Why differentiation will help VCs buck the European dealmaking slump trend
by Tom Sheridan, VP, US, RTP Global.
Guest post by Tom Sheridan, VP, US, RTP Global.
Competition between venture capital funds to participate in top-tier funding deals is intensifying, driving valuations for high-performing tech startups to unprecedented levels.
Take Clickhouse, as an example. It secured $50 million in Series A funding, only to follow this up two months later with a $250 million Series B at a $2 billion valuation. Such deals are a symptom of a rush to secure stakes in the world’s most successful startups with extraordinary revenue potential.
But in 2024, as the pool of truly exceptional investment opportunities continued to shrink, and the bar for quality continued to rise, the battle for the best deals became even fiercer. And many VCs found themselves outbid, priced out, or simply unable to deploy capital at the pace they once did. In fact, Pitchbook data reveals that the number of active VCs in Europe fell by around 30% between 2022 and 2024.
This environment has given rise to “zombie funds” – VC firms that are still managing their existing portfolios but are no longer actively making new deals. In a changing investment landscape, VC firms are being forced to adapt to stand out to founders and remain competitive.
Knock-on effects
Despite a smaller pool of high-quality deals, the pressure from Limited Partners (LPs) to generate strong returns has not disappeared. This dynamic is pushing VCs beyond the traditional comfort zones of portfolios to find the companies – the outliers – with breakout potential.
This has resulted in increased activity in sectors that might not have been historically “venture-scalable”, such as Material Science and Oil and Gas. But these industries are becoming more attractive as AI, automation, and data-driven efficiencies open up opportunities to disrupt and reshape old business models.
Another outcome of increased competition for high-quality deals is that more VC firms are considering the best way to differentiate and stand out from the crowd.
Competitiveness rooted in differentiation
Winning the best deals today isn’t just about writing the biggest cheque - it’s about what else you can offer a founder. Beyond capital, VC firms need to nail down what they can offer that most other VC firms can't match.
Obviously, I’m not referring to the table stakes – i.e. the basics every VC should offer their founders – here. For example, facilitating meaningful introductions that drive revenue, strategic guidance and fundraising support.
Where a VC can differentiate is adding platform value, and for some VC firms this looks like:
Talent networks: Helping founders with hiring, particularly for key technical and executive roles
Industry connections: Corporate VCs often excel here, offering access to strategic partners
Deep domain expertise: Plugging a gap in a founder’s knowledge
A global reach: Offering startups access to international networks and local partners to stand out to founders who are interested in building globally from day one
One of the biggest shifts in VC positioning over the past few years has been the rise of media-driven venture firms. Having a personal brand, podcast, or strong social presence has become a competitive advantage.
20VC (Harry Stebbings in Europe) and All In (US) have built massive audiences, giving them greater brand awareness and greater reach for hiring posts and product announcements.
Emerging managers like Nicole Wishoff and Turner Novak are running similar playbooks, leveraging Twitter, newsletters, and content creation to get on founders’ radars before they even start fundraising.
Regardless of the unique proposition a VC offers, reputation matters. All founders will research the investor they’re signing themselves up to work with and the most referenced VCs are those who provide emotional support (founding a company is brutal), and VCs who genuinely back their founders stand out, stay true to their word (a founder's network is small; reputations matter), and move fast (speed of execution can make or break a deal). There are the kinds of VCs that founders seek out to work with.
Staying the course
Despite a slowdown in deals and heightened competition among VCs, there is a sense of optimism in 2025. The UK rebounded strongly in Q4 of 2024, attracting the highest level of VC investment in Europe and boosting confidence among investors and founders alike.
For this growth to continue, VCs need to adapt.
The competition has never been tougher, but for VCs who can evolve, there’s never been a better time to stand out. VC funds will have a better chance of winning a seat at the table of the most coveted funding rounds over the coming months and years where the unique value they bring to founders and their businesses shines through.
