Investors: The future of technology entrepreneurship is promising

TALLINN – European investor partners and private and venture capital fund managers meeting in Tallinn noted that the Nordic region provides an excellent growth environment for new technologies and companies. They also observed that a strong pipeline of companies with global growth potential has emerged across Europe.

However, the investors conceded that finding capital for innovation in Europe remains a challenge, with the local tech sector heavily reliant on US capital. 

Madis Lehtmets, CEO of the Estonian Private and Venture Capital Association (EstVCA), explained that the meeting, held in Estonia for the first time, brought together investors representing international capital and managers of private and venture capital funds from the Nordic region and other parts of Europe.

"Our goal was to create a high-quality, targeted platform for meaningful discussions, an idea born from the need to address the New Nordic private and venture capital market more strategically. While attracting public funds works well in Europe today, engaging private capital investors is crucial for the growth of funds in our region. Therefore, we must consider how to increase the willingness of European capital to invest in funds operating here," Lehtmets said.

The meeting of investor partners and fund managers kicked off with a conversation between Taavet Hinrikus, entrepreneur and founder of the venture capital fund Plural, and Margus Uudam, founder of the venture capital fund Karma Ventures.

Taavet Hinrikus pointed out that Estonia has demonstrated how a small country can be a great place for new technologies and companies to grow. "When we were building Wise, nobody wanted to invest in regulated sectors because they were considered too complex. Now, no one is afraid of that anymore," he said.

According to Plural, the greatest growth potential today is in deep tech, hardware, robotics, the defense industry, and other technically complex fields. Hinrikus and Uudam agreed that Europe has a strong pipeline of companies with the potential to become very large, but securing funding from outside the US remains a challenge.

"We spend a lot of time with European investors, but they are few and far between. European investors are difficult to find, and it takes much longer to convince them. I also spent some time in Japan, and it seems you have to visit for three consecutive years just to build relationships before anyone takes you seriously," Hinrikus said, noting that this is why US capital remains predominant.

According to Hinrikus, the European startup scene was long held back by an aversion to risk-taking and a fear of failure. In Europe, if you fail, you are often written off, he said, while in the US, failure is seen as a learning experience. The same logic applies to institutions, Hinrikus argued, where the potential upside for decision-makers is often limited, while the negative consequences of a bad choice can be significant. "I do believe we need more government support to channel more capital into Europe's innovation sector, because the continent needs us," Hinrikus said. 

Chris Wade, a fund manager at Isomer Capital, one of Europe's most active funds of funds, discussed European fund-of-funds strategies on stage with Mark Schmitz and Pavel Mucha. The discussion centered on the world of limited partners (LPs)—the investors who back funds—and current investment trends and sectors.

Mark Schmitz, founder of the German fund-of-funds Equation, explained that when it comes to investment trends, the greatest potential is currently seen in deep tech, including biotechnology and space technology. He added that they review every five years which sectors are likely to offer strong exit opportunities a decade later.

"If we find a fund manager in Europe who meets the very high bar and rare potential we would expect from the world's most competitive market—the US—we will definitely back them. If we don't find that, we allocate some of our capital to the US," he explained. Schmitz added that while China's innovation ecosystem is now among the world's leaders, they are not prepared to invest there at this time.

Pavel Mucha, founder of Aspire11, a global 500 million euro fund backed by pension capital, highlighted that investments are currently being made in both high-growth next-generation companies and early-stage venture capital funds. However, he stressed that attracting pension capital requires fund managers to consciously balance risk, return, and liquidity.

"It's no longer enough for venture capital to simply offer long-term growth potential. For pension funds, the investment strategy must also consider capital preservation, diversification, and exit opportunities," Mucha said, adding that venture capital must align with the responsibilities and time horizons of pension funds. 

Chris Wade concluded the discussion with an optimistic message about the future of European venture capital. "European venture capital will become one of the world's most important VC ecosystems. I have no doubt about it," Wade said. He predicted that Europe will produce a trillion-dollar company within the next five years. Wade recalled that when Isomer was founded, there were 20 unicorns in Europe, and a forecast made at the time that the number would reach 400 within a decade has nearly come true. "The US's strong performance is largely because its venture capital market has been active for twice as long, but Europe is catching up fast," he affirmed.

The meeting of Nordic and European investors and venture capital fund managers was held in Tallinn as part of the Latitude59 technology conference. The LP–GP Meetup brought together international investors such as Mubadala, Cambridge University Endowment Fund, Itochu Corporation, Isomer Capital, Equation Capital, Plural VC, Fåntell, Skaala, Aspire11, 2C Ventures, Karma Ventures, Siena Secondary Fund, Mojo Capital, eQ, Genesis Investment Partners, the University of Jyväskylä investment fund, and SmartCap.

The meeting was organized by the Estonian Private and Venture Capital Association and supported by Startup Estonia and SmartCap.