The KfW determined Sentiment indicator The indicator for the early-stage segment of the German private equity market rose by 6.7 points to a still subdued -20.5 balance points. Assessments of the current business situation and business expectations rose similarly sharply. The indicator for the current business situation rose by 6.5 points to -32.4 balance points. The indicator for business expectations climbed by 6.9 points to -8.5 balance points.
Investor sentiment regarding fundraising and exits improved moderately in the first quarter. The increase in exits is purely driven by expectations, as assessments of the current situation even declined slightly and are now at their lowest level since the 2009 financial crisis.
After rising in the previous quarter, the assessment of investment willingness is declining slightly again. According to KfW, this is due to a significant decline in the assessment of the current situation, while expectations continue to rise slightly. This means that investment expectations are more optimistic than ever compared to the current situation. Should this overhang of expectations be met with a significant increase in investment activity, startups will find it much easier to access venture capital again over the course of the year.
Fritzi Köhler-Geib, Chief Economist of KfW, comments on the Results as follows:
"Investor sentiment is picking up again at the start of 2024. While it remains subdued, we are seeing encouraging signs that things are continuing to improve. For example, the growing dissatisfaction among investors with entry prices suggests that startups are once again able to achieve better valuations, thus building up a certain pressure to slowly utilize the still abundant dry powder. It also seems that hopes of interest rate cuts over the course of the year are lifting sentiment. Falling interest rates make VC an attractive asset class for investors again, thus facilitating fundraising, which had become increasingly difficult over the past two years."
Interest rate turnaround will be reflected in rising investments
Ulrike Hinrichs, Managing Board Member of the German Equity Capital Association, says of the new data:
"The recovery in sentiment is progressing slowly but steadily. If there are no further economic routs this year and the expected interest rate turnaround actually occurs, market sentiment should continue to improve. And this will then be reflected in rising investments. The funds have substantial resources and are on the lookout for attractive startups. If entry-level valuations rise again, the current year should be an opportune time to end the hesitancy and attract investment."
