Frankfurt, December 29 – Rising interest rates and the impending recession are causing difficulties for many startups. Investors’ money is not as free as it used to be, and consumers are counting on every penny. However, according to experts, some of these emerging companies can still hope for fresh money for investors. “The startup market is not dead,” says Kai Hesselmann, co-founder of DealCircle, a database for business takeovers. However, it is in a phase of realignment, in which start-ups in certain sectors could score points with investors and growth at all costs is no longer the only thing that matters.
“For start-ups, things that touch on big human issues will continue to be interesting next year: it is essentially about climate change and therefore all companies in this field,” Hesselmann sums up the criteria. This includes Enapter, a supplier of so-called electrolysers that produce hydrogen. The company wants to double its turnover to 30 million euros in 2023. Competitor Sunfire secured an additional 86 million euros in fresh money in March.
Opportunities also arise from current crises, such as in energy supply, says Christoph Stresing, managing director of the Federal Association of German Startups. “Startups are problem solvers.” At the same time, investors still have plenty of capital. “We have also seen larger funding rounds for individual funds. This indicates a certain robustness of the start-up ecosystem. This is not expected to change in 2023.
Venture capitalist Atomico’s “State of European Tech 2022” study paints a similar picture. As a result, the capital cushion for investors in German-speaking countries was seven billion euros at the end of 2021. This represents a 40% increase compared to 2017. Germany is also becoming more attractive for founders and managers of startups. For years, more and more of these skilled workers have been immigrating rather than emigrating.
DIFFICULT YEAR 2022
In recent months, the major central banks have drastically raised their key interest rates in order to control high inflation. This makes loans more expensive. In this context, the volume of investments in German technology companies has fallen by 43% in the current year compared to 2021, according to the study “State of European Tech 2022”.
At the same time, the number of start-ups and funding rounds in Germany fell in the first half of the year for the first time since 2019, says Stresing, head of the start-up association. This trend intensified further in the third quarter. “In terms of funding, however, we are still above 2019 levels.” In the record year 2021, it should not be forgotten that investments more than tripled at the time.
MORE SELECTIVE INVESTMENTS – MERGERS AND IPOS
In this context, the seller’s market is changing into a buyer’s market, explains DealCircle expert Hesselmann. Because there was an abundance of money in recent years due to central banks’ zero interest rate policy, investors scrambled for each startup and outbid each other in funding rounds. According to “State of European Tech”, this turned 105 companies into “unicorns” last year – startups with an enterprise value of more than one billion euros. Since the start of 2022, however, only 31 more have been added. Because now the financiers have the upper hand. “Financial investors and venture capitalists can set prices and terms more strongly,” says Hesselmann. In addition, due to the smaller number of bids, the consultants could play off interested parties less against each other.
In principle, however, the current economic interest and environment hardly influence investment decisions, exclaims Uwe Horstmann, co-founder of venture capitalist Project A. “Timing is secondary, especially when it it’s about commitments in the initial phase of a business. What’s more important is whether it’s potentially a success in eight or ten years.”
When it comes to IPOs, experts at brokerage Freedom Finance see Solaris as a contender. FinTech allows other companies to offer financial services. Project-A expert Horstmann doesn’t expect the downturn in this area to end until 2024. “But there are a few cohorts in the starting blocks.” In the mergers expected in 2023, two types must be distinguished. In the first, two companies with good business operations merge in order to take advantage of synergies. He sees few transactions at the moment. In the second category – mergers born of necessity – he expects a few in the coming months.
When it comes to startups, the wheat will be separated from the chaff in 2023
Cover photo: Symbolic photo
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