German startup business climate declines, financing plans delayed

The current German Startup Monitor shows that the business climate has fallen to 38.1 points and 23% of startups are uncertain about financing. Despite the economic situation, 56% are holding 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.

The key results:

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 2021 values.
2. Uncertainty regarding financing: Only 15% of respondents rate the willingness of business angels and VC funds to invest positively. A quarter of start-ups 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 new employees. However, there is a stronger decline in Berlin.

The current tense overall economic situation is also reflected in the mood of the startup ecosystem. The business climate determined by the German Startup Monitor is following the trend of the ifo business climate and has reached its second-lowest level since the pandemic-related slump in 2020.

The overall economic situation has also left its mark on German startups. In view of a declining business climate and growing uncertainty, we need more focus on future topics in Germany

Christian Miele, Chairman of the Startup Association

Changing interest rates and inflation pose particular challenges for many startups. Although business expectations have risen slightly, uncertainty still prevails. Currently, 65% of startups are having difficulties 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 they are still above the level before the coronavirus pandemic in 2020. The current negative trend is mainly due to the lack of larger financing rounds. In 2023, there has not yet been a financing round of over 250 million euros, compared to a total of 8 in the record year of 2021 and 4 in 2022. As a result, almost half of the respondents are skeptical about the willingness of business angels and VC funds to invest, while only 15% rate them positively.

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

Florian Nöll, Partner at PwC Germany:

In view of the uncertainties and the economic situation, startups are adapting their strategies. The current focus is on profitability rather than growth. Many start-ups have also reduced recruitment and revised their financing plans.

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

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