Assessing the effects of high interest rates on German venture capitalists investment selection of technology startups

Abstract

This dissertation investigates how high interest rates affect the selection of technology start-ups by German venture capitalists. Since venture capitalists are often the first source of capital that drives economic growth and innovation, the topic is relevant in entrepreneurship. Despite the existing research on venture capital, the effects of interest rates on the decision-making processes of VCs remain underexplored. This paper draws upon a substantial body of literature in macroeconomics, venture capital, entrepreneurship and finance examining venture capital investment decisions-making and the effects of interest rates on these decisions. A qualitative research methodology was employed, utilising semi-structured interviews with industry professionals. Findings include that higher interest rates have led to increased hesitancy, reduced capital inflows, price revaluations and a more rational approach to risk-taking. The caution in the market is leading to a shift towards a buyer’s market, longer transaction times and stricter investment criteria. VCs place greater emphasis on financial metrics and profitability, insisting more on proof points and deeper business models with real problem-solving potential. Practical implications can be drawn for entrepreneurs seeking funding, venture capitalists maneuvering through macroeconomic changes and policymakers promoting entrepreneurship.

Date of Award	3 Jul 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Peter Rajsingh (Supervisor) & Rand Gerges-Yammine (Co-Supervisor)