IPEM, International Private Equity Market, is the premier relationship broker for global private equity. IPEM Events are world renowned for bringing together the industry’s leading investors, allocators, advisors, and service providers allow to Its dynamic business format is designed to drive innovation and shape the debate across private markets, delivered in a way that champions ESG responsibility. Below are some key insights on climate investing that came out of our last two events.
Europe’s venture capital industry is still trying to find its feet, as it recovers from a sluggish 2023. The second quarter of the year was encouraging, with $15.6 billion raised. However, Q3 was a tougher fundraising period, during which late-stage funding fell by more than 50% y-o-y. As noted by Crunchbase, early-stage funding to European start-ups declined 12% y-o-y. This hasn’t quelled appetite among VC managers, with a number of new fund launches in recent weeks including London-based Atomico, who raised $1.24 billion across two funds. On the growth side, Resurge Growth Partners recently launched a EUR120 million venture equity fund to back European and Israeli start-ups.
Total VC capital for 2024 is forecast to hit $18.8 billion and as was referenced in IPEM’s Weekly Spin, the European Union is taking measures to address the innovation gap between Europe and the US and China. The new initiative, dubbed the Trusted Investors Network, will see the EU partner with European venture capitalists to support technology investment, and help catalyze growth in deep tech companies. In total, some 71 investors with combined assets of EUR90 billion have signed up to the new initiative.
Sourcing the highest quality deals has become highly competitive, including Series A and Series B deals, as European VC firms look to deploy capital. And as was noted during the Venture & Growth Summit at IPEM Paris 2024, there are signs that Europe’s VC market is becoming more sophisticated, where deals are more downside protected. Investors are spending a lot more time on valuations, resulting in a longer time for deals to get to market. Later stage instruments like IPO warrants are being used, to realign valuations at the time of exit, as deal structures evolve.
Thematically, panelists who spoke at IPEM’s Venture & Growth Summit outlined numerous areas of interest. These included investments in companies spanning supply chain software, regtech, ESG/compliance software, healthtech, and cleantech. While VC investors are paying close attention to generative AI, there is a degree of caution. This is largely due to the pace of innovation, with LLMs potentially becoming obsolete just months after their release, making it hard for investors to see where the monetization opportunities are at present. Expectations are that the GenAI application layer could well allow viable business models to be built, but there are still a lot of risks to consider, as VC firms seek out which companies to back.
Unsurprisingly, the AI theme was an important aspect of this year’s Venture & Growth Summit, where experts explored the impact of AI on portfolio companies, how to leverage proprietary AI tools for market analysis, screening, and enhancing value post-investment, and the significance of AI in sectors like cybersecurity. Gartner forecasts the AI software market will grow at a 19.1% compound annual growth rate in the next six years, with $297 billion in global spending expected by 2027.
Leading European growth investors like Eurazeo have backed 45 companies at the growth stage, 30 of which are the top unicorns in Europe. The team are using AI models internally to enhance the investment process, from screening large unstructured data sets, to due diligence, through to post-investment and ways to add value. As investors use these AI tools, this data-driven approach is allowing them greater capabilities to benchmark company performance in terms of marketing efficiency, financial efficiency, growth efficiency etc.
It was also noted during the summit that multi-stage VC firms such as Forgepoint Capital are using AI tools to create proprietary market mapping. Specifically, GenAI-based query engines that aggregate deal sources (beyond traditional market research), as they seek out next generation companies best equipped to redefine and transform the market in cyber and AI.
AI presents a lot of opportunities for companies to improve their value proposition, whether this relates to cost reduction, enhanced customer service, more productivity. Moreso than seed and early-stage, growth stage companies who have built traction over several years, and who sit on proprietary data assets, will be well placed to leverage those assets with LLMs – effectively training LLMs internally to find additional growth revenue opportunities, while at the same keeping the data more secure, compared to public LLMs. Indeed, data governance and security were highlighted as important considerations among VC investors.
Vertical AI, and its potential to disrupt healthcare, was cited as a big opportunity. Here’s a short video clip from the panel session, “Investing wisely & the AI frenzy”, during which Shira Eting, Partner, Vintage Investment Partners, explains why she is bullish on vertical AI:
A number of key aspects to growth equity were debated during the IPEM Summit including:
🟣 The need for specialization, particularly for smaller growth equity funds.
🟣 Portfolio management teams are the best references.
🟣 Founders have higher expectations and are more demanding, as well as discerning, in who they choose to partner with.
🟣 The growing importance of digitization strategies.
During the summit, panelists emphasized the necessity of specialization in investment strategies to meet the rising expectations of founders for deeper engagement and understanding from investors. With so many different business and revenue models, even in just one vertical such as software technology, growth investors need to apply careful focus to the risk/return profile. For example, investing into an AI-driven business carries a significantly different risk profile from a more traditional workflow management software solution.
Compared to venture, growth investors are expected to provide key support spanning everything from backing new ideas, new products, to making acquisitions and advising on recapitalization; all of which is leaning towards sector specialization more than financial specialization. Not to say that VC managers aren’t applying their own significant sector expertise. CPD Venture Capital, Italy’s largest VC manager, is a case in point. They have identified a number of sectors of strategic importance for the Italian ecosystem, including space tech, robotics and manufacturing 4.0, agritech and life sciences.
Getting access to the best management teams is getting more competitive, with founder expectations rising. Founders want to see clear evidence of a deep understanding of their business model, the sector that they’re serving, how to scale the business commercially. Also, they expect to be given access to networks of specialist advisors, former operators, and potential buyers: this is important given that there is still an IPO backlog in Europe.
Panelists discussed the importance of bringing prospects to meet existing managers in their fund portfolios, as they are very often the best reference a fund investor has. When seeking out the right partners to help realize future value, it was stressed that management teams should focus on choosing the right partner to achieve that growth ambition, rather than focus on, ‘Can I squeeze an extra half a turn out of the valuation?’ This is where the best growth opportunities often arise, where both parties recognize they have a common vision, speak a common language etc.
As some investors mentioned, investing heavily in developing and building out the management team, and supporting product and sales expansion plans, are all part of “institutionalizing businesses”. Moreover, with respect to growth equity, having a clearly defined digitization strategy is paramount.
As GPs double down on developing sector-specific capabilities, they are investing heavily on internal technology. There is a growing belief that specialism is key to an effective origination program. As alluded to earlier, some GPs are already applying GenAI tools to sourcing. This is improving the function of their lead generation and allowing them to more accurately target the right investment opportunities pertaining to their strategy. As technology advances in the coming years, GPs will have even more capacity to refine their origination and due diligence processes, as well as ongoing portfolio and risk monitoring.
With so many trends shaping Europe’s venture and growth industry, IPEM’s summit sessions are proving an ideal forum for all industry practitioners – GPs, LPs, advisors and service providers – to remain on the front foot and up-to-date.
We will be continuing to forge ahead and debate the key issues at play at our upcoming IPEM Events.
New Promises for Private Markets – BRINGING TOGETHER PRIVATE MARKETS AND WEALTH ECOSYSTEMS IPEM Cannes has been the flagship event for Private Market professionals since 2016 and is now leading…