The unique opportunity for community in VC

This month, we’re asking how stakeholders across the UK and European tech ecosystem can work together to build the environment pioneering founders need to thrive. Here, Octopus Ventures Partner Edward Keelan makes the case for collaboration.

Here’s a curious question: what is the product of venture capital?

At first glance, the answer is obvious. Investors entrust us with their capital, hoping we’ll find and back the next generation of high-growth companies, delivering great returns. But our position means that we also serve another set of customers: founders. Return on investment might be the product, but to reach it we have to put our all into ensuring the businesses we back are fully equipped with the people, expertise and resources they need to scale to world-changing heights.  

Which introduces an interesting twist. While we get plenty of inbounds, with hundreds of pitches sent in every week, and we also have our own (proprietary!) ways of finding companies to invest in, there’s another, overlooked dimension to our industry. To win over the best founders, and to ensure the ecosystem they’re operating in is replete with the resources and opportunity they need to grow, we often need to partner with our primary competitors – other VCs.

This sets VC apart. Where else, after all, do you find yourself not just collaborating with competition – but building alliances pioneers can use to springboard to world-changing heights?

Why collaboration matters more than you think

I’ve long believed that good investing is about more than the obvious. It doesn’t just demand an expert knowledge of a given market, or the creative vision that allows an individual to recognise the key, underserved needs in a given space. It’s not even about having a nose for talent, and the ability to sniff out wunderkind founders. No, to my mind, great investing starts with great deal flow. This might come as a surprise to some. After all, aren’t the best investors just the ones who pick the best start-ups?

Well, yes. But before they can back these start-ups, investors have to meet them in the first place.

The broader an investor’s deal flow, the better their chances of identifying the pioneers likely to win-out with their solution. And in ventures, where does a significant chunk of that flow come from, but other VCs?

Because of this, the relationships between VCs go deeper than meeting up for flat whites and the exchange of hot industry gossip; they’re essential to sourcing opportunities, building conviction, and, ultimately, making great investments.

But this isn’t the only reason relationships matter. Across a variety of industry events back in June, attended by myself, Octopus Ventures CEO Erin Platts and a number of our colleagues, we heard the value of partnerships being emphasised time and again. As UK and European tech matures into a world-leading industry, partnerships at the local level are essential to ensure our VCs have what they need to find global success.

It’s a question of collaboration – and not just between investors. Everyone involved in the start-up growth pipeline, from universities and angels to other founders and regulators, has a part to play. Founders from our region can only benefit from an ecosystem rooted in partnerships and collaboration and structured around a shared ambition: to provide entrepreneurs with the expertise and resources they need to change the world. Everyone needs to work together, but VCs in particular stand to make an outsized impact.

The US is ahead on this

Now, while my anecdotal experience may offer evidence to the contrary, a little empirical research shows that in this specific area, the European ecosystem is lagging behind the US.

A 2023 Bocconi University paper reviewed 150 academic articles across 61 journals to study how VC networks operate as tools for unlocking opportunities and coordinating resources. They reached a striking conclusion. The US does partnership and syndication better, across all round sizes. Today, US investors account for 35% of the funding pool for European start-ups. Their openness to co-investment isn’t the only reason for this, but it highlights an oversight with real consequences.

The UK and Europe ecosystem faces a funding gap that limits our start-ups’ ability to scale. The traditional view, that freezing out the competition and holding tightly to competitive assets, may make sense in the (very) short-term – but it’s outdated. In today’s market, this approach means placing limitations on a host of important concerns, impacting VC’s ability to discover deals and enjoy the advantages unlocked through syndication. As important, the unwillingness to collaborate creates a funding gap, leaving the field clear for US VCs to step in and invest into later stage rounds.

According to Sifted, US VCs participate in many of Europe’s chunkiest late-stage deals (Series C to D). So far this year, US VCs have invested in a third (238) of Europe’s growth rounds, worth €6.6bn; meanwhile there have been 801 growth deals without US VC participation, worth just €4.1bn. This is the consequence of a lack of local syndication firepower in Europe.

So, what’s the takeaway?

Whether it’s generating the capital for follow-on funding in the UK and Europe, ensuring that our founders are equipped with the resources they need to scale to global heights – or even ensuring that a solid, trustworthy network is in place to get funding to the founders who need it, the takeaway is the same. Working together, building partnerships and collaborating can only help consolidate our ecosystem’s position as world-class.

European VCs: don’t be shy. Share deals. Build relationships. Syndicate where you can. It’ll benefit your firm, your founders, and the ecosystem as a whole.

And who knows, you might just make a friend. If any of our colleagues in the UK or European VC industry are reading this and it strikes a chord – reach out to our team. Partnership begins with conversation.