Donnerstag, 30. Mai 2013

Sweden: Critical Funding Gap

When it comes to venture capital, opportunities abound in Sweden. Yet, despite the success stories, a critical funding gap threatens the future of the industry. Amy King reports

For the last five years, Sweden has been the third largest market in Europe for venture capital-backed exits, trailing only France and the UK, according to unquote" data. The nation has consistently ranked among the top five most active markets in Europe for venture investment, taking fourth place in 2012.

Skype, co-founded by a Swede and an Estonian, was first backed in 2004 with a €1.9m capital injection from Draper Investment Company. Seven years and several venture rounds later, Silver Lake Partners, Joltid Ltd, Andreessen Horowitz and the Canada Pension Plan Investment Board sold the firm to Microsoft for $8.5bn.

The market's credentials are clear and its dealflow understood by the rising number of international investors opening offices in Stockholm or expanding their remit to include it. But it could be running on borrowed time.

There is a real gap in funds investing €500,000-1.5m,

says Martin Gemvik, investment manager at early-stage investor Sting Capital.

We used to have the Sixth Swedish Pension Fund (AP6),

he reminisces,

which acted as a fund-of-funds investor. It meant that there were national LPs that could contribute maybe 20, 30, or 40% of these funds,

he adds. AP6's CEO Karl Swartling told unquote "that changes to the fund's allocations and strategy were inspired by the pursuit of higher returns."

For various reasons the management did not deliver the expected returns, and so the government decided to stop all investment activities. This has created a substantial lack of resources for early-stage fund-of-funds capital in Sweden, which today is a well-known problem among entrepreneurs,

he explains. Dealflow and drive there may be, but how to fill the tanks of those early-stage funds hoping to jumpstart new businesses?

If you go back to the year 2000, there was ample supply - even too much supply - of capital for VCs,

explains Gabriel Urwitz, chairman of the Swedish Venture Capital Association (SVCA) and founder of buyout firm Segulah. 

Gabriel Urwitz
Back then we had 100-200 VC firms, now we have only a handful. There is always discussion of whether or not there is enough money for seed capital. In a country like Sweden, the government is active with a fair amount of money,

he explains. 

But the question is, is it active in a meaningful way? I think Sweden still has some lessons to learn here.

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