Huge plus in the summer: German start-ups are attracting more money again

Venture capital
Huge plus in the summer: German start-ups are attracting more money again

German start-ups are recovering from their financing crisis. In the third quarter, investors’ investments in growth companies rose sharply, as an analysis by the development bank KfW shows. The volume was therefore 2.5 billion euros, an increase of 50 percent compared to the previous quarter and the highest value since the second quarter of 2022.

According to KfW, the number of financing rounds also grew significantly by 40 percent to 280 compared to the previous quarter, including five very large deals. This means that in the first three quarters there were 885 transactions in which investors gave venture capital to start-ups. Compared to the first three quarters of 2023, these are slightly fewer deals – at that time there were 922. However, the total volume is slightly higher than the comparable period in 2023. Investors from the USA have recently been particularly interested in German start-ups, followed by domestic investors.

The German market is sending “a positive signal and gives hope for a strong annual result in the next quarter,” said venture capital expert at KfW Research, Steffen Viete. With further key interest rate cuts by the European Central Bank (ECB) and the Fed’s very clear entry into the interest rate cutting cycle in the USA in September, the market environment has “significantly improved”.

Falling interest rates help the start-up industry

With 42 completed financing rounds, start-ups in the health sector accounted for the largest share of deals in the past quarter. These include young companies from the life sciences sector that develop digital health applications and new medicines, as well as work on innovations with living organisms in the biotechnology sector. The second most important industry was energy, with 35 deals and a market share of 13 percent. Start-ups that are working on sustainable and more efficient energy production as well as solutions for recycling and waste treatment can be found here.

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The rapid rise in interest rates had caused problems for German start-ups. The accounting firm EY claims it raised around €6 billion in 2023. Euro venture capital, 39 percent less than in the previous year. There were already signs of recovery in the first half of 2024.

Venture capital, which specialized funds or corporations use to invest in start-ups, is considered the key to growth in the start-up industry. Many German start-ups raise money in the early growth phase, but for large financing rounds they usually rely on Anglo-Saxon investors. When it comes to venture capital investments, Germany, the USA, Great Britain and France are lagging behind.

dpa/rtr/kb