Market analysis 2022: German startup investments fell sharply in the second half of the year
After seeing a boom year in 2021, we see now that the venture capital market cooled down in the second half of 2022. This is shown in our analysis based on data from Dealroom.
The data from January 1 to November 30, 2022, shows that the total value of investments in German startups fell by -46% year-on-year to $11.9 billion, while the number of funding deals fell by -29% to 1,137 deals.
Strongest decline in the later stage
The sharpest decline was seen in financing rounds above $250 million. This is where funding volume and rounds declined the most. While last year there were still 14 financing deals with a volume of over $250 million, this year there were only 6 startups that raised such a high volume. This means that the number of deals has fallen by more than 50%.
The investment amount also fell from nearly $10 billion to $2.2 billion for the top deals (-78%). This is primarily driven by a lack of rounds above $500 million in 2022. While 8 companies were still able to raise VC rounds of more than $500 million in 2021, this was not achieved by any startup this year. The data also shows that in 2021, some startups were able to raise large sums at very high valuations at a fairly early stage. Among others, young delivery platforms benefited from this, having already raised Series B and Series C investments of more than $500 million each. There have been significant adjustments here this year. It has become apparent that some of these startups had to adjust their valuations downwards.
Financing rounds with a volume of $100 million to $250 million also declined. Throughout January and November, the amount invested fell to $2.9 million. This is 38% less than in the same period last year. Moreover, only 19 financing deals were counted between January and November 2022, compared to 33 in the same period in 2021 last year.
Financing volume declined in the pre-seed phase
Between January and November of this year, $51 million was invested in the pre-seed phase; significantly less than last year (-37%). According to current data, even the number of overall financing rounds has decreased by -48%: While 953 financing rounds were still counted between January and November 2021, this year saw just 498 financing rounds* in the pre-seed stage.
In contrast, the situation was slightly better in the seed phase, Series A and Series B. In the seed phase, the investment volume decreased marginally by -1% compared to the same period last year, while in Series A and Series B, the financing volume increased by 13% and 12%, respectively. In addition, despite the fact that funding amounts and rounds in these phases have not decreased over the past year, very high increases were still recorded between 2020 and 2021. Furthermore, in 2021, high investment sums were still flowing into Series A and B in December. This is not expected to happen this year, so there will probably be only a slight increase in this phase at the end of the year.
Plenty of capital available, especially from smaller funds
Although VCs invested less, especially in the second half of the year, there still exists a massive amount of capital in the market, as both the number of new VC funds and the total fund volume have risen continuously in recent years. This year, 58 new investment funds were counted in Germany — putting the total at one fund more than in the boom year 2021. Compared to 2020, the number of newly invested funds has increased by 42%. At the same time, many of the funds closed in 2022 still benefited from the market environment of previous years. Loose monetary policy to avert an economic crisis during the pandemic and negative real interest rates resulted in a low cost of capital for investors.
Looking back, the data also shows that fund volumes have continued to rise since 2020. For example, the total amount of newly launched VC funds was $4.3 billion in 2019, $11 billion in 2020, and $17.8 billion in 2021. This year, another $14.7 billion was raised by VC funds in Germany between January and November. Small funds, in particular those under $50 million, are more numerous and better filled than ever before. So far this year, 16% more has been invested in smaller funds than in 2021 (from $182 million to $211 million). (VC funds include follow-on funds of existing VC firms as well as corporate VCs and first-time funds.)
The biggest startup deals 2022 in Germany
The biggest financing rounds this year, worth $400 million, were received by the Munich-based deep tech startup Celonis as well as by the Berlin-based insurtech-startup WeFox. The list of top deals also includes the German startups Onefootball, Trade Republic, Forto, Taxfix, H2gen AG, 1Komma5°, Personio, and Coachhub.
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About the data analysis: The analysis is based on data from Dealroom. The year-on-year comparisons refer to the period from January 1 to November 30, 2022 — unless otherwise stated. The data includes investments by VCs, business angels, corporate VCs, and public funds. VC investments flow predominantly into startups. Startups are growth-oriented companies that are less than 15 years old. In individual cases, VC investments also flow into companies that are older than 15 years.
*Especially in the pre-seed area, not all deals are published promptly. This can lead to a reporting gap, so that the difference to the previous year may be slightly smaller than currently reported by Dealroom.
About Morphais VC: Morphais VC is an early-stage VC firm that has developed its own AI technology to invest in outstanding technology founders in Europe.
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