- Solo GPs, or venture firms with one main partner, are on the rise in Europe.
- A trend in the US for a number of years, solo GPs are now more prominent in Europe.
- Solo GPs continue to raise funds but restrictions at institutional LPs are making it more difficult.
In America, lone-wolf venture capitalists are a “dime a dozen.”
Typically, venture capital funds are managed by a group of general partners with diverse backgrounds. They typically raise hundreds of millions or billions of dollars from the partners and limited partners, or LPs, who may include wealthy individuals and pension funds.
Since 2020, the most successful Sand Hill Road entrepreneurs have gone it alone to raise capital for their micro-funds. Europe, which is frequently a few years behind in terms of startup trends, is also beginning to produce its own solo GPs.
In Europe, notable new solo GP funds include Gloria Baeuerlein’s Puzzle Ventures, Jobspotting cofounder Robin Haak’s Robin Capital, ex-Googler Sarah Drinkwater’s Common Magic, and Harry Stebbings’ 20VC, which announced in 2021 that he had raised $140 million to be split between two funds.
However, the current shift away from excess in private-tech investing means that money is becoming more difficult to come by for this emerging class of European investor.
“The solo GP model is more difficult for European LPs to digest,” said Annelie Ajami, CEO of London- and Dubai-based Anamcara Capital. “I was one of the first to do it, and when I gave my presentation, very few investors had seen managers of my caliber before.”
“We did our first close at the end of 2021, and we benefited from the market’s abundance of capital — but there’s been a slowdown since then, which my peer group has felt.”
Following a record-breaking 2021, larger European VC funds have generally found it more difficult to raise their next funds. Solo VCs with even more to prove claim to be ignored by institutional investors.
“At first, I thought I’d go full-on institutional and get the fundraise out of the way, but I was surprised at how slow and unwilling they are to take bets on first-time fund managers,” No Label Ventures founder Ramzi Rafih told Insider.
No Label, a former investor at late-stage private-equity firms KKR and Silver Lake, seeks to invest early in immigrant founders in Europe. Many would-be investors, according to Rafih, did not see a transferable track record from his late-stage investing, prompting him to focus his efforts on high-net-worth individuals and family offices.
Many would-be LPs believe that betting on emerging managers is too risky. Solo GPs face additional challenges because institutional funds are hampered by the fact that many of them have a minimum allocation that is too large for smaller funds seeking a diverse LP base.
In addition to minimum check sizes, institutional funds, according to Carolina Huaranca, a partner at First Close Partners, a San Francisco-based fund of funds that invests in venture funds and first-time managers, lack the depth of networks or sourcing capacity to efficiently review new funds on the market. To be successful, solo GPs “need to be like a Swiss army knife” in terms of managing multiple responsibilities, she says.
“Institutional funds are still investing in the VC market as a whole, but they are looking to reduce their exposure to new and smaller funds, with reinvestment prioritized around the best performers,” Rafih added.
According to one anonymous London-based LP, “if your bet on a new manager loses money, then you look foolish, but no one can blame you for backing Sequoia.”
No rising tide
“When investors feel wealthy, they are open to new ideas, and in 2020 and 2021, people were willing to try new things, but when their public book goes down, they retreat, and that’s human nature,” said Joe Schorge, managing partner at fund-of-funds Isomer Capital.
Raising repeat funds solo has become easier with a track record for Masha Bucher, the founding partner at Day One Ventures and an early backer of Sam Altman’s Worldcoin project, but it’s still not easy. Butler visited 20 cities in two months earlier this year as part of a massive fundraising effort for her third fund, telling Insider that demonstrating returns and doubling down on key backers was critical to raising her next vehicle.
“As we speak with LPs, we increase our due diligence on their liquidity and deployment plans.” “A lot of fund managers talk to everyone and waste a lot of time on unqualified leads,” she explained. To summarize, knowing who to pitch for investment is critical when raising funds.
According to David Cruz e Silva, an angel investor and LP in smaller VC funds through EU.VC, one advantage for solo funds in Europe is that smaller funds — often $15 million to $20 million — are easier to return than larger funds.
“Europe is 10 years behind in this conversation,” Ajami said. “In the United States, there are endowments and pension funds; in Europe, there are none, so there is a smaller pool of institutions, and most of them do not support first-time managers.”