The German venture capital market is experiencing challenges due to economic uncertainty, primarily stemming from the United States. Despite these challenges, the business climate index for the venture capital market in Germany showed a slight improvement, rising by 2.0 points in the first quarter of 2025. However, at -2.1 balance points, it remains below the long-term average.
Investors rated the business situation slightly better than in the previous quarter, but six-month business expectations have decreased for the first time since late 2023. This information comes from the VC Barometer, a quarterly report prepared by KfW Research, the German Private Equity and Venture Capital Association (BVK), and the Deutsche Börse Venture Network.
Dr Dirk Schumacher, Chief Economist of KfW, commented on this development: “The development of the capital market is currently weighed down by profound economic uncertainty, to which the German venture capital market is not immune either. The erratic economic policy of the US is changing the scenarios investors and businesses must prepare for on an almost daily basis.”
In recent years, investors had viewed their fundraising options more positively after overcoming difficulties caused by previous interest rate hikes. However, this positive sentiment has reversed with a significant drop in fundraising climate by 16.5 points to -11.0 balance points. A contributing factor could be higher interest rates following Germany's establishment of a special fund for infrastructure and defense.
Dr Dirk Schumacher noted: “In the first quarter, investors became more dissatisfied with the interest level again. But we have seen a renewed drop in interest rates in Germany in recent weeks, so that is good news for the VC market going forward.”
Despite these issues, sentiment around entry valuations improved as investors find current valuation levels favorable and are satisfied with investable start-up projects' quality.
Ulrike Hinrichs, Managing Director of BVK stated: “The projects agreed by the new Federal Government in the coalition agreement could generate further impetus for the domestic ecosystem. These include the WIN Initiative and Financing for Future Act 2 which are likely to mobilise additional capital for start-up financing. This gives hope for rest of year – provided there are no further disruptions from US.”
KfW produces this quarterly barometer exclusively for Handelsblatt business daily in cooperation with BVK and DBVN.