Guernsey As An Enabler for Venture Capital

The Venture Capital (VC) industry is going through some sweeping changes.

As momentum around Artificial Intelligence (AI) continues to grow, VC managers are scurrying around trying to scope out the best investments. At the same time, secondaries and co-investment deals – already fairly synonymous in private equity circles – are now becoming more entrenched in VC. JTC attended the flagship Guernsey Funds Forum in London, where industry experts talked about these trends, and why Guernsey – as a fund domicile – is so well-positioned.

Venture Capital – Is the Tide About to Turn with AI?

US trade tariffs, higher borrowing costs, inflation and geopolitical tensions have all taken their toll on VC fundraising, but this could change with AI.

Although data shows the VC industry attracted $104.7 billion in 2024, down from $128 billion in 2023¹, experts remain bullish about the asset class’s fundraising fortunes, especially if AI proves to be more than just yet another technology hype cycle.

Simon Gordon, Senior Director, Funds & Corporate Services said a lot of the growth forecasts for VC were being driven by the possibility of outsized returns in AI. “While a lot of AI firms have yet to become profitable, there is a strong consensus amongst VCs that we are on the cusp of seeing the next Google emerge,” he added.

AI may be in a fairly embryonic stage of its development, but dealmaking in the sector is certainly accelerating. According to KPMG’s latest VC Pulse Report, AI dominated the top 10 VC deals in Q1 2025, with Open AI’s $40 billion raise leading the charge².

Several managers at Guernsey Funds Forum highlighted there are plenty of AI uses cases, particularly in the Healthcare and Agriculture sectors. For example, one speaker said computer-vision and AI-enabled industrial weed spraying machines have resulted in a staggering 95% reduction in chemical use on farmland – turbo-charging both crop productivity and biodiversity.

Secondaries and Co-Investments Increase

Amid growing LP demand for liquidity and companies choosing to stay private for longer, secondaries transactions are starting to take off in VC.

Secondaries usually fall into one of three categories, namely direct secondaries, i.e. a GP, LP or founder selling their shares in a start-up; LPs offloading their fund commitments to another party; or when a GP transfers their vintage fund assets to a new fund, i.e. a continuation fund³.

Although it is hard to gauge the exact size of the VC secondaries market, experts reckon it is in the region of around $138 billion⁴. “Over the last few years, there has been something of a liquidity crunch in private markets, including in VC. There have been fewer deals, often at lower valuations, and this is creating an opportunity for institutions to buy assets at a discount, and in doing so providing liquidity to LPs,” commented Kobus Cronje, Managing Director, Guernsey.

Cronje added co-investments, i.e. when an LP invests in a deal directly alongside a GP, have also become more ubiquitous in VC.

The tough fundraising conditions have been a major catalyst for this spike in VC co-investments.

“It is becoming harder for a VC manager to go out to market and raise, say, $100 million for a fund, especially given the volatile backdrop. We are increasingly seeing more LPs club together and participate directly in VC manager led deals, rather than allocating into a fund,” said Gordon.

While co-investing can enable LPs to potentially benefit from better returns and discounted fees, the downside is that these sorts of transactions do carry a much higher concentration risk.

A Strong Domicile = A Strong Business

As new, exciting AI investment opportunities emerge and the volume of secondaries/co-investment deals grows, VC managers need to make sure they choose a fund domicile that can accommodate their requirements.

“When investing into AI, or partaking in a secondaries or co-investment transaction, GPs want to know they are operating in a jurisdiction, which is stable, well-regulated and supports product innovation. Guernsey fits the bill here brilliantly,’ said Cronje.

The proof is in the pudding – according to Proskauer, 39% of European VC funds are domiciled in the Channel Islands⁵. Guernsey is popular amongst VCs for several reasons. Relative to other European jurisdictions, Guernsey has low fund set up costs, quick regulatory authorisation turnaround times, and a deep pool of flexible fund structures.

Guernsey’s Private Investment Fund (PIF) regime, for example, has been instrumental in helping the jurisdiction win greater VC fund domiciliation share. There have been recent changes to the Guernsey PIF regime further enhance the use case, simplifies the authorisation process and opens up the structure to a wider range of investors. These changes further cement the attractiveness and suitability of Guernsey as a premium jurisdiction for VC Fund Managers.

“The Guernsey PIF has a number of strategic benefits, including one day regulatory approvals, no requirement to appoint a Guernsey manager, no minimum subscription amounts no constraints on marketing There is no longer a cap on the number of offers that may be made to investors, and there is no longer an audit⁶”, continued Cronje.

Other widely used fund structures by VC managers, according to Gordon, include the Protected Cell Company (PCC).

Guernsey is one of the most secure and safe jurisdictions in the world of financial services. Guernsey has also been granted an equivalence ruling by the EU, giving fund promoters and managers certainty regarding the long-term marketability of their Guernsey Funds into the EU using the National Private Placement Regime (NPPR).

How JTC can help

To thrive, VC managers will need to work with service providers, who have extensive subject matter expertise.

JTC offers a full suite of services in Guernsey, including a dedicated Management Company (ManCo), fund directors and administration services. We also have excellent relationships with the LP community, so we can help facilitate LP-GP connections. In Guernsey, we have an incubator fund platform, which is designed to reduce costs and improve speed to market for first-time or early-stage VC fund managers. This depth of offering will be crucial in helping VC firms get off the ground.

For more information visit our dedicated venture capital webpage.

References:

[1] Venture Capital Journal – January 13, 2025 – VC fundraising hits six year low

[2] KPMG – April 22, 2025 – Q1, 2025 – Venture Pulse Report – Global Trends

[3], [4] – Private Equity International – September 2, 2024 – Venture secondaries step into the spotlight

[5] Proskauer – March 26, 2024 – Proskauer releases European Venture Capital Fundraising Market Report

[6] Carey Olsen  – September 3, 2024 – Guernsey: The Choice for Venture Capital Funds