German startup business climate declines, financing plans delayed

The current German Startup Monitor shows the business climate falls to 38.1 points and financing uncertainty at 23% of startups. Despite economic situation, 56% hold on to new hires.

Berlin - The German Startup Monitor recently conducted the largest survey of startup founders in Germany with 1,825 participating companies. The first results on the business and investment situation have been published.

Key findings:

1. Subdued sentiment: the business climate for startups has deteriorated further and now stands at 38.1 points, the second lowest value since the pandemic-related slump in 2020. Although business expectations have risen slightly, they are still below the values of 2021.
2. Uncertainty about financing: Only 15 percent of respondents rate the willingness of business angels and VC funds to invest positively. A quarter of startups have postponed planned financing rounds, with an increased focus on profitability.
3. Robust labor market: only 15 percent of the startups surveyed have laid off employees in the past year, while 56 percent have continued to hire. However, a steeper decline is evident in Berlin.

The currently tense overall economic situation is also reflected in the mood of the startup ecosystem. The business climate determined by the German Startup Monitor follows the trend of the ifo business climate and reaches the second lowest level after the pandemic-related slump of 2020.

The overall economic situation is not leaving German startups unscathed. In view of a declining business climate and growing uncertainty, we need more focus on future topics in Germany

Christian Miele, Chairman of the Board of the Startup Association

Changing interest rates and inflation pose particular challenges for many startups. Although business expectations have risen slightly, significant uncertainty still prevails. Currently, 65 percent of startups have difficulty making a forecast for future business development.

The financing situation remains a major source of this uncertainty. Investments in German startups have recently declined noticeably, although still above the level before the Corona pandemic in 2020. The current negative trend is mainly the result of the lack of larger financing rounds. In 2023, there has been no financing round over EUR 250 million so far, compared to a total of 8 in the record year 2021 and still 4 in 2022. As a result, just under half of the respondents are skeptical about the willingness of business angels and VC funds to invest, while only 15 percent view it positively.

It is impressive to see how startup entrepreneurs are holding their own in the face of the crisis. They know: Inaction and fear of tough decisions are the sure path to failure.

Florian Nöll, Partner at PwC Germany:

In light of the uncertainties and the economic situation, startups are adjusting their strategies. Currently, the focus is more on profitability than growth. Also, many startups have reduced hiring and revised their financing plans.

Despite the challenges, startups remain a significant employment driver, and many companies are continuing to hire. Only 15 percent of startups surveyed have laid off employees in the past year, compared to 56 percent that have increased their headcount. The exception is Berlin's startup hotspot, where a quarter of startups have shrunk.

We would like to express our sincere gratitude to the Startup Association for the valuable study and insightful insights. These insights help to deepen the understanding of the current situation of startups in Germany.