LP Trends Report: Part One
At Conduit, we connect the world’s best operator-investors and founders building the next generation of startups. A critical component of this mission is to create lasting relationships between globally-minded investors and early-stage companies from around the world.
In this report, our team at Conduit sat down to analyze key limited partner and capital allocation trends across three distinct regions: Europe, Latin America, and East Asia.
The European limited partner landscape, in tandem with its venture landscape, is quite fragmented by region. The UK, France, and Germany alone account for two-thirds of all European LP allocation in venture. For context, according to Atomico’s State of European Tech report last year, UK funds have raised $17 billion since 2014, with France coming in at $11.7 billion and Germany trailing at $7.6 billion.
This uneven distribution of capital quickly becomes more apparent in the distinction between investment stages. For example, 50% of early-stage capital in Europe is allocated solely to UK-based funds, an astounding statistic. Diving deeper, this concentration of limited partner portfolio allocation is primarily due to three core factors.
One, the UK holds strong ties to the US-based venture and LP ecosystem, more easily drawing in capital from across the pond. Two, the VC and startup landscapes in the UK, concentrated in London, Manchester, and Liverpool, are more mature. Three, pan-European limited partners prioritize portfolio exposure to UK ecosystems that are ripe with existing talent, guaranteed follow-on capital, and mentorship rather than continuing to invest in underdeveloped markets.
As a result, regions like South Europe have become significantly more dependent on subsidies, government programs, and direct corporate investments rather than the active pension fund and sovereign wealth involvement that British, French, and German funds continue to enjoy.
As our team dove deeper into Latin America’s nascent limited partner landscape, two major trends quickly became evident. First, individual family offices, specifically in Brazil and Colombia, are increasingly backing US-based funds that are diversified geographically.
For example, a growing cohort of Silicon Valley-based first-time funds are predominantly funded by wealthy family offices. These funds invest in both US and LATAM-based companies, in turn diversifying the family office’s portfolio while continuing to support local ecosystems.
Second, global corporates and private equity funds are moving to back LATAM funds with big-ticket investments in early to growth-stage rounds. In part, this involvement was pushed forward by the entrance of Andreesen, Softbank, and Accel into LATAM markets.
Three regional corporates headquartered in Latin America dominate the LP landscape, notably CMB Prime’s $400M regional infrastructure fund in Chile, Vinci Partners’ $214M Brazil-based fund, and IG4 Capital’s $200 million regional fund. In addition, SoftBank’s establishment of a new venture fund in 2019 devoted purely to investments in transformative tech companies in Latin America was a major turning point for LP involvement in the space. Its portfolio includes notable stakes in QuintoAndar, a Brazilian leasing platform, AlphaCredit, a Mexican consumer lending startup, and Gympass, a Brazilian corporate fitness platform.
Across the East Asian LP landscape, there are two clear trends that need to be addressed. First, the extent to which investors from around the world are becoming entrenched in the local investment markets is wildly underestimated. As of 2019, East Asia-based investors accounted for approximately 28% of the interest in venture capital, while North America leads with 53% of all investor interest in East Asia. Europe accounted for a further 15% in this Preqin report.
Global investors continue to invest in the East Asian venture capital markets, both as individual funds and active limited partners, due to the region’s rapid economic growth, well-educated populations, and widespread online internet and mobile adoption.
Second, the Chinese venture landscape continues to dominate East Asian headlines. Put simply, China is now the second-largest venture capital market in the world, with over 3.5K individual firms. Fund development has increased dramatically due to reasonable entry valuations, interest from corporates and Chinese conglomerates for later-stage financing, subsidies from governmental organizations, and growing R&D and deeptech cultures across major Chinese cities. Due to this unique confluence of factors, both global and China-based limited partners continue to back emerging funds at an astounding rate.
At Conduit, we connect the world’s best operator-investors and founders building the next generation of startups around the world.
As we scale our platform, understanding key limited partner shifts across the globe will become increasingly vital. Our team will be digging deeper into emerging investor trends in the coming weeks, which you can find here.