From identifying exceptional startups to observing the day-to-day investor support for portfolio companies, the opportunity to delve into the venture capital world this past spring has brought invaluable lessons on growth companies. Each team meeting and conversation with a founder or fellow investor deepened my understanding of how the venture capital and startup landscape is evolving and what “partnering with the most beautiful European growth companies” truly entails.

‍

Finding the right partner for the journey

A founder of a rapidly growing startup constantly faces opportunities and decisions that ultimately shape the company’s trajectory. Whether it is expanding into a new region or customer segment, adapting to an industry trend, or building a scalable organization, the strategic decisions are where experienced investors can add value far beyond their initial investment. Most of all, an investor with extensive entrepreneurial experience can offer advice, support founders through the more difficult times, and help identify which issues are the most critical to address first. Aligned values and a strong partnership with founders enable effective collaboration in scaling portfolio companies, and the importance of long-term, active cooperation quickly became evident.

‍

During the spring I had the chance to meet Fredrik Meurling, founder of EGP’s portfolio company Yazen, and learned of Yazen’s journey in building a digital healthcare company and partnering with EGP. Yazen’s story highlighted the value of close collaboration between investors and the portfolio company, as well as the importance of partnering with companies that share EGP’s values of having a positive impact while building world-class companies.

‍

The partnership-minded approach is developed early on, with one of the considerations in analyzing a company being how EGP’s expertise could best support the potential portfolio company in scaling to the next stage. The work with portfolio companies continues daily and it became evident that finding the right companies to invest in is only the first step. Much of the work begins post-investment, as the team works closely with founders to ensure portfolio companies have the best opportunities for growth. EGP’s concentrated portfolio allows the team to actively support each portfolio company with the resources needed to accelerate their growth throughout the partnership.

‍

Beyond the numbers: What makes for a “beautiful” company?

Alongside ensuring the right partnership fit, many factors play into determining what constitutes a “most beautiful” company that ultimately gets invested in. As data-driven, algorithmic investment models are adopted by some VC funds for investment analysis, the question arises of how much of the investment decision can be effectively quantified and accurately modeled purely through analytics.

‍

For a later-stage investor, numbers are certainly at the center of investment analysis and offer important insights into a company’s operations and business model. However, the decision to invest goes far beyond quantifiable characteristics and requires conviction in the founding team’s exceptional capabilities in solving a particular problem, building an effective team and organization, and persevering through the more difficult moments, much of which is identified through conversations with the company.  

‍

In addition to finding the right founders, deciding to invest requires a forward-looking belief in the company’s competitive positioning in the market through the anticipated industry trends or regulatory changes, essentially betting that the company will continue to create true long-term value for end-customers at scale. Thus, investment decisions also involve important qualitative aspects that can rarely be represented through analytics alone, as well as novel characteristics that predictive machine learning models might fail to identify. As in many of their applications, it would seem a balance of using the available data and tools, while also recognizing when they fall short and what complementary methods of analysis are needed, might prove to be most effective in differentiating the future winners.

‍

The strategic role of startups in Europe’s innovation landscape

Questions around data and AI are naturally central in discussions of technological innovation at the European scale, particularly in relation to what effective AI policy would look like and how it will impact innovation and startups. Venture capital’s intrinsic interconnection with technological, economic, and political developments offers continuous exposure to a wide range of topics and new innovations, which has been one of the most interesting aspects of the field. For instance, the EU’s increased push for local technological sovereignty and innovation brings an opportunity for European startups to tackle the issues of resilient digital supply chains and data protection, defense technologies, as well as continued prioritization of climate and clean energy solutions.

‍

Considering the role of startups in the energy transition is particularly interesting, as the shift towards a decarbonized energy system brings significant challenges around energy flexibility and reliability. During the spring I got to research the state of energy flexibility innovations, and while substantial investments are needed in hardware-based solutions, such as energy storage capacity and electricity grid upgrades, software-focused innovations will also have a central role in balancing the energy system’s flexibility needs more effectively. For example, optimizing clean energy production and storage, balancing the energy demand side through analytics and smart appliances, as well as ensuring stable and secure grids, all present important challenges in the energy transition that asset-light startups are well-positioned to take on.

‍

The ongoing technological transformation not only presents new challenges to be solved, but also redefines the role of startups from drivers of economic growth to strategic actors in shaping Europe’s long-term direction. Venture capital and startups offer a lens through which to follow pressing societal challenges and changes, and an opportunity to actively address them through innovation and growth.

‍

The world of growth companies: Navigating risk and uncertainty

Rapid change, shaped by quickly transforming technologies, changing regulations, and geopolitical tensions, brings opportunities for innovation and growth, but also increases uncertainty for startups and investors. Venture capital investing has been an interesting lesson in navigating uncertainty and the inherent risks of growth companies.

‍

Uncertainty, where the set of possible outcomes is unknown, is often addressed by trying to gather all the accessible relevant information, such as past trends in sales cycles or repeating characteristics of successful business models, to model and predict future performance. A company’s projected development is considered under various scenarios to evaluate the sensitivity of its outcome to various future assumptions. Yet, the inherent novelty of startups and their unavoidable susceptibility to external events, from emerging competing innovations to geopolitical impacts, create an infinite set of potential impacting factors to consider. However, uncertainty itself creates the opportunities for risk-taking, enabling possible rewards for venture capital investors willing to take on risk to back innovative growth companies.  

‍

Ultimately, investment decisions include attempting to identify the most relevant risks amidst the uncertainty, estimating their likelihood and impact, and deciding which risks among the investment opportunities one feels comfortable taking and mitigating relative to the expected rewards of a successful outcome. Thus, while uncertainty may feel unsettling, it creates the necessary risk-taking opportunities for innovation and VC investing.

Seeing the startup world through the investor lens at EGP has shown the wide range off actors impacting the analysis of investment opportunities, and the value of startup-investor collaboration through active partnerships with portfolio companies. The investor perspective has been a reminder of how to balance uncertainty and risk while backing promising innovative companies, as well as of the strategic role of growth companies in shaping Europe’s future direction. I am grateful for the opportunity to gain a first introduction to VC, and to the EGP team for all their guidance and the many lessons in the exciting world of venture capital and startups.

‍