The business climate on the German venture capital market has improved Half year 2023 improved again. The business climate indicator in the venture capital segment rose by 12.4 points to -22.2 points. This almost offsets the slump in sentiment at the end of 2022.
However, assessments of the current business situation remain at a very low level, while business expectations were assessed significantly more positively for the second consecutive month. The indicator for the current business situation increased slightly to -40.1 points (+6.1 points), while the indicator for business expectations climbed to -4.4 points (+18.8 points). Because business expectations are ahead of the business situation, the overhang of expectations has never been greater. While this optimism is encouraging, if expectations remain unfulfilled for a longer period, this could lead to a countermovement and a renewed collapse in the business climate.
Fritzi Köhler-Geib, Chief Economist of the KfW, says:
"It seems crucial to me that we readjust our benchmark. 2021 was an outlier. The development prior to that is the right benchmark, and measured against it, the VC investments of the last two half-years are right on trend. We can therefore be optimistic about the future development of venture capital in Germany."
Business climate: Confidence is back
The new optimism is also evident in the assessment of key factors. For example, expectations regarding fundraising, the exit environment, and investment willingness are significantly more positive than the assessment of the current situation. This trend is most extreme in fundraising. While the current situation and expectations were assessed similarly in the first quarter, the assessment of the current situation fell to a new all-time low in the second quarter. In contrast, the assessment of expectations rose sharply.
A similar picture emerges with the new investment climate. In particular, the assessment of the current situation has deteriorated again, but expectations remain positive. Investors have apparently been rather cautious with new investments in 2023, but expect investment activity to increase for the remainder of the year.
Ulrike Hinrichs, Managing Board Member of the Federal Association of German Private Equity and Venture Capital Companies, commented:
"After an extremely difficult 2022, optimism has returned among venture capital investors. While this is certainly still fragile, they are looking to the future with much more hope, as is typical for VCs. While VCs continue to view key framework conditions such as interest rates, the economy, and the exit and fundraising environment with skepticism, this is no longer weighing on the general mood and, in particular, expectations as much as it did at the end of last year. This optimism should also be reflected in investment activity in the second half of the year, which is why we expect a recovery here."
