for Handelsblatt business daily by KfW in cooperation with BVK and DBVN.