1. Background
The transformation of the German economy is a major challenge. In North Rhine-Westphalia (NRW) alone, annual investments of around €100 billion are needed to successfully achieve digitalization and climate neutrality (cf. Demary et al., 2024). In addition to pure investment, however, considerable innovation is also required to master the transformation. Only with the help of smart ideas and new approaches can the transformation succeed without losing competitiveness and the potential of digitalization be fully exploited. This poses particular challenges for small and medium-sized enterprises (SMEs), which, unlike large companies, do not usually have their own research and development departments. Start-ups are therefore important for Germany as a whole, but for SMEs in particular, in order to benefit from innovations. After all, start-ups bring new products, processes, and business models to the market and, among other things, show new ways to achieve sustainability and climate neutrality.
The establishment and scaling of innovative start-ups is a risky investment. Many founders fail, and even after successful pilot phases, many companies end up in insolvency. On the other hand, there are also extremely successful start-ups that enable investors to achieve phenomenally high returns. Financing requires investors who are willing to take correspondingly high risks. In general, however, the venture capital market in Germany is considered underdeveloped (cf. Grimm et al., 2024).
The following article uses current market data to illustrate and classify the development of the venture capital market in Germany and, in particular, in North Rhine-Westphalia. In a further step, the question of the extent to which venture capital can support the transformation and how North Rhine-Westphalia can become even more attractive for venture capital is then explored. This second part is based on a series of expert discussions with venture capital investors. The article concludes with some concrete conclusions and recommendations for action for North Rhine-Westphalia.
2. The venture capital market in Germany and North Rhine-Westphalia
The following section begins by defining the term “venture capital” and classifying venture capitalists and the various investment phases. This is followed by a brief overview of market volumes in Germany and North Rhine-Westphalia.
2.1 What is venture capital?
Venture capital is a form of financing in which investors contribute capital to young, often innovative companies with high growth potential. These companies usually do not have access to traditional financing such as bank loans because they do not (yet) have stable revenues or collateral. Venture capital has the following typical characteristics:
- High risk, high return potential: Since many start-ups fail, the risk of loss for investors is high. However, if the venture is successful, the profits can be enormous.
- Equity stake in the company: Venture capitalists usually invest in the form of equity capital and receive shares in the company in return. This makes them co-owners.
- Time-limited commitment: The goal is usually to sell the company at a profit after a few years (exit), e.g., through an IPO or sale to another company.
- Additional support: In addition to capital, many venture capitalists also offer expertise, networks, and strategic advice.
Venture capitalists are not a homogeneous group; rather, there are a variety of different types of venture capitalists that differ in terms of structure, objectives, and investment volume. These include:
- Business angels are wealthy individuals who often invest in companies at a very early stage. In addition to capital, they offer access to networks and practical experience. Their involvement is often more personal and risk-tolerant than that of institutional investors.
- Corporate venture capital (CVC) refers to investments by large companies in start-ups, usually with strategic objectives (e.g., technology transfer, market access). In addition to capital, they can offer access to production capacities or distribution channels.
- Venture capital funds (VC funds) are institutional investors that pool capital from investors (e.g., pension funds, banks, family offices) and manage it professionally. They typically invest in several financing rounds (seed to Series C, see below) and contribute strategic expertise in addition to capital.
These players often complement each other throughout the growth phases of a company and together shape the venture capital ecosystem. Finally, venture capital financing typically takes place in several successive rounds that are tailored to the start-up's stage of development:
- Seed financing: Early stage for validating the business idea and developing a prototype. Capital often comes from business angels, accelerators, or seed funds. The goal is to develop a marketable product and attract initial users or customers.
- Series A: Financing market entry and scaling initial business models. Investors are mostly institutional VC funds. The focus is on market development, team building, and initial sales. The valuation increases significantly compared to the seed round.
- Series B: Growth expansion, internationalization, and process optimization. Higher sums are invested to expand market share and professionalize structures. Investors pay increased attention to key figures and scalability.
- Series C and beyond: Late growth phases for market dominance, diversification, or preparation for exit (e.g., IPO or sale). Investments often come from larger VC funds, private equity firms, or strategic investors.
Each round involves a company valuation, negotiations on shares, and specific growth targets. Capital requirements and demands increase continuously.
Incubators and accelerators also play an important role in the financial ecosystem for venture capital. Accelerators are programs that support start-ups over a period of a few months with start-up capital, mentoring, infrastructure, and contacts. In return, they usually receive smaller equity stakes. The aim is to rapidly develop marketable products and business models. Incubators, on the other hand, start one step earlier: they help with the development and implementation of initial business ideas, often providing intensive support, offices, and resources. They are often part of larger companies or universities. In some cases, accelerators and incubators work directly with VC investors, but in most cases the focus is not on financing but on imparting know-how.
2.2 Distribution of venture capital
According to data from KfW (2025), venture capital investments totaling €7.4 billion were made in 2024. This represents an increase of €350 million compared to 2023, but is still well below the previous high of €18.9 billion in 2021. However, with a financing volume of €4.0 billion in the first half of 2025, the upward trend is continuing.
Overall, KfW counts just under 1,500 transactions for 2024, with an average financing amount of €13 million – however, the amount is not known for many small financing rounds. Very large deals are the exception overall, with only 17 transactions exceeding a volume of €100 million in 2024.
It is striking that German venture capitalists provide only 29 percent of the financing. Their share is thus as high as that of US venture capitalists. France and the United Kingdom account for a further 13 percent of the financing. Typically, German investors are particularly active in seed and Series A financing, while foreign investors tend to be more involved in scale-up financing.
The size of the German venture capital market is roughly comparable to that of the French market. The British venture capital market is about twice as large as the German market. In 2024, the market there reached a financing volume of around USD 16.7 billion. The US venture capital market, on the other hand, is more than 20 times larger than the German market. In terms of GDP, the market size in Germany is 0.18 percent, in France 0.25 percent, in the United Kingdom 0.48 percent, and in the US 0.64 percent.
A recent study by EY (2025) shows how the venture capital market is distributed across the federal states. According to the study, although Berlin accounted for by far the most transactions in 2024, Bavaria is just ahead of Berlin in terms of financing volume. Together, these two locations account for almost two-thirds of the venture capital market in Germany. Figure 2 also shows the relationship to the GDP of the federal state, which reflects the particular relevance of Berlin. North Rhine-Westphalia follows in third place with just under one billion euros in venture capital investments, ahead of Baden-Württemberg and Hamburg. Measured in terms of GDP, the figure for North Rhine-Westphalia is 0.11 percent, which is below the average for Germany as a whole, while Bavaria achieves a figure of 0.31 percent and Berlin 1.2 percent of GDP.
The EY study also provides a more detailed insight into the business areas of the start-ups that received funding. The “Software & Analytics” sector attracted the most funding, with around €2.2 billion, followed by the healthcare sector with just under €900 million. Energy and climate tech, which are most directly related to sustainability, accounted for €1.2 billion in financing in 2024.
3. Ways to increase venture capital
The data from Chapter 2 highlights the importance of the venture capital market, but it also shows that Germany still has considerable growth potential compared to other countries. NRW has a significant share of the venture capital market, but lags behind Berlin and Bavaria. Furthermore, the question arises as to how relevant the transformation is for venture capitalists. To address these and other issues, a total of six expert discussions were held with venture capitalists and accelerators. The results are presented below.
3.1 Interview partners
Table 1 provides an overview of the experts interviewed. The interviews took place between June 11, 2025, and July 14, 2025. All companies are based in North Rhine-Westphalia, but most of them operate nationwide. The companies include BeyondBuild, Bitstone.Capital, and xdeck., three venture capital funds, with xdeck. also acting as an accelerator. VENPACE is also a venture capital fund, but it is only active for a very small number of insurance companies and invests exclusively for one insurance company. Gateway Factory plays a special role among the interviewees. Gateway Factory is one of ten start-up factories in Germany that recently received federal funding for scaling start-ups. Gateway Factory is supported by RWTH Aachen University, the University of Cologne, Heinrich Heine University Düsseldorf, and private partners. The goal of Gateway Factory and other start-up factories is to enable start-ups to grow to a significant market size. However, they do not invest in the start-ups themselves, but rather help the young companies to position themselves in such a way that they can attract VC funds or other venture capitalists. Finally, AC+X Strategic Investments stands for a corporate VC, i.e., a venture capitalist founded by a company and intended to contribute to the success of the company in a broader sense. The results of the discussions were very consistent with regard to key questions and assessments, which is why no additional discussion partners were sought.
Table 1: Overview of expert interviews
The interviews took place between June 11, 2025, and July 14, 2025.
| Name | Company | Classification |
| Christine Damke | BeyondBuild | VC fund |
| Nico Schröder, Andreas Kruse und Philipp Seubert | AC+X Strategic Investments | Corporate VC |
| Ingo Küpper | VENPACE | VC fund / corporate VC |
| Dr. Tim Hiddemann | Gateway Factory | Incubator / accelerator |
| Manfred Heid | Bitstone.Capital | VC fund |
| Dr. Markus Gick | xdeck. | Accelerator / VC fund |
Source: own compilation
3.2 Results of the discussions
The discussions were based on a uniform discussion guide, but each had its own individual focus. Key topics included the significance of transformation for venture capital investors, the requirements for start-ups, the lack of scale-up financing, and the classification of North Rhine-Westphalia as a location. The results of the discussions are presented below in accordance with the discussion guide.
3.2.1 Is investing in transformation attractive for venture capital investors?
All interviewees confirm that transformation is an important business area for venture capitalists. This applies to both digitalization and sustainability. Some large VC funds, such as the World Fund with an investment volume of €300 million (World Fund I), focus specifically on ClimateTech. It was emphasized that venture capitalists do not invest in the transformation of a single company, but are always looking for scalable investments. In concrete terms, this means that investments are made in start-ups when they develop solutions for the transformation of companies. Furthermore, all interviewees emphasized that, as in all other cases, investments must be economically viable. In one interview, it was stated: “Investments in transformation must be so rewarding that they can convince even a climate denier.” Given rising energy costs and new technologies, this is often the case. Transformation is therefore still seen as a business case, even if other topics, such as AI or defense, are currently receiving more attention.
Some participants expressed skepticism about business ideas that rely heavily on specific regulations. Overall, the regulatory environment, such as reporting requirements, is perceived as highly volatile. Start-ups that focus on transformation but do not depend on specific regulatory requirements are therefore preferred.
3.2.2 What criteria must start-ups meet?
There was also a high degree of consensus regarding the selection of start-ups. In general, investors follow the so-called 5Ts:
- Team
- Traction
- Technology
- Timing
- Thesis
Traction refers to the extent to which the start-up's product has already been tested or used by customers. In the case of early-stage investments in particular, there is of course no revenue yet, but pilot projects and initial customer experiences are desirable. Technology encompasses the question of the extent to which new ideas and advanced solutions are being used. Timing refers to whether the timing for market entry is favorable, and thesis encompasses the question of the extent to which the start-up's product is relevant.
From the experts' point of view, the most important criterion is the team, as the extent to which the founding team harmonizes and complements each other is extremely important for the success of the company. In addition to purely technical or engineering skills, it is also necessary to take a business management and, above all, a sales perspective. This is something that many start-ups lack. The importance of the team is aptly summarized in a statement from one of the discussions: “I would rather invest in a convincing team with an average business idea than in an average team with a great product.”
The focus on the team has far-reaching implications:
- Firstly, founders need both technical and business expertise. Since many start-ups originate from universities, interdisciplinarity is important, but also challenging. It is therefore advantageous if universities already offer opportunities for exchange.
- Second, networks are of paramount importance. Although investors agreed on the importance of teams, their assessments are ultimately subjective. All interviewees and research confirm that having the same university background increases the likelihood of investment in founders. Garfinkel et al. (2021) show that in the US, investors and founders attended the same university in one-third of cases. The probability of an investment is 10 percent higher if the founder and investor attended the same university, and the financing is 19 percent higher on average. Koenig (2022) confirms these findings for European VC markets. Active alumni networks are therefore essential for facilitating start-up financing.
- Third, the discussions highlighted that recommendations are extremely important for financing. If a start-up is recommended to a venture capitalist by someone in their network, this has a major influence on the decision to invest.
Promoting networking is therefore a key parameter for a successful start-up location. Founders should therefore definitely invest in their networks. Against this backdrop, the importance of accelerator programs was also emphasized in two interviews, because in addition to technical input, start-ups also gain access to a VC network by participating in the programs.
3.2.3 Why is there a lack of scale-up investments?
The interviewees are primarily active in seed and Series A investments, but not in Series B or further financing rounds. Although Gateway Factory aims to do so, it has not yet been able to accompany any major financing rounds. KfW figures also show that large-volume financing rounds are rather rare, and when they do occur, they are carried out by US or Arab investors. Overall, all interviewees shared the assessment that there is a well-functioning financial ecosystem for early-stage investments, but that the market for larger financing is too small. This sometimes leads to very successful German start-ups moving abroad or at least growing with foreign capital, which is perceived as extremely unsatisfactory by all interviewees. Or, as one expert put it: “Germany sows the seeds, and the US or Qatar reap the rewards.”
The reason for the small market for large-volume financing rounds is the lack of institutional investors who invest in venture capital. Although insurance companies and pension funds are also active in the venture capital market in Germany, regulatory requirements mean that they can only make very small investments. In the US, on the other hand, pension provision is generally much more capital market-oriented and opportunity-oriented. To a lesser extent, this also applies to the United Kingdom. In addition, large foundations, such as those of universities, are also emerging as investors in the US market, which is also not particularly relevant in the German market.
Another group of investors for the growth phase are extremely wealthy individuals, who have often been successful entrepreneurs themselves. Elon Musk and Peter Thiel are well-known investors in the US market who, thanks to their own vast fortunes, are able to invest large sums in scale-up financing. This type of investor is also virtually non-existent in Germany. In addition, some experts have noted that very wealthy individuals in Germany are less willing to take risks than their counterparts in the US. Furthermore, other investments, especially in real estate, are more attractive from a tax perspective.
Nevertheless, attracting private financiers for the growth of start-ups seems more obvious than a major institutional reform of pension provision. The Samwer brothers in Berlin are another example of highly successful founders who have developed numerous start-ups to the point of exit. In Munich, Susanne Klatten co-founded the UnternehmerTUM start-up initiative in 2002 and provided it with substantial financial capital.
3.2.4 How should North Rhine-Westphalia be assessed as a location for venture capital investors?
Experts agree that North Rhine-Westphalia has an exceptionally high number of large universities with strong research programs. Another positive aspect that was highlighted is that an increasing number of universities are getting involved in start-ups, even though there is still room for improvement in this area.
Opinions differed on the decentralized structure of North Rhine-Westphalia. In principle, central locations are easier for developing a strong venture capital hub due to the necessary networks. Since personal connections play a key role, it makes sense to focus on individual locations. However, some of the interviewees also pointed out that the various regional centers can be very effective if they focus on different sectors, such as logistics, insurtech, or fintech. It was also noted that the market for venture capital financing is now broad enough to enable early-stage financing in a large number of locations. However, supra-regional cooperation is crucial in order to support promising start-ups in their growth phase. The two start-up factories in North Rhine-Westphalia, in Cologne and Essen, are intended to serve precisely this supra-regional networking function.
Some interviewees cited UnternehmerTUM in Munich as a role model. UnternehmerTUM is a non-profit start-up center based at the Technical University of Munich that offers a range of incubator and accelerator programs for start-ups as well as access to some of its own VC funds. According to its own figures, UnternehmerTUM has produced more than 500 successful start-ups since 2002. The interviewees particularly praised UnternehmerTUM for its successful combination of application-oriented research, financing from the business community (DAX-listed companies, business angels, and VC funds), and political commitment. However, UnternehmerTUM also shows that it takes time to develop an effective start-up center.
Great potential is seen in North Rhine-Westphalia, especially in the B2B market. North Rhine-Westphalia has a very large number of strong medium-sized companies that offer a large market for innovative start-ups. The unanimous opinion of the discussion partners was that North Rhine-Westphalia should therefore concentrate primarily on this area
3.2.5 What can NRW do to become even better?
NRW is well on its way to becoming an efficient venture capital location. Most venture capitalists continued to agree that NRW.BANK is an important driver of start-up activity in North Rhine-Westphalia. However, it was noted that funding in North Rhine-Westphalia is too broad and that sometimes every start-up receives funding. “But there is a lack of effective support for the elite,” noted one of the discussion partners. In this context, it was also suggested that NRW.BANK should not concentrate its funds primarily on start-up support – especially since there is a functioning private early-stage financing market – but should focus primarily on co-financing scale-up financing, as the private market is too small for the reasons mentioned above.
Another critical comment related to the attempt to force politically desired market developments. It would be better to pick up on market signals and reinforce developments. The focus on hydrogen was cited as an example.
Finally, it was mentioned that NRW could achieve more through joint action. NRW not only has very strong universities, but also a number of DAX-listed companies, hidden champions, and numerous extremely wealthy households. If politicians were more successful in bringing these groups together, the venture capital location could take the next step.
4. Outlook
This article shows that venture capital can play an important role in the transformation of the economy. Although venture capitalists will not invest in the transformation of individual companies, they will invest in companies that make it easier and more efficient for SMEs to successfully navigate the transformation. Venture capitalists see transformation as an important and economically relevant business area, and in this respect they also support the thesis that sustainability and competitiveness must be considered together.
Overall, North Rhine-Westphalia has a functioning financial ecosystem for venture capital financing, particularly in the early stages of start-ups, where there are sufficient financing opportunities, also against the backdrop of subsidies. Nevertheless, discussions with experts show that there is still considerable potential for the further development of North Rhine-Westphalia as a venture capital location.
For universities, but also for potential founders, the main focus must be on stronger networking. Interdisciplinarity is an important feature of successful start-ups and should be supported by universities, as should application-oriented research as a whole. In addition, the potential of alumni networks must be better exploited. After all, research shows how powerful an active network can be for attracting venture capital.
Politics can also contribute to increasing the potential for venture capital. North Rhine-Westphalia has a large number of large corporations, globally successful hidden champions, and extremely wealthy individuals, all of whom offer potential for more investment in North Rhine-Westphalia as a location. Integrating these groups, particularly in scale-up financing and the corresponding financial ecosystems, should be a strategic goal. In addition, consideration should be given to whether NRW.BANK's focus should shift from broad-based support for start-ups to complementing scale-up financing, as this part of the market is still underdeveloped.
Fin.Connect.NRW will do its part to further improve the framework conditions for financing the transformation and to better connect the real economy and the financial sector.
