LPs are now coming to the realization that to maintain the incredible returns the venture asset class can offer, they will need to be bolder and start developing conviction internally on certain sectors.

With the record breaking amount of capital flowing into venture as an asset class, we believe that specialization (sector, geographic or others) is going to be hugely important for firms to effectively compete and rise above the noise. Historically, LPs have had the mindset that we back managers specifically because we trust them to identify the promising sectors and spaces for us. But with the rise of specialist funds, LPs are implicitly making a bet on a given sector or space. That said, it’s important for GPs to be mindful of how narrowly defined your sector is. You want to be specialist enough to be differentiated in the ecosystem and provide relevant expertise, but also have enough latitude to make sure you can catch those outliers that will drive true outsized performance.

Whether you look at it from a returns perspective or the breadth of the opportunity set, European tech is one of the most exciting investment opportunities for institutional investors today.

European tech has proven to be a multi-trillion dollar opportunity, with the value of public and private companies growing to $3 trillion as of 2021. Looking ahead this value is set to grow at compounding speed fuelled by the acceleration of digital tailwinds to $6 trillion by 2030 at a conservative estimate. From a returns perspective, European VCs have consistently delivered strong returns to their investors - on par or exceeding their peers on the other side of the pond. The founders we see in Europe today have the best credentials yet - they have bigger ambitions, are more experienced and are better networked. The depth of talent and the size of the market opportunity provide strong foundations for European VC to continue to access the best companies and deliver world-class returns to investors.

Given the 0% interest rate elsewhere, capital markets have discovered venture capital as an attractive asset class.

Also, the economy is still in the process of being digitized. This combination makes this a great time to build startups. Regarding completely new areas I am eager to learn how crypto and decarbonisation develop.

Angels have grown up in Europe. There is a rise in super angels. I see angel syndicates playing a very significant role in rounds, in some cases crowding out smaller VCs. In addition, successful angels are being backed by others, building syndicates or “deal by deal” funds. Given the abundance of capital, it is however also becoming increasingly difficult for angels with little understanding of the entrepreneurial process or of the specific industry to enter competitive rounds. Founders are turning from supplicants to requestors.

While the relative scarcity of capital continues to be an issue in Europe, due to the paucity of large private institutional investors, the recent successes attract foreign and non-traditional investors - this is ominous.

I believe that over the last few years, the importance of geographic ecosystems (physical locations grouping together entrepreneurs, human resources, investors, service providers and clients) diminished. Existing ecosystems did not disappear, but success was proven possible starting from remote locations. In this context, Europe became the birthplace of significant successes and was recognized as an attractive location for starting and investing in future global leaders. While the relative scarcity of capital continues to be an issue in Europe, due to the paucity of large private institutional investors, the recent successes attract foreign and non-traditional investors. This is ominous as availability of capital clearly drives creation of startups and hence expands the top of the funnel for the future.

For too long, equity investment has been the only option for many innovative companies to obtain funding, often at very unfair terms. But really, raising money and giving up equity need not be the same concept.

We live in an age of empowered founders - empowered to choose what investor they want to work with and empowered to control their equity better. In the past, too many founders could not be incentivised to build sustainable long-term solutions to tough problems because at some point the equity math just didn’t make sense anymore - it can be tough to still feel real ownership when the stake in your business is minuscule compared to other investors around the table. If used sensibly, venture debt will strengthen innovative companies by significantly boosting business trajectory, protecting ownership and control of founders, as well as leaving more room to incentivise key talent, which in the current war for talent will be crucial for building lasting businesses.

I am more optimistic than ever about racial diversity in VC. However, it’s still very difficult for diverse founders to break out unless they’ve created wealth themselves by building companies and recycling capital later on.

In the UK, Marshmallow became a unicorn this year. Oja, led by a Black female founder, just raised $3.4m. VC funds are becoming more intentional in identifying diverse founders and seeing the opportunity there. We need more diverse managers and a more inclusive investment landscape. The ingredients are here to build a fairer ecosystem: Andy Davis is angel investing , Black Seed is building a seed ecosystem in Brixton, Impact X at the growth stage.But this needs to be amplified, with greater awareness, visibility and also greater capital commitments. We need talented diverse people in finance to see VC as a route. There are some great programs already like Included VC in Europe, which is increasing the diversity within the investment pool, or Future VC and the Newton Programme, providing a more global exposure to VC.

The VC community needs to educate themselves on the problems that we are facing with the climate crisis and the various VC opportunities that have arisen in this space.

I am excited by the fact that investors are finally realising that positive impact and profit can go hand in hand. There is still work to do to educate ourselves on climate problems, and which can be solved by VC funding being more proactive in these spaces. We need to be aware of the changes in regulations that will accelerate the growth in this space as these will open opportunities to invest in less obvious Climate Tech startups, as well as areas such as deep tech, or slightly higher Capex companies that have not traditionally been easy for VCs to invest in. The VC community also needs to work closely with universities and researchers to ensure that we are more aligned to help needed solutions get to market quickly.

I’m an American who chose to build my venture fund, January Ventures, in Europe because I believe the ecosystem here is just getting started.

We are seeing more entrepreneurs choosing to stay in Europe to build their companies instead of moving to the US. We are seeing experienced operators from the European headquarters of big tech companies increasingly joining local start-ups and scale-ups. And we are seeing it become more of a social norm to choose a job in tech over other careers. Still, I see gaps and opportunities. We need more experienced operators in venture in Europe. We need more diversity – of thought, of background, of experience. And we need to break down silos, in order to create a more collaborative ecosystem across Europe.