Why the VC sector needs to get to grips with government decision making
European sovereignty will depend on governments and investors creating an ongoing dialogue on the direction of travel. The VC sector can play a key part in helping to secure European sovereignty, not just through investing in innovation, but by working with governments as they formulate policy and regulations that will have an impact on emerging technologies.
Political tailwinds are hugely critical to influencing where success is likely to be. The post-pandemic governments, which are also navigating the war in Ukraine, care about technology now more than ever, whether that is for reasons of national security, data sovereignty, privacy or the potential that space offers. Governments have big strategic interests in all of these areas. It’s therefore imperative for a VC also to understand these issues otherwise its ability to invest in great companies that can thrive and survive is going to be very constrained.
Founders too have to care about policy and regulations if they want to build a globally competitive company. It is no longer enough for a young company to be commercially successful to scale: companies also have to get to grips with policy and regulation. It’s understandable that Founders are occupied in trying to achieve, for example, product market fit, and regulation can seem like a distant issue to them. But it’s not. Revolut, for example, recently received its crypto licence from the FCA, the UK regulator, which will be critical to its ability to generate value for its investors and to achieve its business plans.
Start-ups rarely have the skills or experience that are necessary to have relationships at the top levels of government, nor the capacity to navigate policy. That is where funds like Lakestar can play a critical part. We don’t expect our portfolio companies to have developed these skills themselves so we provide them with the contacts and guidance to help them. Yet Lakestar is the only VC doing this in Europe.
Lakestar understands its companies and what their key value drivers are. One big success story is Accurx, which has revolutionised communication in the UK’s National Health Service. Yet, when it goes to pitch itself it is competing against the likes of Palentir and Microsoft. We have been able to differentiate ourselves as an investor by helping Accurx think through how they position themselves in the health service to get heard. We have also helped them know who to align with and how to navigate the NHS.
Another example is Yapily, the number one company in open banking and which is primed to be one of the companies that every tax authority could use to collect taxes or fines. It will have to address questions of procurement in different jurisdictions and we are well placed to help them.
This is about opportunity, not just risk mitigation.
This is Lakestar’s secret weapon. We can put our portfolio companies in touch with different people to talk to about different aspects of policy and regulation. Every VC says that it can help its portfolio companies attract the best talent, or that it has the skills to help it go to market. I see the area around policy and regulation as a key commercial differentiator. If VCs are going to present themselves as financing growth in the future, they will have to be involved with those discussions in government. This is about opportunity, not just risk mitigation.
With state funds becoming more and more interested in investing in Venture Capital, it is increasingly obvious that governments are taking Venture Capital far more seriously than they did before. We are reaching an inflection point for Venture Capital and I’m glad that Lakestar is on the front foot.