The Great VC Unbundling: 5 Insights to Secure Funding in 2025

As any founder who has recently raised capital will know, capturing investor attention has never been so hard. In part this is due to VCs struggling with deal flow overload; demand for capital significantly exceeds supply. Just look at the continued decline in European deal count figures since 2021.

But there is another, equally troubling reason: VCs are distracted. The whole industry is undergoing a profound transformation. For a founder raising capital in 2025, perhaps eyeing US as well as European funds, much change is afoot.

First, the number of investors is shrinking. Sifted reports a 30% drop in the number of active VCs across Europe over two years, reflecting how exits have slowed and limited partners (LPs) have grown more selective. A similar reduction of 25% has been reported in the US.

Second, a remarkable amount of personnel movement between funds, as well as several spinout teams creating new funds as reported by TechCrunch and Bloomberg. This might seems at odds with the decline in the number of overall players - but there are some big losers as well. The mid-tier players, often lacking a strong differentiator, have struggled to stand out. Many are being passed over by the big capital allocators and are simply fading away.

In the United States, venture capitalist Kyle Harrison notes that in 2024, 75% of all venture dollars was raised by just 30 VC firms, illustrating how concentrated the upper end has become. The result is that founders are navigating a market that is becoming heavily polarised, with 2 primary funding routes emerging:

1. Mega-Funds: these are giant, multi-stage platforms managing massive pools of capital.
2. Specialised Funds: Smaller, highly focused vehicles often run by ex-partners or well-known angel-operators.

For European founders, these macro trends coincide with regional nuances - driven by diverse regulations and tax incentives, fragmented markets, and fewer blockbuster exits than in the U.S.

Together, they feed into what Harrison calls the “Great Unbundling”: the splitting of venture into a handful of big asset manager types on one end and a multiplicity of niche players on the other.

This week we provide our own key insights - drawn from Harrison’s thesis and corroborating European data - to help founders navigate a venture market that is reconfiguring under our feet.

INSIGHT 1: A Polarised Funding Landscape

Europe’s venture ecosystem is becoming increasingly polarised, with mega-funds on one side and specialised firms on the other. Mid-range VCs (typically €100m - €400m) are becoming rarer as founders gravitate toward either the huge budgets and broad reach of large players or the hands-on, expert-driven approach of more focused investors.

• Mega-Funds (typically €500M+). These are significant, multi-stage platforms like Atomico, Index, Balderton, and Sequoia (in Europe). They raise billions in capital, and many offer an array of “platform” services - ranging from marketing to recruiting support. For startups aiming to scale quickly, a mega-fund’s deep pockets and global connections can accelerate growth. However, these firms often expect substantial exits and may pressure founders to pursue aggressive market dominance - not just in Europe but in the US too.
• Specialist Firms (typically €20M to €100M). At the other end, smaller niche funds or solo GPs hone in on particular technologies (e.g. AI, Fintech, ClimateTech, BioTech) or specific geographic regions. Their lean approach can deliver closer engagement, deeper sector knowledge, and an ability to invest in segments that might not align with a mega-fund’s large-scale returns model. But their limited follow-on reserves mean founders requiring multiple sizeable rounds may need to form syndicates or raise from multiple sources.

Why It Matters: As a founder, your choice of investor often comes down to matching your startup’s ambition. If you’re addressing a huge market and need significant capital, a mega-fund could be advantageous. If you’d benefit from specialised attention - particularly in technical or emerging fields - a smaller, sector-focused partner might offer more tailored support. Being clear on how your business strategy and funding strategy align from the outset is vital.

INSIGHT 2: “People Over Logos” Is Redefining Investor Selection

In years past, founders scrambled for the biggest logos on their cap tables. While top-tier names still provide cachet, Harrison underscores a rising preference for individual investors’ reputations and expertise. Rather than defaulting to the household-firm name, founders now ask: “Who, specifically, will be on our board and guiding our journey?”

Key Dynamics

1. Individual Credibility. Star investors with strong track records and networks - like Elad Gil or Lachy Groom in the U.S., or high-profile ex-operators in Europe - have personal brands that can overshadow mid-tier firm names. They often raise their own smaller funds or invest as solo GPs, attracting deals based on their unique expertise.
2. Level of Involvement. In a mega-fund, a partner might balance a dozen or more portfolio companies. A specialised fund or solo GP might manage a handful, devoting more time and resources to each. This dynamic can be decisive if your startup needs concentrated support - particularly in early product development or a demanding technical field.

Why It Matters: Evaluate potential investors at the partner level, not just the overall firm. Ask for references from founders they’ve backed, gauge how many boards they sit on, and confirm their knowledge of your market. A strong brand can open doors, but the personal engagement from a motivated partner could be the difference between floundering and flourishing.

INSIGHT 3: Zombie Funds - and a Shrinking Middle

While the top and bottom of the market grow more distinct, the middle has thinned considerably. Sifted notes that the number of active European VCs declined by 30% in two years, pointing to many “zombie” funds: investors still nominally active but no longer writing new cheques. Others have quietly stopped raising new vehicles, managing out existing portfolios behind closed doors.

Contributing Factors

1. Lower Exit Volume. Europe traditionally sees fewer IPOs or high-profile acquisitions than Silicon Valley, leading some newer funds to struggle with returning capital to LPs. When those funds sought to raise follow-ons, they couldn’t secure commitments.
2. Flight to Quality. As the European market has cooled even further in 2024, LPs and founders have preferred proven brands - or genuinely distinctive strategies - over generalist mid-tier funds. Those without a clear edge have found it harder to attract deal flow and new LP investments.

Why It Matters: A shrinking middle has reduced the total number of term sheets at Series A or B, especially for those not among the top deals in their segment. If a prospective investor hasn’t deployed capital lately or is vague about remaining reserves, they may be “zombie” status. They may still engage in early investment conversations with founders - but this is motivated by factors such as intelligence gathering and just 'looking busy', not a serious intent to invest.

INSIGHT 4: European Fragmentation Fuels Local and Vertical Specialisation

While Harrison’s thesis stems largely from the US ecosystem, Europe has its own unique forces at play:

• Local Hubs. European VCs often cluster around tech hotspots - London, Berlin, Paris, Stockholm - each with its own regulatory nuances, tax incentives (e.g. EIS and VCT funds in the UK) and cultural context. Funds focusing on a single hub may have stronger local networks and a detailed understanding of local talent pools.
• Vertical Theses. Europe’s shortage of uniform regulations and its diverse markets can favour niche strategies in areas like ClimateTech, AI, Fintech, or DeepTech. A specialised Biotech fund in the UK or a ClimateTech fund in Scandinavia, for instance, might know how to navigate regional policies and tap into government grants. The UK's new £14B AI infrastructure plan will potentially boost startup activities in geographic 'growth zones', once that money starts flowing.
• Ex-Operators Turned Investors. Many successful European founders - who exited companies like Skype, Spotify, Wise - are now fuelling a new wave of operator-led funds and private investment vehicles. They often prefer a lean model, offering high-touch support to early-stage founders who value on-the-ground experience over the brand of a mega-fund.

Why It Matters: Founders can benefit from the local savvy and sector depth of these specialised funds and initiatives. If your product addresses a region-specific problem or niche vertical, a specialised investor might unlock more value than a large firm with only a surface-level interest in your market. Conversely, if you aim for pan-European or global scale, a mega-fund might accelerate your cross-border expansion plans - provided your ambition and the fund’s strategy align.

INSIGHT 5: Align Ambitions with Your Investor’s “Game”

A critical theme in Harrison’s writing is that large and small funds play different “games”:

1. Mega-Funds: Scale and Monumental Exits. Managing billions, these VCs need a fraction of portfolio companies to become “unicorns” or “decacorns.” Their internal logic often drives them to push founders for hyper-growth often driven by new market-creation strategies to maximize upside. This can be a good match if you genuinely aim to conquer a global market quickly, but may be mismatched if your business requires slower, sustainable expansion or if your total addressable market is more modest.
2. Specialist or Renegade Funds: Targeted Bets and Depth of Engagement. Smaller funds often accept earlier-stage or niche investments. Their returns can come from a balance of modest and larger exits, and they may be more tolerant of experiments or pivots. They might also put in more day-to-day effort, helping recruit key hires or refine product strategies. Many of these emerging managers represent a new wave of "adventure capitalism", people taking risks alongside founders to help build generational businesses.

Why It Matters: Founders should clarify their business model, market size, and personal comfort with risk. If your goal is global category leadership and you can handle an aggressive growth plan, a mega-fund could be your best ally. But if you’re charting a path to steady profitability in a specialised domain, a smaller “renegade” fund that doesn’t demand a sky-high exit might provide a saner path to success.

CONCLUSION: Practical Steps for Choosing Your Capital Partner

The Great Unbundling of venture capital - where large mega-funds consolidate power and niche firms carve out specialised positions - has created a more polarised funding environment. Fewer mid-tier funds means you’ll likely gravitate to either a well-known platform investor or a lean, more expert-led outfit. Neither approach is inherently superior; it depends on your startup’s strategy, market, and culture.

Below are five practical steps for navigating this more polarised world in 2025:

1. Clarify Your Capital Needs
   • Do you need a massive war chest for aggressive scaling, or a moderate sum plus hands-on sector guidance?
   • Assess your total addressable market and the speed at which you must grow to remain competitive.
2. Research Specific Partners
   • At mega-funds, find out which partner you’d work with and how many companies they juggle.
   • For specialised or solo GPs, confirm their track record and capacity for follow-ons or co-investments.
3. Inspect Follow-On Strategies
   • Large funds may have near-unlimited reserves but could reserve big checks for their top “winners.”
   • Smaller funds might rely on syndicates to support you past a certain stage, so ask how they handle subsequent rounds.
4. Avoid “Zombie” Investors
   • Look for recent deals or proof of new capital. If they’re quiet, they might be inactive or winding down.
   • Ask direct questions about how many new investments they plan to make this year.
5. Match Their Appetite to Your Growth Path
   • Mega-fund VCs push for huge outcomes - perfect if you see a giant, global opportunity.
   • Specialist funds often bring more depth in certain areas, allowing for a steadier or more technical build-out.

In a climate where a handful of big firms command most of the global VC dollars and where the middle-tier is fast disappearing, founders with clarity on who they want to work with and why have a distinct advantage.

Whether you opt for a mega-fund’s expansive reach or a specialised player’s tight focus, the key is alignment: ensure their vision, timing, and risk tolerance sync with your own. Regional nuances add to the diversity of options for European founders.

The key is understanding that venture capital is not one homogeneous investment class. If you do, you’re far more likely to secure not just the capital you need, but a lasting partnership that can steer your startup toward sustainable success.

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