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The growth in venture capital investment in Germany seen in the first half of 2023 came to a halt in the third quarter, as startups saw lower deal counts and value. 

According to PitchBook, startups raised €1.5 billion across 213 rounds in Q3 2023, representing a 29% drop in deal value and an 18% fall in deal count from the previous quarter. This reversal has interrupted the upward trend observed over the two preceding quarters.

Key trends have shifted towards early-stage deals, where early-stage investments accounted for 43.75% of total deal value in Q3 2023, the highest proportion since Q1 2020. This suggests that investors are favouring early-stage deals over late-stage amidst public market volatility. 

When it comes to fluctuating valuations, median pre-money valuation for late-stage companies dropped steeply from €200 million in Q1 2023 to €24 million in Q3 2023. In contrast, early-stage median valuation rebounded to €41.6 million, making the second-highest quarterly figure ever. 

While Germany saw a record 21 unicorns in 2023, the pace seems to be slowing down in the final quarter. Investors seem to be mitigating risks by focusing on early-stage startups that are less vulnerable to market swings. The slowdown in unicorns, small exits and LP investment preferences all point to evolving dynamics shaped by economic uncertainties.

“While the German economy is forecast to grow next year, factors such as high inflation and weak consumption continue to weigh heavily on the financial markets, including IPOs, which have almost completely ground to a halt,” the PitchBook study observed.   

Meanwhile, VC-backed exit value has been low, returning to pre-2021 levels. Limited Partners showed appetite for larger VC funds amidst weak fundraising activity. Four major funds raised over 75% of capital in 2023 so far, including Munich-based HV Capital’s €710 million ninth fund. 

The Q3 2023 data marks a notable shift for German venture capital, with declines across key metrics like deal count and value indicating a more cautious market.