German VC market: Startups raise almost EUR 1.5 billion in Q4 2023

Positive outlook for 2024: Kfw analyzes developments on the German VC market in the new Capital Dashboard Q4 2023 and sees potential for a revival.

Berlin - The fourth quarter of 2023 saw an impressive EUR 1.5 billion in financing rounds for start-ups in Germany. Despite a slight decline of 2.9% compared to the previous quarter, the deal volume remained stable. However, the number of deals fell by 19%. The year 2023 as a whole closed with a deal volume of EUR 7.2 billion in 1,088 financing rounds, with funds for German startups again flowing at a slower pace than in the previous year. Nevertheless, investment activity is solid by historical standards and invested funds stabilized on a quarterly basis.

Withdrawal of foreign investors

A defining trend from 2022 continued: foreign investors continued to withdraw from financing German startups, while the share of domestic investors in the deal volume reached a record 38% in the fourth quarter of 2023. There was also a reluctance to provide growth financing in 2023. The first-time decline in investments in the seed sector over the course of the year was surprising.

Falling interest rates as an opportunity driver

However, there are optimistic signs for 2024 that could improve the situation on the German VC market. The prospect of falling interest rates in the second half of 2024 could favor company valuations and exit options, which in turn could improve fundraising conditions. The German VC industry remains well capitalized thanks to successful fundraising activities in recent years, and investors are currently benefiting from more favorable entry valuations. At the end of 2023, one of Europe's largest VC funds of funds, "Wachstumsfonds Deutschland", announced its final closing.

Even in a difficult market environment, three German start-ups, including Helsing, achieved a billion-euro valuation in 2023. The number of exits was also solid with 28 transactions in Q4, with takeovers dominating the exit market. However, there were no IPOs and potential interest rate cuts could give the IPO market new momentum in the second half of 2024. Despite the challenges in 2023, the outlook for the German VC market remains positive as various factors suggest that conditions for startups and investors could improve in 2024.

The current Capital Dashboard can be found on the KfW website.