Every three months, KfW's research division collects business climate data for the German Venture Capital Barometer. For this purpose, approximately 200 members of the Association of German Private Equity and Venture Capital Companies (BVK) and other German venture capital firms are surveyed.
The results for the fourth quarter of 2020 are now available and provide reason for optimism: The VC business climate last quarter was higher than the level for the fourth quarter of 2019, i.e., before the global outbreak of the virus. Venture capitalists appear to have completely overcome the coronavirus-related low sentiment.
Compared to the third quarter, the business climate indicator rose by 26.7 points to 17.0 balance points, while the assessment of the current business situation (+28.3 points to 16.1) and business expectations (+25.2 points to 17.8) recorded similarly strong gains. The three indicators are therefore unaffected by the renewed lockdown. The anti-coronavirus measures appear to be having a less widespread impact on the startup scene than initially feared.
The deal flow quality and strength indicators, as well as the price indicator, are also clearly in positive territory. Satisfaction with initial valuations is also significantly higher compared to the previous year, while the fundraising climate, while back in the green, has not fully offset the COVID-19 losses. Furthermore, the funding environment is also viewed positively.
“Business climate in the final quarter even above pre-coronavirus levels”
"The venture capital year ended on a positive note. The progress made with future funds and the fund location law were two important mood boosters in the final quarter and, unaffected by the new 'lockdown,' provide a solid foundation for the start of the year. The coronavirus shock at the beginning of 2020 has so far been digested more quickly than expected, so that the business climate in the final quarter is even above pre-coronavirus levels."
says Fritzi Köhler-Geib, Chief Economist of the KfW Banking Group. She further explains:
"It's encouraging that key indicators such as fundraising and deal flow have recovered significantly without entry prices rising to the same extent. This provides a good basis for new investments. Startups that have proven during the coronavirus crisis that their innovative business ideas meet needs could be tomorrow's big winners."
Ulrike Hinrichs, executive board member of the BVK, adds:
"The renewed lockdown measures have so far had a significantly less negative impact on the mood of venture capitalists than in the spring. VCs and their startups have learned to cope with the situation and assert themselves in a challenging environment. The rapid recovery in sentiment speaks to the increased robustness and maturity of the market and makes us optimistic for 2021. We also expect an important boost this year from the individual measures of the Future Fund. With this, the German government has made a significant contribution to supporting the German startup and venture capital ecosystem."
