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In the dynamic world of venture capital (VC), it is essential to keep up to date. Developing the venture capital ecosystem plays a decisive role in shaping the economic future. Start-ups are the innovation drivers of our time, and they face a variety of challenges that are currently intensifying in Germany due to political and economic uncertainties. To ensure Germany’s future viability – and not just in economic terms – it is vital that these start-ups receive sufficient funding. Growth and innovation capital is the fuel that will drive this process.
It is important to give private investors access to the start-up scene and offer them investment opportunities. This not only boosts financial backing for start-ups but also supports the diversification of the investor landscape.
The German government, the Kreditanstalt für Wiederaufbau (KfW), various companies and associations have united under the WIN Initiative – Growth and Innovation Capital for Germany – and have articulated a commitment to strengthening the ecosystem. The WIN Initiative was launched at the Start-up Summit Germany [1] in September 2024. Frankfurt School has co-signed the declaration of cooperation and is actively involved in efforts to improve the conditions that will shape the future – with the Frankfurt Venture Hub community event and the “Certified Venture Capital Expert” certificate program.
The Financing for the Future Act (Zukunftsfinanzierungsgesetzt – ZFG) is an initiative of the German government to make Germany more attractive as a financial hub and aims to promote start-ups, growth companies and innovative technologies in particular.
The 5 most important points of the legislative initiative are
The current venture capital market shows an interesting dynamic and once again underlines the importance of venture capital in the Anglo-Saxon markets.
In the fourth quarter of 2024, global investments rose to USD 108.6 billion, the highest figure since the spring of 2023. Eight mega deals stood out, raising a total of more than USD 36 billion, including a single deal worth USD 10 billion. In Europe, VC investments rose to USD 12.5 billion, with the UK topping the list of the largest investments. However, the German VC market saw a significant decline in investments to its lowest level in four years. In the Americas, the market experienced its strongest quarter since 2022 at USD 78.7 billion, while the Asian market hit a record low of USD 15.6 billion.[2]
Limited partners, such as pension funds, foundations and affluent private individuals, invest in VC funds. To achieve effective portfolio optimization, it is important to understand the risks and opportunities associated with these investments and to assess the strategies and performance metrics of VC funds.
It is crucial for start-ups to successfully acquire capital. To do this, they need to understand the mechanisms of venture capital and the expectations of investors, optimize their business models and pitch decks, and conduct effective negotiations.
Asset Managers responsible for investment funds are tapping into a new asset class with VC investments. Providing clear, concise information to their clients about the opportunities and risks associated with VC investments is key to attracting and retaining clients. Based on a deep understanding of the market, its participants and mechanisms, asset managers can develop customized investment strategies and diversify portfolios effectively.
Family offices manage the assets of affluent families and are often looking for ways to diversify their portfolios. To accurately determine which start-ups and VC funds align with their investment goals, a deeper understanding of the industry is essential.
Beyond investors, other key players in the venture capital environment include lawyers, tax consultants and auditors.
Germany hosts a significant number of major investors who allocate funds across various sectors. The largest fund of funds (FoF) in the country is KfW Capital’s Growth Fund Germany with a target volume of EUR 1 billion. Another prominent VC in Germany is Coparion, which focuses on financing start-ups during their growth phase and is backed by the KfW Bankengruppe and the ERP Special Fund. In addition, there are numerous funds that make direct investments, such as Global Founders Capital (GFC), HV Capital and High-Tech Gründerfonds (HTGF).
In the European context, venture capital plays a crucial role in enhancing strategic sovereignty by promoting technological innovation and economic independence, thereby reducing reliance on external participants. As articulated by the German Institute for International and Security Affairs (Stiftung Wissenschaft und Politik) back in 2022 [3] (Rethinking Strategic Sovereignty – Stiftung Wissenschaft und Politik) , strategic sovereignty encompasses not only military security but also the institutional capacity to act effectively.
The overall venture capital (VC) market in Germany is currently experiencing stagnation, with investors still primarily focusing on sectors such as AI and cleantech. However, it is also clear that the German VC market offers potential for growth and innovation despite its current challenges. As a leading economic power in Europe, Germany must play a pivotal role in the VC market. Initiatives such as the WIN Initiative are crucial for enhancing the framework conditions and facilitating access to capital. The Frankfurt School of Finance & Management – as a leading business school and participant in the WIN Initiative – aims to set standards that will help to position Frankfurt as a financial hub and a key point of contact in the non-Anglo-Saxon region.
[1] https://www.kfw.de/%C3%9Cber-die-KfW/Newsroom/Aktuelles/WIN-Initiative.html
[2] Venture Pulse Report Q4/2024 – KPMG in Germany
[3] Rethinking strategic sovereignty – Stiftung Wissenschaft und Politik
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