As we enter the second half of 2022, over two years of pandemic followed by ongoing geopolitical events have understandably created an uncertain environment for private equity (PE) and venture capital (VC) professionals.
Following his appointment in JTC’s London office, Martin Punt, Director – Fund & Corporate Services, has spent time at PE and VC events, meeting experts to gauge the state of the industry. Here he reports back on five key trends from his discussions with GPs and LPs:
Climate, Proptech and Foodtech are all substantial areas of interest, with many investors talking about entering into the venture space with a desire to secure exposure to climate-related companies. What separates the interest from the activity is finding the right partners with credible, proven expertise.
Ultimately this is about long-term sustainability. The feeling is that climate is a more recession-proof area and that is good both in terms of stability and certainty, and in terms of reflecting ethical values and meeting sustainability targets.
Mind the Funding Gap
Although first-time and early stage fundraising remain active and Europe has seen some incoming funds from Asia and US, the later-stage funding gap is still a problem for maturing eco-systems across Europe. It is clear that investors are holding back in an area that is perceived as offering less attractive returns.
Europe Polls Top
However, further to the previous point, an ad hoc poll in a recent panel session saw the audience indicate that Europe was the VC market to watch in 2022, gaining a third of the votes. To me this signifies confidence in the medium to long-term for a market that continues to experience turbulence and an indication that venture capital has a pivotal role to play in rebuilding Europe’s economy.
It is no surprise that inflation is a hot topic. One questionnaire poll at this year’s event suggested that most people expect to see inflation rise to 7% this year and there were fears about what might come next – a looming recession in particular.
In this event, there will no doubt be a knock-on impact on PE and VC market activity, although the overriding feeling is that the industry now has the experience and lack of liquidity exposure to cope, should that occur.
Fundraising remains tough for those managers at the lower end of the market. This is not new but it is a situation that has been perpetuated by an uncertain investor environment and much fiercer competition.
The big investors are sticking with what they know and that tends to be the bigger ticket funds. They are returning for second rounds and it seems at the expense of the smaller funds.
All is not lost though. It is a fragmented market, and other players in PE/VC, such as family offices, still provide an interesting investor audience for this end of the investment spectrum.
Overall, it’s an intriguing position for the PE and VC business.
It is certainly still active, with big ticket funds continuing to attract the interest of investors. There is also some really exciting work going on, such as in technology and ESG which provides a real sense of optimism in the market, from both GPs and LPs. Good examples include VentureESG and ESG_VC.
To caveat this positivity, inflation and rising interest rates are exerting pressure and uncertain valuations are putting the brakes on activity in some areas. Small ticket and late-stage fundraising remains hard too.
Looking forward, for service providers in this area, it will be a case of providing balance and expertise for all market participants to ensure they can navigate a potentially complex landscape effectively and realise the potential that is undoubtedly there.
With a proven track record spanning more than two decades, JTC has extensive experience in supporting PE and VC funds through their entire lifecycle. To find out more, please get in touch with Martin directly or visit our dedicated private equity page here.