The start-up and young entrepreneur scene in Germany received significantly less venture capital last year than in 2021. In the past twelve months, investors have invested a total of 9.9 billion euros in young and not so young companies in the technology sector.

That was more than 40 percent less than in the previous record year 2021.

Stephen Finsterbusch

Editor in Business.

  • Follow I follow

In their annual report, the market observers at the analyst firm EY, who have been collecting the data in their "Start-up Barometer EY" since 2015, write that this is still the second-highest value in history.

But the decline is significant – and there are reasons for that: Inflation is rising and interest rates are rising, while at the same time company market valuations are falling, stock market prices are falling and the willingness of many investors to take higher risks is noticeably decreasing.

For example, the number of transactions entered into via equity investments in German start-ups last year was also lower.

Larger and larger deals in particular were not as common on the program in 2022 as they were in the year before.

While in 2021 there were 72 investments in the order of more than 50 million euros, there were only 37 last year.

On the other hand, the deals between 5 and 50 million euros have increased by 7 percent compared to the previous year - from 228 to 246. All in all, Berlin has maintained its role as the start-up capital of the state, followed by Bavaria, North Rhine-Westphalia and Baden-Wuerttemberg.

With 390 financing rounds, young companies in the capital closed almost as many deals as start-ups in the next three countries in the ranking.

Like Berlin, the metropolises of Paris and London have also developed into start-up hubs in their countries and also in Europe.

As early as December, the British venture capitalist Atomico explained in its annual inventory of the European start-up scene that the industry had earned significantly less in the past twelve months with capital rounds totaling around 85 billion euros than in 2021. At that time, she was able to raise more than 100 billion euros.

With a sum of around 10 billion euros, the German founders ranked behind France with almost 20 billion euros and Great Britain with around 30 billion euros.

The good news for Germany: "Investments will continue - albeit less and under different conditions," writes Thomas Prüver, partner at EY, in the report.

The perhaps less good news: "What has changed is the framework conditions." In view of the political uncertainties in Eastern Europe, the generally rising cost of capital and the more stringent valuations, investors have been paying more attention to profitability than to investment in young companies for months the promise of growth.

Prüver goes on to explain that young companies are required to adjust to this.

More than in previous years, they would have to pay attention to the real or at least potential profitability of their businesses.

So there were still larger participation deals.

But the indicator on the barometer of this asset class was clearly pointing downwards.

Of the ten largest financing rounds, six went to Berlin, two to Bavaria and one each to Hamburg and Hesse.

The highest sum, almost 400 million euros, flowed twice: Firstly to the Berlin company Wefox, a start-up from the insurance industry, which started in 2014 with a digital platform for managing policies and since 2018 also itself operates as an insurer.

The Bavarian software start-up Celonis, which develops computer programs to analyze data in digitally mapped business processes, also raised 400 million euros.

However, there is a lot going on below the top.

EY partner Prüver explains: “The number of medium-sized deals has even increased.

This shows that it is still absolutely possible for young companies to receive large sums of money with which to finance growth.” Here companies were primarily from the software and analytics, digital trade (e-commerce) and renewable energies sectors front.

In 2022, just over 1.5 billion euros were invested in young companies with a focus on sustainability, i.e. 15 percent of the funds provided.