The German tech funding results are in for 2022 — and it’s not looking good

After a blockbuster year of funding in 2021, venture capital investment in German tech startups cooled in the second half of this year – as the worsening effects of war, inflation and rising interest rates settled.

In 2022, the total value of investments in German startups fell 46% year-on-year to $11.9 billion. The number of funding rounds also fell: dropping 29% from 1,606 to 1,137 deals, according to Dealroom data as of late November analyzed by early-stage VC Morphais. The overall level of funding is always higher than the $6.5 billion registered in 2020.

While later-stage funding plunged deepest, early-stage funding (pre-seed to Series A) remained relatively stable. And an explosion of new venture capital funds, especially small funds under $50 million, have been raised.

Subsequent funding collapses

Funding rounds of more than $250 million saw the biggest drop in Germany, both in number of deals and in investment volume, according to analysis by Morphais VC.

2021 saw 14 deals worth $250 million or more, and that figure has dropped to six deals this year.

Investment volume (the amount of money raised by a fund) also fell by 78%, from almost $10 billion in 2021 to $2.2 billion in 2022 for the best deals.

Rounds between $100 million and $250 million have also decreased in terms of the number of transactions. From January to November, 19 deals of this size were concluded, compared to 33 in the same period last year.

It’s a situation that’s played out across Europe this year – investors backing later-stage companies have seen falling public equity prices and are looking more skeptically at later-stage private valuations.

Another aspect is that US funds have historically supported a lot of subsequent investments in German startups – but with the tightening of the funding market in the US, many funds that previously invested heavily in German startups have pulled back.

Seed funding remains stable

Funding has proven resilient in the early stages in Germany, in terms of number of deals and amount invested. The trend is also reflected in the wider Europe: in terms of investment volume, 2022 was the best year yet for seed funding on the continent, according to data from Dealroom.

Investors say that seed funding has remained strong across Europe, as it makes more sense to support fledgling businesses that will mature and exit when economic conditions improve.

According to Morphais’ analysis, the number of pre-seed and seed deals has decreased in Germany this year, but the number of Series A and Series B deals has increased.

The amount of cash invested in pre-seed startups this year also declined in 2022. $51 million was invested in pre-seed startups last year, a 37% drop from the total of $80 million in 2021.

The seed investment volume remained almost stable compared to last year. In series A, it increased by 13% and in series B by 12%.

Eva-Valérie Gfrerer, CEO and founder of Morphais, says now is the best time for investors to pump money into early-stage startups.

“In the past, negative interest rates have led to effortless fundraising and record valuations. In 2022, with rising costs of capital, we see a valuation reset leading to entry valuations more attractive to investors,” she explains.

Additionally, with the end of the free flow of capital, start-ups must now focus on sustainable growth and profitability. This gives investors the opportunity to support businesses with more effective financial planning. “This new environment is very healthy for the market in general and more promising in terms of long-term returns,” says Gfrerer.

A boom in new venture capital funds

VCs may have invested less this year than in 2021, but they still have a lot of money in the bank, as the number of new VC funds and the total volume of funds has increased in recent years.

This year, 58 new funds were raised by VCs (both existing managers and emerging managers) in Germany – double the number of funds raised in 2020.

Gfrerer says the reason for the increase in the number of funds this year is due to “the strong [boom] years before.”

Many funds that closed in 2022 benefited from a favorable market environment in previous years: “for example, loose monetary policies to avoid an economic catastrophe in the midst of a pandemic and negative real interest rates, all resulting in a low cost of capital,” says Gfrerer.

The volume of funds has also increased gradually: from $4.3 billion in 2019 to $17.8 billion in 2021. This year the trend has dipped slightly, with fund volume decreasing to $14.7 billion.

In total, German VCs raised $14.7 billion between January and November. And small funds – less than $50 million – have particularly benefited.

In 2022, there was a 16% increase in investments in smaller funds compared to last year: from $182 million to $211 million.

The best offers in Germany in 2022

Celonis and WeFox lead the charts in terms of amount raised this year, having both raised $400 million in Series D funding.

Below is a list of the top ten funding rounds this year. Note that none of these companies have female co-founders:

Celonis – $400M Series D Extension

wefox – $400 million Series D

OneFootball — $300 million Series D

commercial republic — €250 million Series C extension

For – $250 million Series D

Taxfix – $220 million Series D

Hy2gen AG — €200 million (unknown)

1 Komma5° — 200 million euros series A

Person — $270 million Series E

Coachhub — $200 million Series C

Miriam Partington is Sifted’s DACH correspondent. It also covers the future of work, co-authors Sifted Startup Life Newsletter and tweets from @mparts_