Following the trend of the first six months, investments in Germany continued to decline in the second half of 2023. In an environment characterized by market uncertainties and increased competition, total investments in German fintechs almost reached the last historic low of 2014 at USD 1.11 billion.
Bernd Oppold
Partner, Financial Services
KPMG AG Wirtschaftsprüfungsgesellschaft
Paradigm shift in the fourth quarter of 2023
The reasons for the very subdued developments on the German fintech market in the second half of 2023 were uncertainties caused by inflation and the impact of volatile interest rates, which led to a downward trend in the valuation of fintechs. In addition, investors tightened their due diligence criteria.
The venture capital (VC) investment volume amounted to USD 117.92 million in the third quarter of 2023, the lowest level since the first quarter of 2020. In the fourth quarter of 2023, German investments followed the EMEA trend and the VC investment volume rose again to USD 127.50 million.
Focus on later-stage fintechs
Investors focused primarily on fintechs at an advanced stage of development. The three largest investments in the German market, totaling USD 133.3 million, went to later-stage fintechs - representing a significant proportion of the total half-yearly investments of USD 245.42 million.
It is striking that corporate venture capital (CVC) emerged as the main player on the German VC market in the second half of the year. The developments on the German market are thus in contrast to the global and US trend. Corporate venture capital investments increased from 85% of total venture capital in the third quarter to 97% in the fourth quarter of 2023.
Clear downturn for crypto start-ups
There was also a significant decline in investments in German crypto start-ups in the second half of 2023. At USD 10.7 million, only a fraction of the investments from the first half of the year (USD 131.4 million) were recorded in the second half of the year - these were mainly early-stage investments.
In this issue of Pulse of Fintech H2/2023, you can read about developments on the global fintech market and the impact of the recently introduced Markets in Crypto-Assets (MiCA) regulation.
