Structured sanity - 23 May 2025
23 May 2025
Intro
Putting my tech/PE investor lens on this week and focusing on European tech vs. the world and on why the co-founder of Thoma Bravo sees retail-focused PE vehicles as dangerous.
Important notice! I’ll start transitioning the newsletter to Substack soon, still figuring that platform out. I’ll still use LinkedIn to provide some sneak peeks and previews, but in a couple weeks I will have fully moved the weekly publishing over. I’ll share the link here as soon as I have it done.
Europe’s tech industry is dwarfed by its US and Chinese counterparts, but the European capital-efficient approach shields it from boom-bust cycles
🧠 TL;DR
Despite world-class talent and past successes (e.g. ASML, SAP, Nokia), Europe hasn’t produced Big Tech champions, dragging down productivity. Mario Draghi’s September 2024 report warns the EU is weak in next-wave technologies and calls for €800 billion/year of new investment through 2040, streamlined rules (regulatory sandboxes, GDPR flexibility), deeper capital markets, and targeted support for AI, semiconductors and digital infrastructure.
Deep-rooted hurdles such as risk-averse culture, heavy regulation, fragmented markets, strict labor laws and limited venture capital slow startups down. My favorite quote from the WSJ article is the following from a founder of a previously Berlin-located AI start-up: “Xiao’s attempts to fire underperforming workers have landed in court. His 17 employees tried to form a union.“
Even promising firms (e.g. Aleph Alpha) struggle with talent incentives and speed, often relocating or partnering with U.S. companies.
Nevertheless, the U.S. picture isn’t as rosy anymore either. In Q1 2024, 46 % of seed rounds were just bridge or extension deals, the highest on record, and Series A deal counts plunged 79 % versus Q1 2022, with the median Series A-to-B gap stretching to 2.8 years.
Q1 2025 saw $91.5 billion in US VC funding but only 3,003 deals, the lowest quarterly deal count in nearly a decade. There are a lot of (mostly AI-focused) mega-deals that mask an underlying slowdown.
Meanwhile, good ole’ Europe is holding ground. European VC investment stayed flat at $18 billion on 1,883 deals in Q1 2025, avoiding the steep volume drop seen in the US. Meanwhile, 44 % of European SaaS companies are now EBITDA-positive (up from ~33 % a year ago), underscoring a focus on capital-efficient growth.
🎯 So what?
Without tech champions and an innovation framework, Europe risks long-term stagnation in wages, productivity and global competitiveness. Without scaling up deal volumes and fund sizes, Europe risks long-term stagnation of wages, productivity and global competitiveness. Draghi’s blueprint for massive investment, regulatory reform and deeper markets is vital to close the innovation gap.
Europe’s disciplined, profitability-driven model cushions it against boom-bust cycles, but to birth global tech leaders it must marry that efficiency with greater deal volume and larger funds, leveraging its SaaS profitability success as a launchpad.
However, burdensome rules and slower markets push entrepreneurs and investors to Silicon Valley or China, eroding the local ecosystem. Every European founder plans to expand to the US, latest starting with Series A. Once they’re over the pond, they often stay there.
🤔 My personal take
Even though heavy concentration of capital in mega-rounds and bridge deals threatens the pipeline of fresh startups (“unicorns of tomorrow”), I don’t think anyone in the US will be sad when OpenAI IPOs and most likely joins what will become the next FAANG, Mag 7 or whatever.
The most important point in my opinion is about who will fund this. Not governments or some EU funds, that won’t work because these vehicles are locked in bureaucratic processes. Calls to allow public pension funds to invest in more than bonds are growing louder and need to be listened in European capitals. Further professionalize European pension funds and allow them to act as institutional LPs and truly unlock European growth.
European governments and the EU should simplify regulation. There are some positive signs, see the loosening of GDPR rules.
Thoma Bravo co-founder concerned about retail-focused vehicles, indicates they might be misused to roll over underperforming PE assets
🧠 TL;DR
Orlando Bravo, co-founder of one tech-focused US-based PE firm Thoma Bravo warns that private equity assets that PE’s can’t exit are increasingly being funneled into retail-facing continuation or evergreen funds.
There are two categories of private-market retail vehicles: open-to-all retail vehicles (e.g., stock of big PEs such as EQT, Blackstone) and accredited-only retail vehicles.
Most of these “retail” private-market vehicles still sit behind the same accreditation walls as traditional private-equity funds. Accredited-only funds aren’t on an exchange and still fall under private-placement rules. You must meet the SEC’s “accredited investor” tests (roughly, $1 million net worth excluding your home or $200 K+ annual income) before you can subscribe. Honestly don’t know what the criteria is in Europe, but I reckon it’s similar. An example is Blackstone Real Estate Income Trust, which allows qualified retail investors to access a diversified portfolio of real estate and private-market loans, with quarterly windows to redeem a slice of their investment. This example is an interval fund, but there are also evergreens and continuation vehicles.
Lately retail vehicles have ignited demand for second-hand stakes, even paying a premium, helping fill liquidity and fundraising gaps. Retail-focused evergreen funds (which is a type of retail private-market vehicle as mentioned above) have been buying up second-hand private equity stakes from institutions hungry for liquidity, paying about a 4% premium, and in doing so have helped prop up prices despite the broader downturn.
🎯 So what?
Quick PE primer, how it works: private equity firms raise a pool of money from institutions and wealthy individuals, these are called limited partners (LPs). They use that capital (often with extra borrowed funds) to buy companies they believe they can improve. Over a few years, they streamline operations, cut costs, and boost growth to make the business more valuable. Finally, they sell the company at a higher price, returning most of the profits (these returned profits are called distributions) to their investors (LPs) while keeping fees and a share of the gains.
Back to the article and the so what. In the short-term these retail vehicles, if truly used as Orlando Bravo indicates, help solve two of PEs biggest recent problems: 1) they generate distributions, which have been hard to come by in recent years due to unsatisfying valuations, to institutional LPs, and 2) they help PEs access new sources of capital because “institutions such as pension funds and endowments often have limits on the proportion of their capital they can invest in private markets, and many are maxed out.”
🤔 My personal take
The core premise of Orlando Bravo is: “retail investors might not be as sophisticated, there might be more risk of them not understanding what they’re involved in and this could create all sorts of problems.”
Not sure I agree with the premise of the article, given that you need to be an accredited investor to invest in them. I guess they should be fine, especially considering the criteria to become an accredited investor (again, roughly, $1 million net worth excluding your home or $200 K+ annual income).
The contrarian claim I found worth keeping an eye on is that it’s a way for PEs to dump non-performing assets to “naïve” retail investors via continuation funds. So far the continuation funds I have seen have actually involved high performing companies that the PEs considered worth hanging onto for another while, but maybe things are different on the other side of the pond.
If you made it this far this week, thanks for reading! If you enjoyed this post, give it a like. It’ll help my newsletter reach more great readers like yourself. And if you’ve got thoughts, feedback, or even just a burning desire to tell me what the best lunch you had this week was (I like food and I’m curious), drop me a comment!
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Disclaimer: The views expressed herein are the author’s alone and do not constitute an offer to sell, or a recommendation to purchase, or a solicitation of an offer to buy, any security, nor a recommendation for any investment product or service. While certain information contained herein has been obtained from sources believed to be reliable, the author may not have independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author assumes no liability for this information and no obligation to update the information or analysis contained herein in the future.