The Navy Seals of venture capital – who work in teams, stealthily and in dogged pursuit of investment success – are here. These single GP funds are often ex-entrepreneurs and increasingly ex-GPs (General Partners), hands-on lone investors. I count myself among them, and our MO is to work tactically and speedily, to bring our deep experience to support the companies we back and put their success before everything else.
As capital pours into Europe in search of the next big global companies, the whole landscape of venture capital is changing. While headlines have focussed on the arrival of the many US and international investors with deep pockets and a voracious appetite for deals, a less remarked-on trend is the emergence of single GP funds. Many of the single GPs are Valley Veterans – people who have worked in the Valley, both in big tech and VC, and are returning to bring their deep experience to help transform Europe’s best startups and scaleups. Moreover, single GPs tend to have built structured investing experience as partners within one of the large venture funds.
What these investors – and the big funds – have in common is that they believe that Europe is capable of producing the next big global tech companies and that with the right capital, support and momentum that is happening right now.
Mega funds seek mega deals
VC investment in Europe reached over $50bn in the first half of 2021 and set a new record of $116bn by the end of 2021. While the rate and size of US investments have been breath-taking, there is another aspect to it that could change VC in Europe significantly. Increasingly, we are seeing these big funds writing what some call ‘tracker cheques’ – small early-stage investments that are essentially placemarkers, that allow them to invest in later rounds. Andreessen Horowitz, Kleiner Perkins, GGV Capital and Sequoia Capital have all invested small sums in seed rounds that could fall into this category.
For example, GGV Capital, which manages $9.2bn in assets, invested early in Labster, a virtual labs company seeing 20 times year on year growth, with a tracker cheque which gave them a seat at the table. This allowed GGV to participate in a $60 million Series C in 2021 led by the prominent Silicon Valley firm Andreessen Horowitz (A16Z).
VC is a relationship business and the most successful investors want to get a foot in the door as early as possible. For example, in the case of Tajir, a Y Combinator marketplace connecting mom and pop shops with retailers, I invested $100k in the seed round and subsequently built a relationship with the founders. When Tajir went looking for their series A round of $15m it was 3x oversubscribed. Kleiner Perkins came in to lead the round and the founders rewarded early investors who had helped them with super pro-rata. It’s the founders’ new freemium VC model.
VC fundamentals are rapidly changing – the rise of single GP funds
VC investment is transforming before our eyes. Investment decisions are made at a pace not previously dreamt of. Now investors recognise that founders do not have time to waste on fundraising. Deals are made fast and often without the copious paperwork that went before.
The competition among VCs in Europe has never been higher. US VC firms such as Sequoia Capital, Lightspeed, General Catalyst, Coatue and Iconiq Capital are all opening up offices in Europe. The old rules of engagement no longer apply. Founders with momentum behind them can now choose which investors they want to go with and big funds aren’t automatically their first choice. They want to work with individuals who can add value, not institutions who are prioritizing ownership and terms. Time and again, single GP funds are getting a seat at the table because they can move faster and actively demonstrate their value by bringing a network of supportive investors to the table.
What A16Z invested heavily in and executed flawlessly inhouse, building a support platform for single GPs have now improved via cross-fund alliances.
Similar to using scout networks to source deals and build relationships single GP funds are effectively decentralising the investment committee. They are also working together in a way that may surprise, including by sharing pro ratas and pipelines with each other.
Sometimes we look back in time and recognise a pivotal moment when everything changed.
In venture capital itself, there are examples of innovation like Sequoia’s scout fund, A16Z’s service platform and even Tiger’s founder-friendly terms and no board seats. However, as far as I am aware no VC has ever filed a patent and founders are now asking for more from investors.
Single GP funds are challenging the cornerstone of VC economics. Are the days of single funds minimum ownership requirements under pressure? In contrast single GPs carve up the founder’s dilution goals and share ownership stakes with other investors.
Like the fabled Navy Seals, they are disciplined, tactical, technical, utterly loyal and oriented on collaboration and results for the team as a whole. It’s about “we”, not “I”. I’m often reminded that VCs play a secondary role in the creation of tech success – the emergence of alliances of single GP funds could be the pivotal moment founders are seeking, it’s challenging the status quo. Indeed the mantra that ‘what got us here may not get us there‘ holds true more than ever for the VC industry. Founders are raising the bar.
About the author: Lars Fjeldsoe-Nielsen MBA2007, is the founder of the early-stage fund 2xN. Prior to founding 2xN Lars was a General Partner at Balderton Capital in London from 2015 to 2021. He joined after spending a decade in Silicon Valley where he was involved with three of the Valley’s best-known tech companies – Uber, Dropbox and WhatsApp. His investments include Cambridge Quantum Computing (HON), Hopin (A16Z), Opensea (A16Z), Vivino (Kinnevik), Labster (A16Z), Beacon (Eric Schmidt), Voi (Raine), Hiya (Ericsson), Dubsmash (acquired by Reddit), Kbox, Rahko (acquired), Tempow (Acq Google), The org (Sequoia), Studysmarter (Owl), Tajir (Kleiner Perkins), Octant (A16Z), Zycada (Khosla), Monarch money (Accel) Kukua Kenya (Tencent), Ulesson Nigeria (Tencent) and many more.