What LP allocations reveal about the future of European venture
The idea for this piece began with an investors’ roundtable discussion at GITEX Europe: Sovereignty and Scale: Can Europe’s AI Companies Have Both?
The conversation centred on a familiar question. Europe can build exceptional companies but can it finance them all the way through, while keeping ownership, talent and strategic value on the continent?
Afterwards, I realised we had been looking in the wrong place.
Most of us had tried to answer that question by studying founders, funding rounds or the latest AI success story. I started wondering whether the better place to look was one level higher: the Limited Partners (LPs) funding the venture funds themselves.
That curiosity led me down a rabbit hole…which turned into this essay.
Here’s the statistic that changed how I think about European venture: in EU venture funds, government entities account for roughly a third of all Limited Partners. In the US, that figure is closer to 4%.
We often talk about European and American venture as though they’re variations of the same model but they aren’t. They are different systems, supported by different sources of capital and shaped by different tolerances for risk.
One is funded largely by pension funds, endowments and foundations pursuing long-term returns. The other relies, to a remarkable degree, on public institutions.
The distinction matters because the people who supply the capital shape what gets built, what gets funded and, ultimately, who owns the outcomes. Capital composition sits upstream of almost every decision that follows.
That feels especially relevant today. Across Europe, policymakers are trying to answer the same question raised on that GITEX roundtable: how do we build globally competitive technology companies without losing them along the way?
The Savings and Investments Union, the Draghi agenda and renewed focus on scale-ups all point towards the same objective. Most of the conversation has centred on founders, regulation and innovation. I think the more revealing story sits one layer above.
Watch the LPs, not the founders
If you want to understand where European venture is heading, it is tempting to focus on founders, funding rounds or the impact of AI on the ecosystem (see essay What happens when AI meets the power law?). I would argue it is more useful to look at the LPs writing the cheques into venture funds.
LP composition determines time horizons, risk appetite and governance expectations. Everything downstream inherits those incentives.
Viewed through that lens, an important contradiction appears. Europe’s institutional appetite for private markets is clearly growing. Recent surveys show LPs increasing allocations across the asset class. But much of that additional capital is finding its way into infrastructure, energy transition and real assets rather than venture capital. The capital exists. It simply isn’t reaching the part of the market where new technology companies are built.
There are good reasons for this. Higher interest rates have increased the appeal of infrastructure’s predictable, inflation-linked cash flows. Since 2022, energy security and digital infrastructure have become strategic priorities across Europe, drawing more institutional capital into assets such as grids, data centres and telecoms. At the same time, Europe’s regulatory framework continues to make venture relatively capital-intensive compared with infrastructure and private credit. None of this suggests there is less capital available. It simply explains why so much of it is flowing elsewhere.
That creates an unusual structure: a venture ecosystem anchored by public capital, dependent on international investors for many of its largest growth rounds, while simultaneously trying to build a stronger domestic institutional investor base through policy reform.
The obvious question follows. Is public capital acting as a bridge towards a mature private market or has it become a permanent feature of the European model?
Following the money
According to the European Central Bank’s latest analysis of the venture ecosystem, government entities account for around one-third of LPs backing EU venture funds. Pension funds and other large institutional investors remain comparatively underrepresented, while the European Investment Fund continues to play a critical anchoring role, crowding in private investors across the market.
It's worth drawing an important distinction here. While we often talk about "European venture" as a single market, the UK sits somewhat outside this picture, supported by a deeper institutional investor base and a more mature venture ecosystem. The structural imbalance described here is most visible within the EU itself.
This differs fundamentally from the US, where pension funds, endowments and foundations form the backbone of venture fundraising.
The issue is not simply the availability of capital. European investors already display a strong preference for investing within their own region. State Street’s latest Private Markets Study found that 76% of European LPs plan to allocate infrastructure capital within developed Europe, up from 58% a year earlier. The ECB observes a similarly strong regional bias in venture commitments.
The challenge is that this domestic capital is flowing predominantly into lower-risk private assets rather than venture funds.
This distinction matters because headlines suggesting that “Europe is attracting more capital” don’t necessarily translate into stronger venture markets. Institutional enthusiasm for European infrastructure should not be mistaken for institutional enthusiasm for European venture.
Meanwhile, international investors continue to play a significant role. Recent market data suggests overseas participants accounted for just over half of European venture activity in 2025, particularly in larger growth rounds.
That brings obvious benefits. International capital provides larger pools of funding, broader networks and access to global markets.
It also shifts ownership, governance and, eventually, exit decisions beyond Europe.
Capital concentration tells a similar story.
More than 56% of European venture investment in 2025 was deployed into late-stage companies, while KPMG’s latest Venture Pulse highlights that overall deal value was increasingly driven by a relatively small number of very large financings. Capital is available, but it is becoming more selective.
The same pattern appears sectorally. Capital is increasingly concentrating around technologies that strengthen Europe’s long-term competitiveness and resilience: AI infrastructure, enterprise software, energy systems and the digital infrastructure that underpins them. Rather than chasing every emerging trend, investors appear to be favouring businesses with clearer commercial adoption, larger addressable markets and strategic importance to Europe’s future.
Viewed alongside the broader shift towards infrastructure and real assets, this suggests something more fundamental than sector rotation. LPs appear increasingly willing to allocate capital where commercial returns and strategic priorities reinforce one another.
Alongside these market dynamics, policymakers are attempting to reshape the funding landscape itself.
As part of the Savings and Investments Union agenda, and reinforced through the FIVE Taskforce recommendations, Europe is pursuing reforms designed to mobilise pension savings, deepen capital markets and increase institutional participation in venture. At the same time, initiatives such as EU Inc. aim to reduce friction around company formation and cross-border scaling.
Underlying many of these proposals is the same diagnosis first articulated by the Tibi Report: without experienced institutional LPs allocating consistently into venture, Europe struggles to develop the large domestic funds capable of financing companies throughout their lifecycle.
The obvious objections
“Public capital is a strength, not a weakness.”
That’s a reasonable argument.
Public institutions have played an essential role in building Europe’s venture ecosystem, particularly through cornerstone commitments from organisations such as the EIF (European Investment Fund). Strategic public capital can crowd in private investors and help retain critical technologies within Europe.
The question is whether that public capital is successfully attracting long-term pension and insurance money at scale. So far, the evidence remains mixed.
“European venture has finally matured.”
Perhaps.
Some recent reports argue that Europe has entered a more mature phase of venture development, characterised by larger funds and more established growth companies.
That may prove true.
Equally, today’s concentration around later-stage assets could reflect a prolonged IPO drought and a weaker exit environment rather than a structural evolution of the market.
“Investors are simply backing higher-quality companies.”
That is undoubtedly part of the story.
But concentration can also emerge when liquidity becomes scarce. When exits are uncertain, investors naturally gravitate towards businesses with the highest probability of returning capital.
The same behaviour can signal caution as much as conviction.
One area worth watching is family offices. Several reports point to increasing activity in secondaries and pre-IPO opportunities, where flexibility allows them to move more quickly than larger institutions. They are unlikely to solve Europe’s LP challenge alone, but they may become an increasingly important source of patient capital.
What I would watch over the next three years
If I wanted to judge whether European venture had genuinely entered a new phase, I wouldn’t start with funding headlines.
I would watch three indicators.
1. Pension fund participation
Not policy announcements, actual allocations.
If pension funds and insurers begin appearing consistently as LPs in European venture funds, the structural story changes.
2. European-led growth rounds
The critical question isn’t whether European companies can scale.
It is whether they can scale without relying on overseas lead investors.
Watch who leads the rounds, not simply who participates.
3. Exit geography
Where companies list.
Where acquisitions occur.
Where ownership ultimately settles.
That is where the long-term consequences of LP composition become visible.
If those three indicators begin moving together, the narrative around European venture deserves to change.
Until then, I think Europe’s challenge is less about building exceptional startups than building the capital base capable of backing them all the way through.
Increasingly, I think European venture doesn’t have a startup problem.
It has an LP problem.
If you’re seeing shifts in LP behaviour, institutional allocations or fund formation that challenge this view, I would genuinely like to hear them. Good investment theses improve through disagreement, not consensus.
Reference list
Bundesfinanzministerium (2026) Financing Innovative Ventures in Europe. Available at: https://www.bundesfinanzministerium.de/Content/EN/Downloads/Europe/report-five-taskforce.pdf?_blob=publicationFile&v=4
European Central Bank (2026) ECB press box: box/html/ecb.fiebox202605_04.en.html. Available at: https://www.ecb.europa.eu/press/fie/box/html/ecb.fiebox202605_04.en.html
European Investment Fund (n.d.) Working paper 41. Available at: https://www.fi-compass.eu/sites/default/files/publications/eif_wp_41.pdf
JPMorgan Chase & Co. (n.d.) EMEA venture capital update. Available at: https://www.jpmorgan.com/insights/banking/commercial-banking/emea-venture-capital-update
KPMG (n.d.) Venture Pulse: Europe. Available at: https://kpmg.com/xx/en/what-we-do/industries/private-enterprise/venture-pulse/europe.html
Mordor Intelligence (2026) Europe Venture Capital Market Size & Share Analysis. Available at: https://www.mordorintelligence.com/industry-reports/europe-venture-capital-market
Rundit (2024) The European VC fundraising trends in 2023 and outlook to 2024. Available at: https://rundit.com/blog/the-european-vc-fundraising-trends-in-2023-and-outlook-to-2024
State Street (2025) LPs favor developed Europe amid global investment rebalancing. Available at: https://www.statestreet.com/us/en/insights/private-markets-lps-favor-europe
Vintage IP (2025) EU report 2025. Available at: https://vintage-ip.com/reports/eu-report-2025
World Economic Forum (2026) The Future of Venture Capital 2026. Available at: https://reports.weforum.org/docs/WEF_The_Future_of_Venture_Capital_2026.pdf