Biweekly VC Insights by Uniborn #25

Inside: LP spending on VCs, European AI capabilities, and climatetech infrastructure boom
Barbara Krassner
🇬🇪 Uniborn Team
4 min read

Hey there! We're breaking a sweat trying to finish the Uniborn platform — so, long story short, we're shifting to biweekly digests. This means you'll get more bang for your buck with these regular posts. So, it's high time to subscribe! 

🔥 The classic "2 and 20" VC fee structure is not-so-classic after all

Carta has shared some intriguing insights into VC tariffs. The common belief is that GPs’ management fee should be set at 2%, while successful exits should account for 20%.

Keep in mind that Carta's calculations are preliminary, and we're looking only at the initial fund phase (commissions usually decrease over time). However, the data reveals that, in practice, management tax in many funds exceeds the 2% mark. For VC firms under $100 million, the 2% management fee isn't the absolute norm — it's only seen in half of the cases. In 22% of these instances, the rate climbs to 2.5%. For more sizeable funds nearing $500 million, a 2.5% rate is even quite customary and is applied in 72% of cases.

Image: Carta
Image: Carta

While 3% management fees are rare, a clear trend emerges: the larger the fund, the more LPs pay to GPs. It's a paradoxical observation, but Michael Jackson, a venture partner at Multiple Capital and Wilbe, offers a plausible explanation: "Part of this is that larger funds are typically raised based on prior successful smaller funds, and partly that smaller funds tend to be run by emerging managers who are more likely to accept more LP friendly terms to get the fund closed."

Or, in the words of Nick Davidov, co-founder of Davidovs VC: "It looks like the market now pays a premium to allocate more money. Or there’s another explanation — VC talent is increasingly more pricey, and VC ops require more tools. So as soon as a fund is more than 1-2 partners investing their own capital with friends, it starts requiring more money to operate."

In any case, the same 2% fee doesn't equate to the same value in a $20 million fund as it does in a $200 million fund. The difference in fees for LPs would be tenfold. Yes, the potential for substantial profits is greater in larger VCs, but the management tariff should ease with fund size rather than vice versa.

Such a scenario is especially accurate considering that new services and investor organization models are constantly emerging — like the cartels at Uniborn 😉. Yes, these cartels might require more involvement than some LPs are used to, but as you can see, the fees are significantly lower.

To know more, explore the LinkedIn post of Peter Walker, head of insights of Carta.

🔥 Climate facilities are favored by venture capitalists in Europe and around the world

2023 has been dubbed the "year of infrastructure startups" by Sifted, as venture capitalists increasingly throw their weight behind companies focused on constructing large physical objects like plants. This shift is primarily driven by the booming field of climatetech, where tackling climate change and preserving endangered species require more than just software solutions.

Granted, capital-intensive projects haven't traditionally been the focus of VCs, let alone angel investors. But the trend is clear: the biggest tech deals in Europe this year went to climate infrastructure. Take the case of H2 Green Steel, a startup working on steel production using hydrogen, and Zenobe Energy, which is at the forefront of developing charging infrastructure. 

By the way, regarding climate technology as a whole, it accounted for half of Europe’s top 20 funding rounds this year, representing an impressive 69% of the total capital raised.

This global shift mirrors the European landscape. To narrow even down, investors worldwide are showing a keen interest in battery manufacturing and recycling startups. If you need further proof, consider these three significant funding rounds from the past month alone:

  • Verkor, a French low-carbon battery manufacturer, secured a whopping $2.1 billion.
  • Redwood Materials, a U.S.-based battery recycling startup founded by a former Tesla CTO, attracted $1 billion in funding.
  • Northvolt, a Swedish lithium-ion battery maker, raised an impressive $1.2 billion.
Image: Crunchbase
Image: Crunchbase

To know more, explore the Sifted analysis.

🔥If Europe jumps off the AI bandwagon, it will hardly set global technology standards

Recently, European AI startups have been making significant strides:

  • London-based Neara is a platform that uses AI to create network-wide 3D models, secured an additional €9.3 million in funding.
  • Edinburgh-based Continuum Industries, an AI company streamlining the global energy transition, attracted €9.4 million in funding by reducing years-long tasks for infrastructure developers to just weeks.
  • Madrid-based Correcto, which offers the first real-time AI-based writing tool for Spanish, raised €6.5 million to improve communication among Spanish speakers.

Nevertheless, this region is unlikely to win the AI race — it is focused on adapting. Thus, as we've written before, Europe has the most companies in the world incorporating generative AI into their budgets and strategies — more than the US, 91% vs. 87%. 

While leaving the AI ring means it will be much harder for Europe to become the world's digital super-regulator, something it aspires to and clearly has the potential to do (think of the recent DSA).

To know more, explore the Economist article.

Cover image: Unsplash

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