• Title: Europe, take off the stabilisers
• Subtitle: They’re making things worse for the people you claim to be helping

Part 1: 600-800 Words

• Preamble: Europe has two stabilisers, government money and diversity initiatives. They are both fundamentally flawed and paint a distorted picture of the realities of the health and maturity of the European market. Removing the obfuscation, we see some excellent ideas - let’s nurture them before they jump across the pond as is tradition.
• Government fund initiatives
  • Counterfactual: did they back me because I’m great, or because I’m European? They can’t go back in time and prove that they would have got the funding without the initiative
  • Background: Venture capital varies by region, Asia operates a family office centric model which is very opaque, very centralised, and who’s quality varies. In Europe, our major funding source is the government, which is more transparent and decentralised by number of funds, but is very centralised in the LP base (50-75%+ of the base sometimes), highly restricts GPs and backs funds of often questionable quality. The US operates a much more institutional model, more decentralised by number of funds and LPs in the base, mostly unrestricted GPs, and a very high bar for quality (some FoFs are looking for 10x+ Net DPI).
  • Insight
    • Problem with Current Solutions: European government money is fundamentally defensive, they’re investing to bolster against China and the US - and they don’t care about returns as nearly as much as private investors. This means they invest in bad funds who in turn invest in bad startups, and the ecosystem rots.
    • Remove Obfuscation: If you put all the government-funded GPs (and LPs) to one side, you’ll find that the highest performing managers usually don’t take government money (Hummingbird, Backed, Mosaic, BlueYard, Possible etc). If we’re honest, without the government, most of the others wouldn’t even exist - there is no way they would have been able to raise, and handle global competition. Further, governments are fundamentally risk-averse, so can’t back innovations on the venture model (like Simplify and Spearhead.co).
    • Real Problem: Europe has a fundamentally undeveloped fund-of-funds ecosystem, there are few to no fund-of-funds in the private markets who actively and consistently back emerging fund managers. It is harder to raise for a fund than a startup, and harder to raise a fund-of-funds than a fund. If you want to create a new type of fund-of-funds? Good luck with that 🙃
  • Solution: Transition government banks into sovereign wealth funds (which only care about returns), use the sovereign wealth funds to invest in fund-of-funds instead (as the US already does) - alongside institutional family offices. These fund-of-funds must include fund seeders like Simplify (so that the sovereign funds invest in the very highest returning funds from the broadest possible selection)

Part 2: 600-800 Words

• Diversity fund initiatives
  • Counterfactual: did they back me because I’m great, or because I’m Black? They can’t go back in time and prove that they would have got the funding without the initiative
  • Background: Diversity gaps are indicators of structural problems, they aren’t problems in of themselves; socio-economic status is a greater ‘venture access’ factor than race - the Sewell report told us this in 2020; people didn’t like it, but no one disproved it
  • Insight
    • Problem with Current Solutions: Diversity funds, fund-of-funds, angel and scout programmes suffer from the ‘multiplicativity fallacy’ - they can’t consistently decide who’s black and who’s not, ultimately (but not necessarily intentionally) using truncated forms of colourism and mongrelism to do so. Also, angels in angel programmes can’t prove they got into the deals they got into because they’re great investors, and often say that the firm’s brand helped them get into deals - this is the opposite of building a direct, attributable track record.
    • Remove Obfuscation: If you put all the diversity funds to one side (including Atomico’s now quota-centric angel programme), you’ll actually find minorities developing very smart solutions to the ‘diversity problem’ - mine’s called Simplify
    • Real Problem: The main problem is that it is incredibly expensive to set up a venture fund, both administratively and in raising such a large amount of capital; many people knew this, but elected to plaster Twitter with black squares, #blackouttuesday and pithy quotes (’I hear you, I see you, I grow’) instead of looking deeper at the ‘venture infrastructure’ problem
  • Solution: The US realised this at a federal level in 2023 (by ending affirmative action, which will expand to corporate diversity programmes more broadly) and already have programmes like Spearhead.co running well - these programmes will ramp up while we continue to mess around with platitudes and diversity quotas
• Takeaway:
  • Every venture market has at least one of these stabilisers, Europe is unique because it has both. Hence, the fund seeder model is a global instrument - arguably most pressing in Europe
  • The whole venture space has gone through a large contraction and the quality threshold for all funds is much higher than even the US’ used to be - there is no regional variation in the ‘fundraising bar’, it’s probably higher outside the US due to currency risk
  • We have the fund admin infrastructure (thanks, Bunch!) and world-class GPs, there is nothing stopping us from outcompeting the US - if we don’t act now, we’ll loose out like usual