March 13, 2025
European VC & PE: Key Insights, Challenges, and Opportunities for LPs
We recently attended the 0100 DACH Conference in Vienna.
Key Takeaways
- Positive outlook for 2025: well attended most participants felt it will be a good year.
- VC success follows a power law: The top 1% of investments generate over 50% of total returns, making fund selection critical.
- European VC fundraising faces hurdles: Too many funds, regulatory barriers, and reliance on public funding challenge capital flows.
- Top buyout sectors: AI (which benefits from EU backing), energy transition, and healthcare offer strong opportunities; defense investments are also gaining traction.
- Regulation: a double-edged sword: It creates opportunities (e.g., GDPR-driven cybersecurity) but also stifles synergies, particularly for small businesses.
- Liquidity challenges in PE: Low DPI, continuation vehicles, and NAV loans require careful consideration from LPs.
Early in the year and over a few beautiful winter days in Vienna overall sentiment was very positive.
Despite various challenges such as the conflict in Ukraine, the Trump administration, upcoming German elections, and regulatory measures by the EU, the consensus among panelists and participants was that 2025 could mark a new beginning after several challenging years.
The 0100 Conferences, of which this was the first of the year, are off the mainstream locations, smaller, and more intimate and was well attended with a fairly even distribution of LPs and GPs, and with good local attendance, especially of the former. This made it easier to meet and talk with people, including senior decision makers.
Here are our takeaways from the panels we managed to catch.
The State of DACH Private Equity and Venture Capital
The European venture capital ecosystem is proving that innovation and talent are not confined to Silicon Valley. Local European VCs are often the first to identify and back promising startups, while U.S.-based investors typically enter at later stages.
Notable exceptions include FinTech and Healthcare, where European VCs have built a strong presence.
Emphasising the attractiveness of European VC the panel referred to a recent European Investment Fund report that found average VC returns in Europe now match those in the U.S.
However, in his Keynote, which followed that panel, David Clark of VenCap challenged this perspective, pointing out that VC is driven by a power law—only a handful of investments generate the bulk of returns.
The top 1% of deals account for over 50% of total exit value, roughly 30 companies per year – something for all LPs contemplating investing in VC funds to be mindful of.
The value of European venture was hotly debated on a couple of panels. David Clark brought data and, as can be seen from the below chart, his conclusion is anything but vague:
Anybody just focusing on investing in Europe is missing out on 80%+ of the value created. VC is hard at the best of times. Ruling yourself out of a high proportion of the best companies isn't going to make it any easier.
You can find Mr. Clark’s whole post on this here.
What It Takes to Succeed in VC
Mr. Clark outlined key principles for successful venture investing:
- Maximize upside: Success hinges on capturing the top 1% of investments.
- VC is exceptionally difficult: Most VC funds fail to generate risk-adjusted returns that justify investment.
- Fund selection is critical: Identifying consistently strong-performing funds is challenging.
- Seek proven managers: The best funds consistently deliver net multiples of 3.0x, and at times reaching 5-10x.
- Outperformance across cycles matters: Short-term wins can be luck, but long-term consistency signals true skill.
For LPs, the takeaway is clear: Europe has strong entreprenuerial and start-up talent, but fund manager selection is the ultimate differentiator.
A separate panel explored the challenges of fundraising in the European / DACH VC market:
- Oversupply of funds: Too many VC funds are competing for capital, making fundraising difficult.
- Public vs. private capital: Unlike the U.S., where VC funding is primarily private, Europe relies heavily on public or soft funding—yet accessing it is complicated by regulation.
- The EIF Debate: Some argued that after 40+ years, the European Investment Fund (EIF) should be obsolete, but instead, it has grown and potentially suffers from adverse selection – i.e. funding things that should not be funded.
- Regulatory bottlenecks: There was consensus that smarter regulation is needed to create a more efficient investment ecosystem.
Sector Overview: Top Promising Verticals for Buyouts
Three sectors stood out as the most promising for buyouts:
- AI: AI investment which, even if quite hyped, is quite real and benefits by EUR 200bn in EU funds.
-
Energy Transition: A rapidly growing space as sustainability and energy independence becomes a business imperative.
-
Healthcare: Particularly in digitization and cybersecurity, offering room for growth and innovation.
Defence investments represent a growing opportunity and go beyond military expenditures to include hard and soft infrastructure, presenting a diversified and timely investment theme.
Regulation: A Double-Edged Sword
Regulation can both create and hinder opportunities:
- GDPR imposed a compliance burden but also opened cybersecurity investment avenues.
- Fragmented EU regulations make cross-border scaling difficult, particularly in FinTech (e.g., KYC requirements, EU Taxonomy).
Exit Strategies: Aligning with Mega-Trends
The best exit opportunities align with mega-trends that are less exposed to regulatory shifts:
- Strongest sectors: Technology and Healthcare.
- More challenging: Automotive.
- Key considerations for GPs:
- Identify the natural buyer (strategic or financial).
- Ensure the investment is truly driving growth.
- Assess whether leverage is available on favourable terms.
Sustainability: Beyond a Buzzword
It is hard to attend a conference without a panel on ESG, Impact, Sustainability, on this panel a refreshing perspective emerged – sustainability is not a sector; it is integral to value creation and failing to integrate ESG considerations can actively destroy value.
Thus we can hopefully start moving away from treating this like something unique and special and start treating is as part of value creation, and maybe avoid ESG etc fatigue.
Operational Excellence: More Than Cost Cutting
Max Buttinger of Warburg Pincus defined operational excellence as achieving “better, faster results with fewer resources.”
While cost control is important, real value comes from:
- Pricing optimisation
- Product bundling
- Geographical expansion
- Customer segmentation
Warburg Pincus, for example, generated an incremental USD 200m in portfolio revenue last year through focusing on this. Much harder to do, but likely much more overall value creation.
Measuring Private Equity Performance: Low DPI & LP Allocation Strategies
The final panel that we caught tackled low DPI and its implications for LP allocations. Current DPI levels are at GFC levels, hovering around 10% of total NAV.
Key discussion points:
- Family offices increasing allocations: They are taking advantage of opportunities in the current environment.
- Continuation vehicles & secondaries: These tools are playing an ever increasing role in creating liquidity.
- Not all DPI is equal: GPs selling to themselves creates misalignment and pushes the divestment decision to LPs that may not be in the best position to decide this.
- NAV loans & leverage: While NAV loans provide liquidity, they also increase leverage risk—something LPs must evaluate carefully.
- Alignment concerns: LPs worry about GPs cherry-picking assets and that CVs often trade at NAV rather than other types of exits which often happen at a premium.
- Secondary market growth: The secondary market is still underfunded, meaning that it will continue to grow and that LPs will need to adapt to it.
Best Practices for LP-GP Alignment
To ensure proper alignment in continuation vehicles:
- Company management should roll at least 60% of their proceeds.
- GPs should roll at least 10% to maintain skin in the game.
Measuring Private Equity Performance: Low DPI & LP Allocation Strategies
For institutional investors navigating European VC and PE, these insights provide a strategic roadmap:
- VC remains a power law game —fund selection is paramount.
- VC fundraising in Europe is competitive due to an oversupply of funds and regulatory barriers for private capital.
- AI, energy transition, and healthcare are top buyout verticals, with defence also emerging as a strong theme.
- Regulation presents both challenges and opportunities —understanding its impact is key.
- Liquidity strategies require careful consideration, with DPI levels at historical lows.
Ultimately, success in both venture capital and private equity requires disciplined selection, operational excellence, and a focus on long-term value creation.
Stay Illiquid!
Kasper
More Insights
Insights
Sign up to keep up to date with the latest news and updates.
© 2024 Balentic ApS. CVR: 44034255. All rights reserved.
Privacy Policy | Terms of Service
The Balentic website and Orca are, and are expected to continue to be, under development. Consequently, some of the features described in this Overview and/or on the website may not yet be available or may work differently. Some features may furthermore not be available to all users.