"The German venture capital industry is recovering and setting new priorities. But previously unpublished KfW calculations show that there is still plenty of room for improvement compared to other countries.
So far, the development of Ralf Gulde's company Sereact has been almost textbook. Gulde has known his co-founder since childhood; the two spent years researching artificial intelligence (AI) applications for robots at the University of Stuttgart before founding Sereact in 2021.
The company develops and markets AI models that can be used to program robots in natural language. "Programming robots really wasn't subject to entertainment tax until now," says Gulde. "Even my ten-year-old nephew can program robots with us." Customers include Daimler Truck and the Dutch online retailer Bol.com. A few weeks ago, Sereact closed a financing round of €25 million. The Stuttgart-based company has been profitable since last year. "We operated very capital-efficiently and tried to solve problems with new approaches and creativity, instead of smashing everything with capital," says Gulde.
Sereact and its Swabian entrepreneurial mentality represent the transformation of the German startup scene: highly complex business models based on years of research instead of the next online retailer or delivery service; profitability instead of rapid growth at any price. The startup financiers, so-called venture capitalists, have evidently learned from the years of the coronavirus ramp-up. "We are observing an increasing selection of investors," says Romy Schnelle, Managing Director of the public-private investment company High-Tech Gründerfonds. Capital is available, but is being allocated more specifically to various uses.
"Startups that can demonstrate both a compelling vision and medium-term financial stability have particularly good prospects – the desired path to profitability must be sensibly planned," adds Florian Bogenschütz, who heads Telefónica's startup incubator Wayra.
That sounds plausible, but it hasn't always been the case. In 2020 and 2021, even founders without real business prospects, boosted by low interest rates, easily received double-digit millions at high valuations. With rising interest rates and without the tailwind of the pandemic, investments in startups declined sharply. This was accompanied by a sharp correction in valuations, which is also reflected in the fund performance of some venture capitalists. According to a recent survey by the venture capital firm Redpoint, around 70 percent of the companies that achieved unicorn status in 2021 have not achieved a comparably high valuation since then. Investors refer to startups with a valuation of more than one billion dollars as unicorns.
But the trend is now pointing upwards again. Venture capital proved to be a relative boost to the German private equity industry's bottom line last year: The private equity association BVK recently reported a decline in total investments in 2024 by one-eighth to €11.3 billion – citing the venture capital segment as a "bright spot," as it reported a return to growth after two years of decline, namely by one-quarter to €3.4 billion. This is the amount of equity invested by private equity firms in Germany in startups. "The venture capital market is on the road to recovery. This development is evident not only in Germany, but worldwide," says Frédéric du Bois-Reymond, BVK board member and full-time partner at Earlybird X. Large financing rounds in which private equity firms invest with other investors have increased in number. Examples include the defense startup Helsing, the AI translation service DeepL, the chip startup Black Semiconductor, the fitness equipment manufacturer eGym, and the energy company 1Komma5grad. Artificial intelligence, defense, and air conditioning technology are the focus of investor interest.
According to BVK, venture capital funds raised €2.4 billion in new commitments last year, a third more than the previous year – this increase also contrasted with the traditional German private equity sector, which, according to statistics, raised less than the previous year. "Especially new or smaller fund managers are nevertheless observing an extended fundraising period and higher requirements," says Hesselmann, co-founder of the M&A database Deal Circle, said:
"So-called limited partners, i.e., the backers of venture capital funds, such as family offices, insurance companies, and pension funds, are acting rather cautiously. A lot of capital is currently tied up in existing funds awaiting exits from their portfolio companies, says Marcus Behrendt, Managing Partner at BMW i Ventures. As long as these returns fail to materialize, it remains challenging to make new investments.
Despite the slight turnaround, there is still considerable room for improvement compared to other countries: Measured by economic output, the volume of the German venture capital market is currently just above the average of the 27 EU countries, as the development bank KfW states in an as yet unpublished study obtained by the F.A.Z. Considering all venture capital transactions that investors have made with German startups over the past five years, their total annual value averages 0.25 percent of gross domestic product (GDP) – compared to 0.23 percent across the 27 EU countries. France's figure is one-third higher at 0.34 percent. KfW cites economic policy initiatives, particularly in the past three years. The United Kingdom, with an average of 0.74 percent of GDP, and the USA, with an average of 0.85 percent, are at a much higher level.
According to KfW's assessment, the key issue is the large funds. The venture capital market in Germany needs more high-volume pools of money to co-finance large financing rounds. In the United States, a good half (52 percent) of newly raised funds between 2021 and 2024 flowed into funds with the equivalent of €500 million or more. In Europe, this applied to 18 percent of fresh capital, and in Germany, to seven percent. According to the KfW analysis, exiting via an IPO is also much more difficult in Germany than in America.
"Due to the political situation in Germany, but also in the USA, there is currently a great deal of uncertainty in the private and public exit markets," says M&A expert Hesselmann. Looking ahead to the coming months, given the combination of lower interest rates and capital pressure on the venture capital side, a revival of the IPO market is expected. However, this requires a stabilization of the political situation. This exit channel would enable venture capitalists to sell their shares and fill their coffers with fresh capital that they could reinvest.
Ralf Gulde doesn't have to worry about that for now. He wants to use Sereact to develop a new, better AI model that also enables the execution of even more complex actions and to open up new markets abroad. He has the capital to do so, for now.” [1]
1. The New Venture Capital World. Frankfurter Allgemeine Zeitung; Frankfurt. 28 Mar 2025: 27. By Maximilian Sachse and Klaus Max Smolka, Frankfurt
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