Image courtesy of Helsing

Germany's strengths in deep tech and defense have put it in a position to be the fastest-growing ecosystem among Europe's mature VC markets this year.

VC funding for German startups reached €6 billion (about $6.8 billion) in the first half of the year, according to PitchBook's Q2 2026 Germany Market Snapshot, and is currently pacing for its best year for deal value since 2021's peak. Deal count has slowed as capital is increasingly concentrated in fewer startups, in line with the broader European trend.

Total investment in Q2 was lower than at the start of the year, but remains in line with the country's quarterly average at €2.1 billion. Should the current funding pace continue, 2026's annual deal value for Germany is expected to be almost 40% above last year's total, a growth rate that surpasses those of its two main competitors, the UK and France.

Driving the acceleration in deal value are deep tech and defense, two areas where Germany has historically outperformed. Q2's largest deals were Berlin-based drone maker Stark's €500 million investment and launch company Isar Aerospace's €270 million round. The largest deal to have closed in the country this year was humanoid startup Neura Robotics' $1.4 billion Series C.

Major universities including the Technical University of Munich and RWTH Aachen University are producing top-tier talent in sectors such as engineering, aerospace and robotics. Germany also benefits from a strong industrial heritage, with global corporations such as Siemens and BASF, as well as automotive groups such as Volkswagen and BMW.

VCs' recent shift away from SaaS toward more hardware- and science-focused sectors has boosted Germany's startup ecosystem. The country is also home to several dedicated deep tech investors such as Vsquared Ventures and UVC Partners.

The government's aggressive push into defense, including its target of increasing spending to 3.5% of GDP by 2029, has given new life to its defense tech sector. Almost half of Europe's most valuable defense tech startups are headquartered in Germany, including Munich-based drone company Helsing, which this month raised a $1.8 billion Series E at an $18 billion valuation.

Despite increased appetite for areas where Germany excels, its startup ecosystem still faces hurdles, notably in late-stage capital. According to the PitchBook Snapshot, €1.8 billion in late-stage deals were completed in H1, a pace that is currently trailing 2025 levels.

VC-backed exit activity remains soft. Except for Gilead's €4.3 billion acquisition of drug developer Tubulis, high-profile exits of German startups have been few and far between. At 56 exits completed, the country is currently on track for another slow year.

This article originally appeared on PitchBook News