Every quarter, KfW and the Association of German Private Equity and Venture Capital (BVK) assess the current sentiment in the German private equity market. The results suggest a very good year for venture capital.
The "German Private Equity Barometer" measures a very positive overall business climate for the first quarter of 2017. The indicator for the current business situation improved slightly compared to the previous quarter. Business expectations deteriorated somewhat.
The venture capital business climate indicator, which is of interest to startups, rose significantly in the first quarter. Factors related to the VC market environment also provide good news for startups: The German Private Equity Barometer recorded record levels in both the fundraising climate and public funding, as well as the volume of deal flow. Exit opportunities and deal flow quality were also rated very highly.
Cooling in the late phase
Sentiment among late-stage investors developed in contrast. The business climate in the late-stage segment cooled somewhat after reaching a record high in the previous quarter. However, the fundraising climate here also rose to a new record high, and exit opportunities continue to be viewed extremely positively. Investors are rather dissatisfied with the entry prices, the size of their deal flow, and the deal flow quality.
“The current market environment points to a very good VC year in 2017,”
says Dr. Jörg Zeuner, Chief Economist at KfW. Regarding the negative development in the late-stage segment, he explains:
"We also need to lead established companies into the next generation, because the upheavals brought about by digitalization are not exempt from small and medium-sized businesses. Venture capital can be the right tool for the necessary investments."
Ulrike Hinrichs, managing BVK board member does not share the concerns about the weakening late phase:
"This is an effect of the low interest rate phase. Entrepreneurs are currently finding it difficult to find attractive alternative investments and are therefore holding back on selling their businesses. In addition, many companies have been able to build up financial reserves in recent years of strong economic activity, and banks offer very favorable loan terms to good companies."
