Startup Funding 2025: VC market, strategies and challenges

This interview is based on an episode of the torq.partners Finance Podcast featuring Kolja Heskamp, co-founder and partner at torq.partners. The full episode is available on Spotify and YouTube as a video podcast.

In the first half of 2025, German startups raised just under 4.6 billion euros. How would you describe the current fundraising landscape?

It’s a clear upturn. After the difficult years of 2022 and 2023, we’re seeing a greater willingness to take risks again. The shift in interest rates, stable inflation expectations, and the AI hype are all contributing to this. This is a very positive sign—especially since many had expected another year of crisis.

What are the differences between the boom years of 2020–2021 and the sluggish years of 2022–2023?

In 2020–21, an enormous amount of capital was invested, often without thorough due diligence. Interest rates were low, everything went digital, and there was a gold rush atmosphere. In 2022–23, the market cooled off: rising interest rates, geopolitical crises, and bankruptcies. Today, we’re back at 2018–19 levels—a healthy market that provides a stable foundation.

How have German startup hubs evolved?

Berlin remains strong in terms of numbers, but Munich has caught up and, in some cases, surpassed it—especially with large deep-tech and space-tech funding rounds. This is due to the Technical University of Munich, LMU, and the city’s proximity to industry players. Berlin remains at the forefront, but deep tech now dominates in Munich.

What will VCs be paying particular attention to in 2025, and which stages are currently the most attractive to investors?

Growth at any cost is a thing of the past. Today, capital efficiency and sustainable growth are what matter. The focus is on profitability and revenue quality. Only in deep tech and AI do different rules apply, as long development cycles are the norm in these fields.

Series A remains the sweet spot for investors. There are fewer, but larger, funding rounds. Later stages of financing are more difficult, as clear exit paths are still lacking in Europe.

How is AI changing the capital needs of startups?

Today, small teams can build scalable products using low-code/no-code solutions, often without the need for large funding rounds. In the long run, however, capital is still needed to reach critical mass and avoid being pushed out by Big Tech.

How are the ratings changing?

Significantly more conservative. In B2B SaaS, multiples currently stand at around 6–7x ARR, whereas in 2020/21 they were still at 16–17x. The exceptions are AI and deep tech, where investors continue to accept high valuations.

What will define successful fundraising in 2025?

Founders need realistic financial planning, sound unit economics, a clear narrative on profitability, and a strong team. Storytelling is crucial—it’s not enough to just have good numbers.

What are some common mistakes made during due diligence?

Incorrect definition of revenue, improper revenue recognition, lack of cash flow planning, bogus self-employment among freelancers, or poor understanding of margins. The lack of a dunning process is also a common and frustrating issue.

What does a good finance setup look like in the pre-seed phase?

Someone to organize receipts and assist with tax consulting, plus someone to oversee cash flow and planning. A CFO isn’t necessary—Excel skills are sufficient at the start. External expertise from angel investors, investors, or consulting firms is helpful.

What alternative financing models are worth exploring?

Funding programs at the EU, federal, and state levels; factoring; asset- and revenue-based financing; and supplier financing. Traditional banks or development banks such as IBB or Bayern Kapital can also be partners—you have to reach out and stay creative.

How do you see the next 12–24 months?

I'm optimistic. Founders are extremely adaptable. Deep tech will strengthen Germany and align more closely with our DNA. It remains to be seen where major exits will take place in Europe—there is still a lack of clear structures here to retain capital over the long term.