Despite the pandemic, 2020 saw a record high number of venture capital (VC) deals in the Nordic region. The invested amount was two times the level of 2018 and increased for the third straight year. Interest in health technology and tech-enabled services experienced a boom during the pandemic.
“In early March, as the pandemic took real shape, we experienced that venture funds like ours took an initial pause on new investments to focus on supporting existing portfolio companies and formed a thesis around the effects and implications of the pandemic. However, a transition soon occurred, and the investment rate grew steadily during the second half of the year, all the way into the new year. We expect that investment volume will continue to grow in 2021,” says Teodor Bjerrang, Founding Partner at Oslo-based SNÖ Ventures.
Venture funds directed most deals towards ICT companies, 165 transactions in total. The level is on par with the average number of ICT deals in the Nordic venture segment in the previous five years. SNÖ focuses on tech companies, and Bjerrang explains how the market was affected in 2020.
“Tech-enabled services are in many instances the solution to cope with the crisis. The pandemic has led people to invest resources and time in digital solutions, hence pushing technology adoption several years forward. You find examples in the health sector, like our portfolio company Confrere (read our case story), and the education sector where digital learning has exploded,” says Bjerrang.
Frida Einarson, Partner at Verdane, agrees with Bjerrang’s assessment. Even though Verdane does not invest in venture stage businesses but rather in growth and later stage, she sees a mounting interest in tech-enabled companies across the board.
“When looking at venture activity, I’m not surprised that it is record-high given the big pools of capital chasing returns in a super stimulated, low-interest environment. Overlay that with how the past 12 months have accelerated the adoption of technology, and you can easily see that companies within digital and tech will find it easy to raise capital in these conditions,” Einarson says.
The sector that attracted the second most investments was health care and life sciences with 50 deals, attracting 40 per cent more transactions than the average between 2015 and 2019. The pandemic has highlighted the importance of MedTech, biotech and health care, and fund managers regard the industry as attractive. Since our tracking started in 2008, companies in the sector have never received more investments in a single year.
Ingrid Teigland Akay, Managing Partner at the Norway-based life science fund manager Hadean Ventures, confirm the greater focus on health innovation and more efficient health systems in 2020. She argues that digital health technology had a breakthrough:
“The trend was undoubtedly there before 2020, but with the pandemic, an acceleration took place. The health sector has been undergoing structural changes for a long time, but it is conservative and changing slowly. Now, with many users overcoming the threshold of using new services, we believe the trend will continue.”
Hadean exited the Austria-based Themis Bioscience to Merck in May, one of the companies that worked on a vaccine candidate for covid-19. Akay is not worried that the increased spotlight on the sector will lead to an over-investment in covid-19-related companies.
“Investors should focus on the shutdown of many services not related to covid-19 in hospitals, which has created a backlog of patients that the health system needs to handle when the pandemic calms down. In that new normal, there will be a need for health technology to handle the health service queues,” Akay argues.
Contrary to what one might expect during a pandemic, investments in consumer companies increased in 2020: 33 deals, 62 per cent more than the average in the previous five years. The pandemic and changing consumer patterns have created opportunities for innovative companies who seize the opportunity.
“Some subsectors took a hit in the beginning, like online fashion, because people did not need to dress up for big occasions during the pandemic. Our goal has been to direct these companies to adapt to the new situation. As an example, Baum und Pferdgarten, a Danish clothing brand in Verdane’s portfolio, pushed their digital transformation agenda by investing in digital showrooms and adapted by including more basics and loungewear in the collections,” says Verdane’s Frida Einarson.
“People got a push to try out home delivery in 2020. We saw it within basics products, like groceries and pharmaceuticals. But also, with people being more at home, they went to digital channels to give the house or apartment a makeover or renovate their car,” Einarson adds.
Industrials experienced a sharp decline of 38 per cent compared to 2019 and down 15 per cent compared to the previous five years. Financials - which has not been an own sector in Argentum’s tracking before – attracted an impressive 18 deals during 2020. Ali Mitchell, VP at EQT Ventures, has seen this trend coming out of the Nordics for a long while (read our profile interview with Mitchell).
“Fintech is one of the subsectors where the Nordics have a track record of producing successful companies, and that has become more relevant during the pandemic. Last year, EQT Ventures invested in the Swedish fintech companies Anyfin, an app that seeks to improve customers’ financial health, and Willa, a service that helps freelancers get paid,” Mitchell said.
The list of finance rounds is dominated by Swedish and Norwegian companies (see table below), primarily in the ICT sector. Five out of the seven largest finance rounds were completed in the second half of 2020. This reflects the increase in the overall activity level in the latter half of the year.
The three largest rounds were in Swedish companies. In September, Klarna, the online payment platform, had the most significant capital infusion at €545m. Klarna was valued at €8.95 bn in the round led by Silver Lake (US), making it the most valuable private fintech company in Europe. According to Yahoo Finance, Klarna has benefited from an accelerated shift to e-commerce during the pandemic. The second-largest financing round was in Oatly, the renowned oat-milk manufacturer, which raised €178 million in the round led by Blackstone (US). Blackstone valued the company at approximately €1.6 bn. Thirdly, Stockholm-based Tink, an open banking platform, had finance rounds totalling €175m in January and December.
In the three other Nordic countries, the largest finance rounds were of similar size. In April, the Norwegian software company ForgeRock raised €83 million in a round led by Riverwood Capital, where Accel and KKR also participated (all US-based GPs). In August, Finland-based SuperMetrics, a SaaS data management and analysis tool, raised €40m in a round led by Highland Capital (US). Finally, in December, the Danish biotech company MinervaX raised €47m in Series B financing, where Adjuvant Capital (US), Industrifonden (SE), and Wellington Partners (DE) were new investors.
Silver Lake, Blackrock, Northzone Ventures, Permira, Sequoia Capital, Technology Crossover Ventures
Blackstone, Orkila Capital
Dawn Capital, AAC Capital, Heartcore Capital, Insight Partners, Eurazeo
January and December
Riverwood Capital, Accel Partners
Eight Roads Ventures, Balderton Capital
Adjuvant Capital, Industrifonden, Wellington Partners
Highland Capital Partners, Institutional Venture Partners, Open Ocean Capital
In 2020, 28 per cent of investments were made by fund managers outside the Nordic region, compared to 33 per cent in 2019. The share remains high, illustrating that international investors regard Nordic companies as attractive.
“The slowdown in 2020 led many companies, not only in the Nordics, to focus on their home market. This has made it difficult to enter new markets like the American one and hampering international expansion in general. Therefore, we saw many American fund managers setting up shops in Europe last year to source companies that otherwise would have been in Silicon Valley,” says EQT’s Ali Mitchell.
Swedish fund managers accounted for 30 per cent of investments in the Nordic venture segment, followed by Finnish fund managers who made 19 per cent of transactions (see graphs below). Further on, 12 per cent of investments were made by Norwegian fund managers, and 10 per cent by Danish ones. Among international investors, American and British GPs made the most investments, 8 per cent each.