US investor Adams Street Partners, one of the world’s largest fund of funds, has raised more than €270m for its debut European venture fund.
The fund will primarily invest in new VC funds, with up to 30% of the capital reserved for secondaries and co-investments into startups, Europe-focused partner Ross Morrison tells Sifted.
Since 2000, Adams Street, which has $62bn in assets under management, has invested about $2bn into European VCs, backing more than 70 funds — although this is its first dedicated Europe fund. Adams Street doesn’t comment on its portfolio, but recipients of its cheques include Accel, Index Ventures (where Morrison sits on the advisory board) and Balderton Capital, according to PitchBook data.
Despite recent geopolitical turmoil, Morrison believes the continent is ripe for more investment. “Europe is on the medal panel at the Olympics alongside the best ecosystems. It’s truly there,” he tells Sifted.
Long on Europe
Adams Street’s initial target for the fund was €200m, which Morrison says demonstrates the eager appetite of LPs to get into European venture now. Some of the LPs in the new fund include British Business Investments (now under the British Business Bank brand) and other European and UK clients, as well as Asian investors.
Morrison says the firm wants to build up an underlying portfolio of about 400 companies, largely at the early stage, over the next two to three years, while also “slowly” and “very judicially” increasing its fund portfolio in Europe. It aims to back roughly 10 to 20 GPs over the next decade, and may invest in several funds from the same firm.
So far this year, the firm has made five fund commitments. Including some deals that are currently closing, it will have deployed over 50% of the fund already.
“Europe is actually a hot house when it comes to company creation,” says Morrison. “If you look at the pipeline and what’s been created, there’s every evidence to say that we’re following the same maturity trajectory — if not a little bit faster — than what the US went through.”
By and large, Morrison doesn’t believe the recent rising geopolitical tensions — with the US growing far more protectionist and president Donald Trump threatening a global trade war — are fazing US LPs too much. “Since we started back in 2000, we’ve had the Dot Com bubble, we’ve had the [global financial crisis], we’ve had the euro crisis, we’ve had COVID, we’ve had Brexit, we’ve had the Ukrainian war. We’ve now got tariffs. There will always be a geopolitical or macroeconomic situation.”
There’s also been more activity with secondaries, including GPs selling stakes or creating continuation funds. “A lot of people are talking about it more,” Morrison adds, but “I think it’s been a longer theme.”
What Adams Street is looking for
Adams Street backs less than 2% of VC funds, Morrison says.
“We’re big believers in venture maths. Ownership is really important to us; entry point, staying within your lane and executing,” he adds.
Adams Street isn’t too fussed about whether the VC fund is big or small. “There’s many ways to get to different types of performance, whether you’re a large, full-stack firm or whether you’re a small, micro solo GP. We believe that all models can work, but it’s backing the right managers within those swim lanes, if you will.”
Adams Street can (and has) backed very small funds, including emerging managers. But for Morrison, those GPs need to have pedigree. “The magic ingredient is individuals that have worked with world class companies, that have come from world class firms,” he says.
The firm is looking for more generalist investors over specalised funds in order to remain flexible, although many of the VCs the team likes have domain expertise (like in consumer or enterprise, for example). But Morrison says it’s important for VCs to recognise that “if you put them into a certain box, like, ‘I’m only an AI fund, or I’m only a whatever-it-may-be fund’, it might actually limit the opportunity to get into those phenomenal founders.”
It’s not all ‘doom and gloom’
There’s no shortage of dreary headlines coming out about European venture, as VCs remain desperate to get liquidity for their investors and startups keep pushing back their expected IPO timelines.
But Morrison thinks there’s reason to be very positive about the market right now. “From a top-down perspective, it’s doom and gloom and everything’s really tough on a public market basis; that’s really not how the VCs think,” he says.
Based on calls with GPs he has on a weekly basis, “the amount of good news coming out from the operating level of the very best companies in the private markets are really at the other end of the spectrum from what you read in the headlines. There are phenomenal companies growing at very high growth rates relentlessly, because they’ve got phenomenal product market fit in terms of customers, and they’ve got global TAMs [total addressable markets].”
Of course, the trick is to be in those companies with the good news — or the VC firms that back them.
Read the orginal article: https://sifted.eu/articles/adams-street-europe-fund/
