VC business climate index slumps

The Ukraine war, the high inflation rate and the interest rate turnaround are worsening sentiment on the capital market.

In the first quarter of 2022, the business climate on the German venture capital market deteriorated, as announced by the Kreditanstalt für Wiederaufbau (KfW). The German Venture Capital Barometer fell from 35 points to 7.2 points. This means that the level is now only just positive. In the first quarter, the assessments of the economy, the interest rate level, the fundraising climate and the pressure to make value adjustments slumped the most, it said.

"The VC business climate really collapsed in the first quarter of 2022. This certainly has to do with the high inflation rates and the tightening of interest rates by international central banks," said Fritzi Köhler-Geib, chief economist at KfW. In addition, geopolitical and economic uncertainties caused by the Ukraine war would also have an impact on the business climate. The economic climate had even plunged more than during the Corona shock two years ago.

In contrast, there has been little change in the amount of deals, willingness to invest, and exit opportunities. For example, around three billion euros in venture capital had already been invested in the first three months of 2022. As in the case of the pandemic, the climate slump could thus primarily reflect the shock of the events and remain without effect on actual investment activity in the short term. "Investment activity in the VC market can be expected to remain stable, partly because investors are still sitting on a lot of capital. In addition, the impact of the war on energy supply may even increase interest in clean and climatech startups," says Köhler-Geib.