Christian and NGP Capital
Christian Noske, a Partner at NGP Capital, has been at the forefront of understanding and analyzing the dynamics of venture capital (VC) funding within the DACH region (Germany, Austria, and Switzerland). His insightful interview with Startuprad.io from last year delves into the intricacies of the VC landscape in these countries, highlighting both the challenges and opportunities that startups face today. You can explore the full interview here: https://medium.com/startuprad-io/from-berlin-to-zurich-ngp-capitals-research-on-vc-funding-in-the-dach-region-startuprad-io-36553faace33
NGP Capital 2024 Research Report
In this comprehensive blog post, we will explore the key findings from NGP Capital's latest research report, "DACH Startups Decoded," which offers an in-depth analysis of the current state of the DACH startup ecosystem. This report provides valuable insights into dealmaking, fundraising, and sector trends, reflecting the region's resilience and potential for global growth.
The Evolving DACH Startup Ecosystem
The DACH startup ecosystem has continued to evolve, demonstrating resilience in the face of global uncertainties. This evolution presents both challenges and opportunities for startups aiming to scale and grow internationally. The report emphasizes the region's expertise in advanced fields such as computer vision, machine learning, and natural language processing, which positions DACH-based startups to leverage the transformative potential of AI across various industries. However, the region also requires growth capital, regulatory reforms, a supportive policy environment, and cross-border collaboration to fully capitalize on these opportunities.
Introduction and Methodology
The second annual report dives into the current state of the DACH startup ecosystem, analyzing trends in dealmaking, fundraising, and sector dynamics. The report is based on data from 9,729 funding rounds raised by 6,867 companies, with 1,748 rounds by 1,676 companies recorded between Q2 2023 and Q1 2024. Raw data sources include Dealroom, Harmonic, and Predictleads.
Key Insights
Stabilization of VC Investment
VC investment in the DACH region has stabilized around the $2.5-$3.2 billion range per quarter, a significant drop from the peak levels of 2021. However, these figures still surpass the pre-pandemic funding levels of 2019 and 2020, indicating a new equilibrium in the market. The stabilization suggests that the market has maintained some gains from the boom period despite recent declines.
Regional Distribution of Funding
Germany dominates the DACH region, accounting for 75.2% of total venture funding over the past year. However, Switzerland leads in per capita funding with $247 per capita, nearly matching the UK's $305 per capita. Germany, while a powerhouse in total funding, lags behind the UK and France in per capita venture capital investment, indicating untapped potential in its venture ecosystem.
Quarterly Funding Trends
Germany shows positive signs with a 3.9% increase in Q1 2024 compared to Q1 2023, while Switzerland and Austria faced declines of -19.8% and -75.8%, respectively. Despite these regional variations, the broader European market is stabilizing, offering a potential alignment for DACH funding with broader market recovery trends.
Emerging Trends and Sector Insights
Growth in Smaller Startup Hubs
Smaller cities in the DACH region are making significant gains in venture funding, contributing to a more balanced geographical distribution. Berlin remains the largest city in terms of venture funding, but its funding nearly halved in the past year. Significant increases were noted in the Rhine-Neckar area, Hamburg, Dresden, Frankfurt, and Lausanne.
Shift Towards B2B Funding
The DACH startup ecosystem is witnessing a significant shift from B2C to B2B funding. B2B funding has shown signs of recovery, with the most recent quarters consistently exceeding the $2 billion mark each quarter. In contrast, B2C funding remains on a downward trajectory, highlighting ongoing challenges in the consumer sector.
Sectoral Focus: Industrial Tech and Cybersecurity
There has been a notable increase in funding for sectors such as energy, cybersecurity, foodtech, real estate, semiconductors, and robotics. However, traditional leaders like enterprise software, fintech, and mobility & logistics have seen significant declines. This shift underscores the region's focus on industrial technology and cybersecurity, reflecting broader trends in global venture capital investment.
Venture Round Patterns
Growth in Median Round Sizes
After a dip in 2023, median round sizes have grown across all stages, indicating renewed interest in funding startups at various development stages. Later-stage rounds, particularly Series B and Series C, have seen significant growth, suggesting a recovery in the DACH venture capital market.
Lengthening Series B Funding Cycle
While the time to raise a Series A round has remained relatively stable, the average time to raise a Series B round has increased, reaching 27.7 months in Q1 2024. This suggests that while initial funding is accessible, startups face more challenges securing subsequent rounds.
In Focus: Artificial Intelligence and DeepTech
AI Funding Momentum
AI companies in the DACH region have seen a resurgence in funding, with a 114% increase in Q1 2024 compared to Q1 2023. Germany leads in AI funding, with 83% of the region's AI funding going to German companies. Swiss companies receive most of the remaining funding.
Dominance of Advanced Manufacturing in DeepTech
DeepTech funding in the DACH region is led by advanced manufacturing, which raised $1.37 billion over the past year. Other significant segments include robotics and computer vision. Switzerland remains at the forefront of DeepTech growth, with overall DACH DeepTech funding rising by 3% year-over-year.
Conclusion
The DACH startup ecosystem continues to demonstrate resilience and potential for growth despite global uncertainties. With a strong focus on AI and DeepTech, the region is well-positioned to capitalize on transformative technologies. However, to fully realize this potential, growth capital, regulatory reforms, and a supportive policy environment are essential. As the market stabilizes, there is a significant opportunity for the DACH region to align with broader European and global recovery trends, driving innovation and growth in the startup ecosystem.
For a deeper dive into these insights, you can read the full interview Research Report here [Link Opens PDF]
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This blog post was written with the assistance of an ai.
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