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Covid-19 Pandemic Provides Impetus For Increased European VC Investment

The results of a new survey from Mountside Ventures and ALLOCATE suggests that nearly half – 43% - of institutions or fund of funds have accelerated their deployment of capital into European venture capital funds since the onset of the Covid-19 pandemic.

The report, Capital Behind Venture 2020, surveyed 63 LPs about their thoughts and plans with regards to allocating to European venture capital fund managers. Whilst family offices have slowed their deployment due to the effects of the pandemic, Jonathan Hollis, Managing Partner at Mountside Ventures, says that the strong demand from institutions for exposure to European venture capital opportunities provides a welcome respite from the general slow down in investment activity this year.

“During the past decade, Europe has become a hotbed for start-ups across a range of industries,” “It's welcoming to see that many institutional Limited Partners recognise that and believe that their venture capital managers can provide strong returns - despite the challenges of the current economic climate,” he said.

The report raised some encouraging observations. The general focus on diversity and inclusion within the private markets industry – indeed, in alternative investments generally – is being heeded by LPs. Whilst only 18% have KPIs related to backing female-founded VCs, 64% are taking steps to increase their allocations to women-led firms.

“The data is both disappointing but encouraging” said Hollis. “Naturally, we’d like to see more LPs taking a closer look at women-founded VCs. But nearly two thirds say that they plan to set goals around this. That’s certainly encouraging for the industry.”

Planning allocations to BAME-led venture capital funds seem to be less advanced. 64% don’t currently have a policy in place to increase capital deployment into BAME-run VCs and only 18% say that they are planning to set goals around that theme.

Other interesting observations from the survey include 90% of LPs being willing to take a risk with emerging fund managers, either now or in the future. Over 80% had already invested in them, although there is a lack of consensus as to the exact definition of ‘emerging manager’ with 25% of respondents considering an emerging manager to be one offering their first fund only, and 19% considering an emerging manager to be one offering up to their third fund. The survey also provided some welcome news for placement agents. A third of LPs say that using a placement agent doesn’t negatively impact their view of a VC and of the two-thirds who do believe it has a negative impact, 30% of those still invested in VCs represented by these firms.

The survey also covers the specifics of an LP’s investment thesis, government support for the industry and practical insights for VCs. Hollis says that, overall, the report reflects an industry in rude health.

“There is very little information in the public domain on best practices, preferred terms and practical advice on raising a VC Fund in Europe. There’s even less information out there for emerging fund managers. But what’s clear is that the European venture capital industry is healthy, with plenty of LP interest across a range of managers, strategies and opportunities.”

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