The one from the KfW The business climate indicator, calculated by the German Institute for Economic Research (DIY), fell by 25.6 points to -42.9 balance points. Apart from the coronavirus shock in the first quarter of 2020, sentiment on the venture capital market was last at a worse level 20 years ago. Assessments of the business situation and business expectations also declined. The indicator for the current business situation fell to -41.2 balance points (-28.9 points), and the indicator for business expectations fell to -44.7 balance points (-22.2 points).
The barometer cites several reasons for this development: It was the closing quarter of the year, which is why the negative development of company values over the year is said to have led to increased accounting write-downs during the annual financial statements. In addition, US investors in particular were more cautious, which also limited local investors, as they need their US counterparts as capital-strong syndication partners.
Good medium-term prospects brighten the mood for venture capital
The insolvency of the crypto exchange FTX is also said to have had an impact on the venture capital climate in Germany, according to KfW Research. The study authors assess it as a shock to the tech scene, which weighed on sentiment in venture capital markets worldwide. The FTX crash may also have had an impact on US investors' reluctance to invest. A domestic problem, however, was the temporary end of the INVEST grant for venture capital as a public funding option for business angels. However, with the relaunch of the program, this difficulty has now been resolved.
“The VC business climate collapsed again in the fourth quarter of 2022,”
says Fritzi Köhler-Geib, the chief economist of KfW.
"Apparently, the annual financial statements brought the necessary write-downs due to the year's developments back into focus and dampened sentiment. The cautious investment activity of US investors also had a negative impact. This underscores the need to do more in the scale-up sector to reduce dependence on US investors. The positive medium-term outlook for VC investment activity brightens the beginning of 2023: The investment funds that young funds in particular can still access from their fund investors have continued to rise despite the adverse macroeconomic environment. The INVEST grant, which is an important investment incentive for business angels, is fortunately getting a quick restart."
