Venture capital is in short supply
German startups worry about money
November 28, 2023, 11:07 a.m
Listen to article
This audio version was artificially generated. More info | Send feedback
Difficult economic times inhibit investments. This is particularly bad for startups. According to a report, the desire to invest money in new companies is plummeting worldwide. Germany is holding up well. But there is a lack of risk capital. The federal government wants to help.
Sharply increased interest rates, economic worries, wars and inflation: The German tech industry cannot escape worse financing conditions in Europe, but it comes away with relatively minor losses. This is shown by a report from the venture capitalist Atomico.
Accordingly, venture capital investments in Europe’s startups this year are estimated to amount to around 45 billion US dollars (a good 41 billion euros), almost half less than in 2022 (82 billion dollars). The decline is even more severe than initially expected, says Atomico. US investors held back from investing in Europe. This particularly affects startups in Germany.
Local tech companies are expected to raise $7.8 billion in venture capital this year, a good quarter less than in 2022 (10.8 billion). This puts Germany in third place in Europe: startups from Great Britain and France raised an estimated $12.7 and $8 billion respectively, but suffered larger declines compared to the previous year. Germany is succeeding in attracting the most tech talent after Great Britain. Atomico sees a clear upward trend in this country: the sum of $7.8 billion is 39 percent above the 2020 level.
Tom Wehmeier, partner at Atomico, said Europe’s tech industry is robust and showing signs of stabilization. Despite the large declines, 2023 is the third strongest financing year after the record years of 2021 and 2022. More startups were founded in Europe this year than in the United States, but financing is still more difficult. “The probability of receiving venture capital in the USA is still 40 percent greater than in Europe – and the local public markets also continue to hold back on the technology sector.”
Layoffs at startups are likely to continue
The startup industry has had difficult months. In view of the war in Ukraine, the weak economy and increased interest rates, investors are holding back on injecting money. The valuations of large startups plummeted and many cut jobs. This year, only a few companies, including the Cologne-based online translation service DeepL, achieved a billion-dollar valuation, according to the report. Layoffs in the startup industry are likely to continue in 2024, Atomico believes.
Germany in particular lags far behind countries like the USA when it comes to the venture capital that investors use to invest in startups. For large financing rounds in the late phase, local startups usually rely on Anglo-Saxon investors. To alleviate the problem, the federal government has launched a new billion-dollar fund in which well-known major investors are participating.