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Pension funds are now more interested in European venture because pension funds look for good returns, and European venture has shown an uplift in returns over last years. However, there are some things holding others back from allocating to European VC. Those include the fact that VC investments tend to have long and deep J-curves, which requires long-term capital that can handle illiquidity. Furthermore, a secondary market in European VC is under development but is still immature.
At Top Tier we’ve been investing in European venture capital funds since our inception, but most were transatlantic. Currently, we see a real opportunity with Europe-focused funds as returns improve, valuations remain reasonable and the ecosystem develops. The venture business is global, and we see a proliferation of highly qualified and experienced European entrepreneurs and fund managers investing behind innovative technology and life science trends to build global businesses - just like what we see in the US. As a result, we expect to be more active in Europe through investments in venture capital funds, secondaries and co-investments.
We believe that investors need to see different structures rather than just the constrictive 5+5 year limited partnership. This is driven by many issues such as liquidity, access, flexibility in the market as well as the need for longer term capital to build bigger companies in Europe. LPs can now see that huge success can be found in Europe but the challenge of staying locked up in a 5+5 year fund cycle remains unattractive. We have to remember investors don't just compare VCs to other VCs, they have the option of investing into any asset class. More liquidity is also attractive to entrepreneurs, who want to be able to reward employees for hard work in the face of huge competition for talent.