As a Founding Partner at Mätch VC, Dr Tim Gegg is at the heart of the action between social tensions, trends, crises, investors and startups. In the following, he gives a brief insight into the current challenges he perceives, changed framework conditions, new opportunities and their influence on the financing of start-ups.
This text was written by Dr Tim Gegg (pictured right) and first published in the Delta Report '23.
The climate in the investment landscape has cooled
The world of start-ups and their financing is dynamic by nature. However, we are undoubtedly in a special situation at the moment, which is primarily characterised by economic and political uncertainty, inflation and discussions about interest rate reversals.
The financing landscape in the German start-up scene has cooled noticeably compared to the coronavirus peak. We are seeing fewer large financing rounds in the early-stage segment and the growth segment is also generally reporting less activity, with a few exceptions. Start-ups are currently confronted with a changing investment landscape in which investors are acting more cautiously and adapting their strategies. In the past, low interest rates and loose monetary policy have contributed to investors increasingly focussing on riskier investments such as start-ups. However, current developments have prompted investors to reconsider their risk appetite. This in turn means that startups are facing additional hurdles on the road to funding, as investors are scrutinising more critically which companies they invest in.
Changed rules and framework conditions
It has become more difficult, but by no means impossible, to raise venture capital for your startup. The requirements that VCs place on startups have only changed in the current times. Now more than ever, startups need to prove that they are able to generate revenue from paying customers and thereby provide proof of traction.
The ability to develop a product is often no longer enough for investors. They want to see that you also have the skillset to market it successfully.
The selection of the target market remains the top priority, which is still the case even in times of crisis. In the areas of climate tech, energy, artificial intelligence and B2B platforms, large rounds can still be observed despite difficult market conditions, as shown by the most recent financing rounds of 1Komma5 (EUR 250 million Series B) or Aleph Alpha (EUR 500 million Series B). These companies are targeting markets with enormous potential.
Instead of focussing exclusively on speed and growth, venture capital investors now increasingly value the stability, profitability and sustainability of the business model. Even if a startup is not yet profitable, it is expected that there is a clear prospect of profitability. The planning of the path to profitable figures should be presented in every equity story and underpinned with convincing milestones.
And last but not least: team, team, team. In view of the crisis, the team factor is becoming even more crucial for investors. We are looking for founders who not only have great visions, but also the skills and determination to see a company through.
Flexibility as capital
In these challenging times, it is crucial for start-ups to adapt to the changing conditions and rethink their financing strategies. They need to focus even more on creating sustainable added value for stakeholders while at the same time demonstrating their resilience and adaptability.
Teams with this setup will continue to be able to acquire capital from investors and build great companies, because the innovative power of start-ups remains an essential driver of change that our country urgently needs.
Political changes provide a tailwind
Despite the current difficult economic situation, the startup scene is fortunately experiencing a tailwind from the political side. The state government is emphasising its commitment to the startup ecosystem with L-Bank's investment in Mätch VC. But the federal government's startup strategy and the packages of measures it contains also aim to strengthen Germany as a financial centre for venture capital in international competition and at the same time provide economic incentives. Improved financing options make it easier for start-ups and growth companies to raise capital.
The Future Financing Act passed in November 2023 is also an important building block here. Qualified employees are essential for the development and growth of a start-up. Employee share ownership programmes (ESOPs) are a key instrument for attracting and retaining top talent.
The political will is palpable and a significant signal for the relevance of the startup scene in Germany - now it is important that we all seize the opportunity together.
Mätch VC
Mätch VC is a new venture capital fund based in Baden- Württemberg for financing high-growth technology companies. With ticket sizes of up to one million euros in the early company phase, the fund aims to lead rounds or invest together with other top VCs and business angels. The close network of participating family businesses, managers and founders offers the portfolio companies not only capital but also a network and expertise.
Gründermotor is involved in the venture capital fund Mätch VC through Gründermotor GmbH. This expands its sphere of activity and enables it to provide even better support to promising start-up teams.
Further information: What exactly is "Mätch VC"?
