For many years there’s been an accepted way to raise capital as a venture capital fund. Essentially, GPs (general partners, who set up and run venture capital firms) go “cap in hand” to LPs (limited partners, who invest into their VC firms) in pension funds, privately run “family offices,” “ultra-high net worths” and other such oddly named financial institutions. These meetings are always private and often VCs don’t even reveal who, specifically, has invested in their fund.
Because it’s so private, it favors fund managers who have been in the business for many years and already have a bulging contact book.
In recent years, part of this process has begun to be unpacked by events organizers, recognizing the hearty profits to be made from matchmaking these two groups. The tickets to attend these events are eye-wateringly expensive, especially for the VCs trying to raise funds.
But in Europe, the VC market has suffered from a certain amount of outdated practices, plenty of behind-closed-doors negotiations and certain lack of “energy.” Europe is a rich mine of startups, and there really ought to be a more competitive environment, but the lack of big exits and large markets (like the U.S. or China) means things tend to only go so far.
Now a new initiative hopes to disrupt this rather cozy state of affairs with an event that will be — comparatively speaking — cheap to attend for VCs in fund-raising mode. But there’s a twist. They will have to pitch “onstage” to the LPs attending.
Yes reader, suddenly they will be put in the exact same shoes as those poor entrepreneurs…
Allocate, which takes place on 19th September in London, is focused on connecting GPs with LPs, in particular, the newer VC funds and the many sources of finances that would like to invest in VCs but don’t have the contacts. The aim is to accelerate the growth of the next generation of VC funds, which in turn will invest into Europe’s technology startups of the future.
Up to 30 emerging VC fund managers will be chosen by the Allocate selection committee to present their fund in a five-minute pitch to a room full of LPs, in, what appears to be, the first event of its kind in Europe. Speakers at the one-day event will include Simon Cook, CEO and co-founder of Draper Esprit; Lisa Edgar, managing director U.S. fund of funds Top Tier Capital Partners; and Katie Martin, chairwoman of Wilson Sonsini Goodrich & Rosati.
This unusual event is being put together by two early-stage VC firms, but they say profit is not their primary motive. They are 7Percent Ventures and Luminous Ventures. The lower prices will reflect the fact that the tickets and sponsorship sold will cover the event costs, and not be a venture in its own right.
Andrew J. Scott, founder/partner at 7Percent Ventures, tells me: “The cash-raising process for a venture capital firm has traditionally been pretty opaque. University endowments or ‘family offices’ who look after private wealth and sometimes invest into VC firms, can be hard to reach.” He hopes, in particular, to help emerging VC’s “close the investment gap between Europe and the USA.”
Inspired by a VC pitch event in the U.S. and the “pay it forward” attitude of Silicon Valley, Allocate aims to cut out the middleman and make things more efficient for LPs and fund managers, and without paying £2,000+ for a conference ticket to do so.
“There are various PE, profit-led events which are crazy expensive and also just very corporate/PE-focused, but not early-stage VC-focused. So we thought we’d do this! I was inspired by an event I saw in SF which I pitched at. Our event will not be profit-led but about expanding the new VC industry,” he tells me.
Emerging fund managers are defined as people with up to three to four funds. So this is targeted at those who have not raised before: very much like a startup event.
“Other events in the industry are free for LPs, but this is like the bad old days when founders used to have to pay to pitch investors. These days investors pay more to attend conferences than startups to do, and pitching is often free — that’s how it should be,” says Scott.
“But the GP/LP world, is still the wrong way ’round. VCs pay thru the nose, and LPs go free. Institutional government-backed funds, or an insurance or pension fund, have billions in the bank, yet a GP trying to raise a first fund will have to pay thousands to go to an event which is free for the LPs? That’s at best peculiar,” he says.
It seems like, at the very least, Allocate is trying to level the playing field, and make it accessible for all, and the same price for everyone. For emerging VC fund managers at least, this seems more fair. LPs always want to see low fees with a fund, so it seems better that VCs are not paying £3,000GBP a ticket to go to events to meet them.
“Raising money for a VC firm can be a who-knows-who business, much like raising venture capital money for a startup was 15 years ago. Raising startup investment is now very different, much more democratized, and we feel the European VC/LP investment world needs to catch up and be the same,” says Scott.
“We definitely want to encourage LPs who have or haven’t invested in VCs before. So much less money goes into VC here than in the U.S. from sources like endowment funds and family offices,” he says.
Lomax Ward, partner at Luminous Ventures, adds: “We need to support and work with new and emerging fund managers and investors in a collaborative environment. The startup scene in Europe is getting great momentum, evidenced by more and more success stories. But, the fact remains that launching an early-stage venture capital fund is very tough and we have founded Allocate to make it that little bit easier. Also, for LPs it will be a fantastic showcase of Europe’s leading emerging funds.”
Commenting on the idea, Raph Crouan, formerly of Apple and Startup Bootcamp, tells me it’s a “great idea and quite well-timed I think.”
Speaking off the record, another VC tells me, “It looks like it’s geared towards newer funds, particularly those raising Fund I maybe II, as opposed to the more established VCs and seed funds. That’s a good idea.”
Another says: “It’s a good format in principle. It’s clever of 7Percent and Luminous to organise this to help their and other early-stage VCs with fund-raising, provided of course they succeed in getting lots of LPs to attend.”
Allocate chose London because, despite the uncertainty of BREXIT, the team says it remains at the center of the European startup sector. Though America still leads the world, its share of the global VC market has decreased significantly from 79% in 2008 to 53% last year, with the U.K.’s share of European VC having increased from 31% to 42% over the same period.
In comparison, until recently China was in the ascendant; VC investments in China in Q2 2019 are down nearly 77% year-on-year, while European investment continues to go from strength to strength. A third of the world’s top startup cities are in Europe.
It seems therefore like it’s really time to put booster-rockets on the European VC scene. And hopefully an events like this can help it along.