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Business climate in the investment market hurries from record to record

1. Febru­ary 2018

Berlin - The busi­ness climate in the German private equity market impro­ved again in the third quar­ter of 2017. The busi­ness climate index of the German Private Equity Baro­me­ter rose by 4.9 points to 70.2 balance points, signi­fi­cantly excee­ding its record value from the second quar­ter of 2017. The indi­ca­tor for the current busi­ness situa­tion rose by 1.9 points to 70.5 balance points, while the indi­ca­tor for busi­ness expec­ta­ti­ons incre­a­sed by 8 points to 69.8 balance points.

The deve­lo­p­ment reflects a new record high in the early-stage segment of the private equity market. Here, the busi­ness climate indi­ca­tor rose by 12.8 points to 69.1 balance points. Both the current busi­ness situa­tion (+9.1 to 66.7 balance points) and the busi­ness expec­ta­ti­ons (+16.5 to 71.5 balance points) are picking up significantly.

The VC busi­ness climate is being driven by rising valua­tions of exit and funding oppor­tu­nities, which are reaching new highs. In addi­tion, the fund­rai­sing and inno­va­tion climate remains very good. Assess­ments of the level and quality of deal flow as well as entry prices have also stabi­li­zed at their respec­tive levels after slip­ping in the previous quarter.

The busi­ness climate in the late-stage segment remains excep­tio­nally good. At 71.1 balance points (-0.4), the busi­ness climate indi­ca­tor here in the third quar­ter of 2017 remains only slightly below its best value of the previous quar­ter. Inves­tors’ assess­ment of their current busi­ness situa­tion is slightly worse than in the second quar­ter, but they are some­what more opti­mistic about their busi­ness expec­ta­ti­ons. The indi­ca­tor for the current busi­ness situa­tion decre­a­sed by 2.6 points to 73.7 balance points, while the indi­ca­tor for busi­ness expec­ta­ti­ons incre­a­sed by 1.8 points to 68.5 balance points.

The still very good busi­ness climate in the late-stage segment is suppor­ted by almost the entire market envi­ron­ment: fund­rai­sing climate, assess­ment of the level and quality of deal flow and exit climate show top values. Entry-level prices remain proble­ma­tic: Dissa­tis­fac­tion with called valua­tions is incre­a­sing for the sixth quar­ter in a row.

“The unpre­ce­den­tedly good fund­rai­sing climate is now also reaching start-ups,” says Dr. Jörg Zeuner, Chief Econo­mist at KfW, “finan­cing rounds are getting bigger. The latest BVK figu­res show that more than twice as much was inves­ted per start-up in the last two half-years as in 2012 and before. The higher finan­cing rounds are necessary in order to prevent domestic start-ups from falling behind inter­na­tio­nally from the outset. For local VC inves­tors, the situa­tion still takes some getting used to, as can be seen from their dissa­tis­fac­tion with entry prices.”

Ulrike Hinrichs, Mana­ging Member of the BVK Board, adds: “It is parti­cu­larly plea­sing that the very good mood and opti­mism about the future have now also reached the VC sector. Here, a lot has been done in recent years by all parties invol­ved to advance Germany in start-up finan­cing. Looking at the gene­rally high level of valua­tions, it is important to note that macroeco­no­mic condi­ti­ons, low inte­rest rates, but also strong company results thanks to the Draghi stimu­lus are contri­bu­ting to these company valua­tions. But this is not private equity or venture capi­tal speci­fic, if you look at the German and inter­na­tio­nal stock indi­ces, which are rushing from record to record these days.”

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