A lot has been made recently of American VC firms coming to Europe to splash their cash. But it’s a new generation of home-grown VCs — some of which don’t even exist yet — that are set to make a bigger splash.
That’s according to a new fund of funds, Equation, which is coming out of stealth today. It plans to invest in these up-and-coming VC funds which it believes will shape the European startup ecosystem in the years to come.
Since early 2021, Equation has invested in 13 of them, including B2B fund Visionaries Club, deeptech fund Vsquared, generalist firm Possible Ventures and health and biotech specialist Amino Collective. Equation’s plan is to not just be a fund of funds but to provide other products to the funds it's backed, like co-investments if they need capital for follow-on rounds.
So, what do the new VC kids on the block look like — and what are they keen to invest in?
Micro VCs and emerging blue chips
Equation is betting on two new breeds of VC in Europe. The first it terms “micro VCs” which, as the name suggests, includes VC firms run by one general partner (solo GPs) or a slightly larger (but still very small) team. These VCs typically raise funds of less than €60m and are focused on pre-seed and seed-stage investments.
The other category is “emerging blue chips” — funds above €60m and up to about €200m, run by people with a background in venture or running startups, focused on startups from late-seed to early Series B. A lot of these — such as Plural, the VC firm started by Wise cofounder Taavet Hinrikus — have been launched by experienced founders or operators choosing to move on to a career in investment.
These new kinds of VCs have emerged as more European tech successes breed successful wealthy operators and investors, and new infrastructure like Vauban and Bunch makes it easier and cheaper to set up small funds.
Germany-based Equation closed its first fund in 2021, says managing partner Mark Schmitz, who was previously a partner at European VC heavyweight Lakestar. It’s now launching two new investment vehicles — one for micro VCs and one for emerging blue chips.
Schmitz says this will take Equation’s assets under management above €100m (although he declined to share the size of each fund). He adds that Equation is backed by “a diverse set of family offices, a foundation, entrepreneurs and senior operators both from the tech and financial services industries”.
Smaller funds do more deals
Smaller funds have been consistently increasing their deal activity faster than larger funds in Europe, according to Equation’s analysis. In 2021, micro VCs were involved in 127% more deals than in 2016 — and so far this year, despite all the market turmoil, they’ve already done 11% more deals than they did in 2016, while larger firms have dropped below that level.
