German start-ups received significantly less fresh capital in 2022 than in the previous year. The reasons include rising interest rates, falling valuations and cautious investors. A total of 9.9 billion euros flowed into German start-ups, 43 per cent less than in the record year 2021, when 17.4 billion euros were invested. However, this is still the second-highest figure for a full year since EY began collecting this data in 2015. In addition, the number of deals last year was lower than in 2021, dropping from 1,160 to 1,008 deals. Nevertheless, this was the second consecutive year in which the 1,000 deal mark was exceeded in a single year.
The current figures are mainly explained by the decline in large deals of more than 50 million euros. While there were 72 investments of this size in 2021 (33 of which were over 100 million euros), last year there were only about half as many, at 37 (19 of which were over 100 million euros). On the positive side, deals in the range between five and 50 million euros have increased compared to 2021: from 228 to 246.
With deals with a total volume of almost 10 billion euros, 2022 represents the second most successful year ever for the start-up industry in Germany. And this in a time marked by geopolitical challenges, high inflationary pressure and rising interest rates. “Investments will continue – albeit less and under different conditions. Because what has changed are the general conditions: In view of rising capital costs and falling valuations, investors are paying more attention to profitability than to long-term growth promises. Young companies are challenged to adapt to this and to show a clear path to profitability,” explains Dr Thomas Prüver, Partner at EY.
Investment volume in Hamburg increased slightly
Start-ups in the capital city were once again able to raise by far the most venture capital: 4.9 billion euros were invested in Berlin start-ups last year. In 2021, more than twice as much had been invested at 10.5 billion. The situation is similar in Bavaria, where the invested capital almost halved compared to the previous year: 2.4 billion in 2022 compared to 4.4 billion euros in 2021. Behind them, Baden-Württemberg (646 million euros) and Hamburg (547 million euros) follow at a clear distance. Encouragingly, the investment volume even increased slightly in these two federal states.
In terms of the number of deals, Berlin also takes first place: the capital counted 390 financing rounds, which is 39 percent of all deals in total and almost as many as in Bavaria, North Rhine-Westphalia and Baden-Württemberg – which are directly behind Berlin in the deal ranking – combined. The young companies in the capital did not come close to the top value of the record year 2021, when 503 deals were achieved.
Sharp decline in financial and insurance technology
The Software & Analytics sector collected the most venture capital in 2022 – and by far: 3.2 billion euros is also a relatively stable figure compared to the total in 2021, when the sector received 3.6 billion euros. In contrast, the decline is significantly stronger in the FinTech/InsurTech sector (1.3 billion euros, minus 65 percent). In addition, the Mobility (1.4 billion euros) and Energy (1.1 billion euros) sectors also belong to the billion-euro circle of start-up industries. In 2021, e-commerce was still part of this circle, with 3.7 billion euros flowing into the sector. In 2022, by contrast, it was only 635 million euros – a minus of 83 percent.
Of the ten largest financing rounds, six went to Berlin, two to Bavaria and one each to Hamburg and Hesse. The highest sum – 399 million euros – went twice: first to the Berlin InsurTech company wefox, and second to the software start-up Celonis from Bavaria.
“There were definitely still large deals last year – but not as many as in the boom year of 2021. But what is even more important for the start-up ecosystem is that the number of medium-sized deals has actually increased. This shows that it is still absolutely possible for start-ups to obtain even large sums of money with which to finance growth,” concludes Dr Thomas Prüver.
Start-ups with a sustainability focus receive 1.5 billion
More than 1.5 billion euros were invested in startups with a sustainability focus in 2022, which is 15 percent of the total financing volume. The highest proportion of funding rounds involving sustainability-focused startups was in the Energy (72 per cent) and AgTech (57 per cent) sectors.
The basis for the statements and assessments made in the article is the Startup Barometer of the audit and consulting firm EY (Ernst & Young). The study is based on an analysis of investments in German start-ups. Start-ups are basically companies that are not older than ten years.
The current Startup Barometer is available here.
