This makes last year the second-highest deal volume to date. Only in 2021 did German climatetech startups receive more, at €2.6 billion. The decline is attributed to KfW Research This is due to the deteriorating economic conditions resulting from the interest rate turnaround and the overall economic slowdown. Therefore, the study authors do not expect a renewed increase in 2023.
An international comparison shows that climatetech investments in Germany have traditionally been comparatively important for the VC market. From 2009 to 2012, the sector's share of the investment volume of the entire German VC market was already significantly higher than in the USA, the United Kingdom, or France, averaging 8.9 percent. From 2019 to 2022, Germany again had a significantly higher market share of 13.3 percent. The UK and the USA each accounted for only around 8 percent during this period. Only France narrowly exceeds these figures with a share of 13.6 percent over the same period.
Germany falls short of its potential
However, the overall venture capital market in Germany, measured against the country's economic performance, is smaller than in important comparable markets. Consequently, climate tech startups have less venture capital available here. This is clearly illustrated by a look at the deal volume invested per climate tech startup. Relative to the number of active climate tech startups, the deal volume in the US, at €13.6 million per company, was approximately 4.7 times higher than in Germany (€2.9 million).
As KfW Research further notes, this also means that German climate tech startups are even more dependent on foreign investors for large-scale financing rounds in the growth sector. While around 45 percent of seed financing came from German-based investors between 2019 and 2022, this figure fell to just 17 percent in later rounds in the scaleup sector.
Furthermore, the funds are not flowing proportionally to the sectors that contribute most to Germany's CO2 emissions. For example, from 2019 to 2022, an average of only 7 percent of climatetech investments went to the industrial sector, even though it is the second largest source of CO2 emissions. This imbalance is also evident at the global level, according to KfW Research.
Investors see climatetech as a growth market of the future
A supplementary survey of venture capital firms based in Germany conducted by KfW Research also sees climatetech as the technology field with the strongest growth opportunities. Almost all investors believe that this area offers significant (34 percent) or significant (62 percent) growth opportunities. At the same time, however, they also associate climatetech with slightly above-average technological and regulatory risks compared to other technology fields. In particular, risks associated with developing products that match existing market demand and high requirements regarding the duration and volume of financing for climatetech startups are perceived as challenging. Nevertheless, VC investors view investments in the technology fields of healthtech, biotech/life science, fintech, and blockchain/crypto as significantly riskier.
"Germany aims to become climate-neutral by 2045 – this goal requires enormous leaps in innovation. Many industries are currently working hard to develop new technologies to achieve climate targets and contribute innovative solutions for a climate-neutral world. The German VC market has increasingly embraced this trend in recent years,"
says Fritzi Köhler-Geib, Chief Economist of the KfW.
"In order to continue to capitalize on climatetech's significant growth opportunities in the future, it is crucial to further strengthen a needs-based financing offering for startups in this country. Furthermore, a climate and sustainability policy is crucial, setting the framework so that companies have planning security and the necessary investments can offer an attractive risk-return profile. This is the best incentive for startups and companies to invest in the transformation."
