First-time European VC funds face uphill struggle

Launching a first-time venture fund in Europe has become increasingly challenging compared to previous years as fundraising activity favors more-established firms.

In the first nine months of the year, 39 first-time vehicles were closed in Europe worth a total €2.6 billion (about $2.7 billion), according to PitchBook data. At its current pace, the year’s fund count could be at its lowest since 2015.
 

 

Of the total number of VC vehicles reaching a final close, the percentage of first-time funds has also dipped. In the first three quarters of 2022, 26.9% of European venture funds were debut vehicles compared with 28.1% for all of 2021.

The VC downturn is currently showing no signs of relenting, and limited partners appear to be betting on more established managers. Without a proven track record or experience with previous market declines, LPs are becoming more hesitant to entrust their capital to first-time funds. For new managers, the lack of pre-existing relationships with LPs is also a hindrance when coming to market.

Emergent sectors including cleantech and mobility are proving to be more-attractive industries for first-time vehicles to target as there is often less competition and capital at work in those sectors.

The European Circular Bioeconomy Fund—one of the largest debut vehicles of the year so far—closed on €300 million to back growth companies focusing on energy transition. Automaker Stellantis also secured €300 million for its first corporate venture vehicle to target startups in the automotive and mobility sector.

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