3. Interview: EQT Venture’s Ali Mitchell on how the pandemic has affected the venture segment
We talked to the Silicon Valley-based investor about the pandemic’s effect on VCs, Nordic start-ups that seek to enter the US market, and how it has led big players to get bigger – and the smaller ones in a squeeze.
Q: As a VC fund manager, how did the pandemic affect yourself and your peers?
A: For VCs, the first quarter of 2020 was quite busy before the pandemic hit at the end of it. From that point and to the end of the summer, EQT Ventures’ portfolio companies pretty much went into a complete shutdown. We adjusted our focus from new deals to the existing portfolio, and I experienced that our peers did the same. In August, we started deal processes again, and the market got momentum during the third and fourth quarters that seem to be continuing into the new year. When the world got more back to normal in the second half of 2020, following positive vaccine news, a tremendous amount of capital was ready to be invested. Many investors were chasing a few deals, as we saw a flight to quality.
Q: What sectors got momentum during the pandemic? What, if anything, makes the Nordics unique in the investment sphere?
A: The future of work, including questions like where we are supposed to work from, what platforms we use, and how AI can support our work, became even more current during the pandemic. All workplaces suddenly needed to become more digital. The Nordic ecosystem is very close and well-connected, with plenty of capital around, which can sustain itself. Many subsectors where the Nordics have a track record of producing successful companies have become more relevant during the pandemic, e.g. gaming platforms, food delivery services, and fintech.
Q: Post-pandemic, will you be on the lookout for different types of companies? If so, why, and which traits are important?
A: The stay-at-home trend will continue, which means that remote work services, food and home delivery, and e-commerce will continue to grow. It is a saying in the business that we saw more digitisation in six months of 2020 than in the six previous years. I agree with that statement. Even sectors that did not work digitally, like chemical and oil and gas, will move in the direction of employees working from home. There has been a surge in so-called vertical SaaS companies, which provide digital solutions to niche industries. Further on, I believe some of our focus sectors will be fintech and developer software tools.
Q: Which qualities do tech companies need to have to survive until we are back to a new normal?
A: There is a premium on companies with high fundraising ability and hype capacity. Companies that can break through the noise and user barrier become more valuable when you cannot take investors out for coffees – there is a drive to quality. On the other side, because all businesses are working remotely, new types of founders can flourish. The introvert developer’s rise is one of the significant changes during the pandemic. They have already honed their online working skills and have vast experience in creating digital solutions.
Q: How do you experience the competition in the tech segment post-corona? Are there more active investors in the segment post-corona?
A: 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. In this situation, some Nordic start-ups have profited from already working remote.
Q: How was it to be in fundraising last year, and what stood out for you in the fundraising market?
A: EQT is continuously in fundraising mode, given the firm’s broad platform of investment strategies. What stood out in 2020 was that tech-focused funds had an easier time raising funds and that LPs had much dry powder and were looking for quality funds. This led the large fund managers to get larger and put the smaller and less-connected ones in a squeeze. Some smaller funds also had a more challenging time backing their portfolios during the downturn; they were punished twice.
Q: What are your predictions for 2021? Could it become a good exit year?
A: Both for funds and companies, those that had a lot got more during 2020. The high deal volume we saw in the second half of 2020 will likely endure, with increased competition for the best cases and a continued bifurcation between the ‘haves’ and ‘have-nots’. In January and February, we have already made more exits than we did in the whole of 2020. Among them is Peakon, a Denmark-based company that makes employee survey software to help companies collect data on employee feedback. The Peakon exit was planned for 2020 and pushed to 2021, which I think will be the case for many exit processes in the venture segment, and not only in the Nordics.