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How are investors financing and valuing startups in the COVID-19 pandemic?

Market study 2020: financing startups with venture capital and valuation of startups in real-life practice

Your expert for questions

Enrico Reiche ist Ihr Experte Transaction Consulting and Valuation bei PwC Deutschland

Enrico Reiche
Transaction Consulting and Valuation
at PwC Germany
Tel: +49 30 2636-2119

Increasing efficiency in the startup finance ecosystem

Financing startups with venture capital (VC) always poses uncertainty for investors when it comes to realistically assessing the potential value of future portfolio companies – particularly as individual investors usually only have a 10-25% stake in a startup. In the early phase, this means that the founders have the biggest say in how their emerging, innovative company develops.

Underlying company valuations tend to be based more on experience than quantitative methods. To compensate for the uncertainties that this creates, complex investment contracts often include extensive special rights for the investors. These, in turn, can have unexpected economic impacts on the founders.

This market study, conducted by PwC, Ventury Analytics and Prof Dirk Honold (Technische Hochschule Nürnberg), analyses the approach taken by venture capitalists (VCs) and creates an interdisciplinary ‘bridge’ between valuation practice and the legal arrangement of funding rounds in investment contracts. This provides practical insights on the methods currently used for company valuation and on the most common contractual arrangements in VC investments. The study also provides valuable aids for improving the efficiency and effectiveness of the startup finance ecosystem, with particular focus on ranking the effects of the COVID-19 pandemic on startup valuation and financing.

“The interdisciplinary ‘bridge’ that this study creates between valuation practice and the legal arrangement of funding rounds in investment contracts allows conclusions to be drawn about negotiation processes and the motivation behind them. These insights thus allow us to understand these contractual conditions, and can help improve efficiency and effectiveness in implementing investment contracts in the interest of all parties.”

Gerhard Wacker, Corporate/M&A Partner at PwC Legal Germany

The study at a glance

More large-volume VC funds are needed

Very few funds invest more than €15 million per single portfolio company. If more domestic investors in Germany are to lead or participate in larger funding rounds in the future, larger funding volumes would be very useful – both from traditional VCs and corporate venture capitalists (CVCs).

“Startups are an important engine of innovation and growth. Venture capital is the fuel that drives startups forwards, and it gives the necessary space for founders to indulge their passion and potential. The financial ecosystem thus plays a significant role in shaping the development of startups.”

Prof Dirk Honold, Professor of Corporate Finance, Technische Hochschule Nürnberg
Infographic about the total financing volume at portfolio companies by PwC Deutschland

The negotiation process has a major influence on the price paid for a company

The price ultimately achieved for a company depends on the company’s scaling potential and current market trends, but the negotiation process has a major influence as well. This can be seen in the context of special rights for investors, among other areas: robust liquidation preferences, for example, may allow investors to accept a valuation that they would otherwise have rejected.

Startups in Germany achieve comparatively low valuations

The volume of finance made available by investors per financing round creates implicit valuations of startups, based on investors’ expected shareholdings. This market logic leads to relatively low valuations in Germany due to the comparatively low volumes of individual investments. Tackling this problem requires a greater supply of large volumes of capital, which would provide the framework required for larger individual investments.

“The data from this study closes a gap – namely, the specific structure of startup financing in contracts that are not publicly known, and the associated company valuation process in Germany.”

Patrick Hümmer, CEO of Ventury Analytics GmbH

COVID-19 and its effects on the German VC market

The COVID-19 pandemic has had an impact on the German startup scene and VC market, both on funding rounds that have just been completed and on rounds that have yet to start. Startups therefore still need state aids to meet their demands for capital, and state funds can help support the startup ecosystem in this difficult situation.

Infographic about the impact of the COVID-19 crisis on closing funding rounds by PwC Deutschland

“Our aim with this study is to increase transparency on the details of startup financing – which are often kept confidential – and enable benchmarking, which in turn supports decision-making for all parties within the transaction process.”

Enrico Reiche, Director, Deal Advisory at PwC Germany


For this market study, PwC, Ventury Analytics GmbH and Professor Dirk Honold (Technische Hochschule Nürnberg) surveyed German and foreign investors in startups whose investment strategies have focused on the German market or who have concluded deals in Germany. Across the total of 113 questions, asked during the summer of 2020, a maximum of 74 investors participated in the study. The total calculated investment volume covered by these investors amounts to more than €2 billion per year.


Prof Dirk Honold, Technische Hochschule Nürnberg

Prof Dirk Honold, Technische Hochschule Nürnberg

With a background of more than 20 years’ experience supporting tech companies in roles mainly as CFO, and managing several dozen funding rounds including IPOs, Prof Honold now acts as a serial entrepreneur and coach, serving on supervisory boards and advisory boards. His academic work focuses on strengthening the startup finance ecosystem through innovation funding, VC and CVC, and on value-oriented leadership with potential for the future. In this regard, he also founded and co-leads practical oriented working groups, e.g. “Innovation Financing and VC” with Schmalenbach-Gesellschaft e. V..

Patrick Hümmer, Ventury Analytics GmbH

Patrick Hümmer, Ventury Analytics GmbH

As a co-founder and CEO of Ventury Analytics GmbH, Patrick Hümmer carries out in-depth analysis and simulations to support the process of structuring and arranging VC funding rounds, aided by specialist consulting software. This provides economic decision-making aids in this process for startups, VCs, CVCs and law firms, enabling unambiguous, quantitative documentation of investment contracts.

Enrico Reiche, Director, Transaction Consulting and Valuation, PwC Germany

Enrico Reiche, Director, Transaction Consulting and Valuation, PwC Germany

With more than twelve years’ experience in transaction consulting, Enrico Reiche is currently both a Co-Lead in the Venture Deals team and the Leader of the Raise programme at PwC Germany. His expertise in venture deals, VC and CVC along with his professional network enable him to create added value for startups, investors and established companies alike.

Gerhard Wacker, Partner, Corporate/M&A, PwC Legal Germany

Gerhard Wacker, Partner, Corporate/M&A, PwC Legal Germany

Gerhard Wacker is a Partner at PwC Legal Germany’s Corporate/M&A unit, focusing on legal advice for VC transactions. He has more than 18 years’ experience in VC, private equity and M&A, leading the Corporate/M&A teams in Berlin and Nuremberg and co-leading PwC Legal Germany’s Corporate/M&A practice group. The JUVE handbook of commercial law firms (2020/2021) lists him as a leading consultant for VC.

Contact us

Gerhard Wacker

Gerhard Wacker

VCs / M&A, PwC Germany

Tel: +49 911 94985-281

Enrico Reiche

Enrico Reiche

Director Transaction Consulting and Valuation, PwC Germany

Tel: +49 30 2636-2119

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