Just eight first-time private equity funds have closed in Europe this year—a drastic fall from previous years.
Rookie managers have always had it tougher than more experienced peers, but they have faced a particularly grueling fundraising environment since 2022. LPs have naturally favored safer bets in a market where they have had limited capital available for PE allocations.
In 2021, 46 first-time PE funds closed in Europe, and this slumped to just 21 in 2022, and the pace has slowed substantially this year, according to PitchBook data. The total value raised by such funds has also fallen significantly to just €1.2 billion (about $1.27 billion) compared to €8 billion in 2021.
So, why were these eight able to get over the line? There is no magic formula, but they do have some common characteristics.
All eight funds have a reasonably specialized investment focus. Most are targeting just one industry vertical, for instance FoodTech in the case of Zintinus Fund I. Four are also targeting a single country for their investments.
A very targeted focus, while limiting broader appeal, can enable funds to tap into LPs with specialist investment mandates that are less interested in committing to large generalist funds.
Four of the funds also have a clear sustainability flavor to them—they are funding companies that will contribute to a more sustainable economy. A growing number of investors, particularly in Europe, are motivated by ESG-related goals as well as pure returns.
In some cases, a firm that is launching its debut vehicle may boast founders with impressive individual records. For example, David Brown, a partner at Zintinus and manager of Zintinus Fund I, is a co-founder of Techstars. His colleague Christian Neuss previously worked at Permira for 12 years.
The promise of co-investment opportunities can also help emerging managers attract capital commitments from hesitant LPs.
Featured image by Peter Dazeley/Getty Images
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