German start-up ecosystem develops positively

This is the conclusion of a study that observed several developments in the start-up scene. One of them should not please the German government at all.

According to the "Venture Capital Market Study 2021", the German start-up market is developing positively on several levels. The study was conducted by Dirk Honold of the Nuremberg University of Technology, Ventury Analytics GmbH and the auditing firm PwC. It found that the average transaction volume of the start-ups studied per financing round increased from €5.2 million in 2020 to €5.8 million in 2021.

"We see a positive development in the venture capital ecosystem, from which start-ups in Germany in particular benefit," says Enrico Reiche, Director at PwC. "Among other things, the average transaction volume is increasing, while the expected internal rate of return (IRR) is decreasing and contractual provisions of the investment documentation are mostly becoming more founder-friendly." For the study, the authors surveyed startups with a total investment volume of more than two billion euros per year and more than 360 deals funded annually.

However, the increased deal volume is not the only finding of the study. It also revealed that investors are often willing to negotiate when it comes to the topics of valuation, investment volume and the form of employee participation. This gave founding teams more leeway.

The study also showed that more than 60 percent of the investors surveyed now take ESG criteria into account in their investment process. The letter E stands for Environment, the S for Corporate Social Responsibility and the G for Governance. Of the remaining respondents, more than 60 percent plan to take such criteria into account in the future. However, almost 80 percent of the study participants do not yet use a standardized screening process for environmental, social and governance issues. The start-ups do not think very highly of the German government's Future Fund, which is primarily intended to support start-ups in the growth phase. More than 70 percent of the participants only believe that the Future Fund will have a minor impact on the startup ecosystem. You can read which parts of the traffic light coalition's coalition agreement are relevant for startups in this recent article on Startbase.