6 Interview: The structural growth trends with most potential
Bjarne K. Lie, managing partner at Verdane, is on the lookout for companies that are well-positioned within three market trends that, “will be the main drivers of GDP growth in the years to come.” Read our interview with him beneath.
Q: Verdane had an active 2019, with 11 investments in the Nordics. What are your reflections on the past year?
A: We delivered in accordance with our goals and did more, particularly in Norway and Finland, than in a long while, which was exciting. We were a bit unlucky in some exit processes, but this is the world we operate in; some companies do well, others do not. Overall, we had a turnover growth of roughly 20 percent in our portfolio.
The venture segment has a lot of new and exciting players, consisting of family offices, corporate venture, and first-time funds, with a different share in each Nordic country. This means that there is a lot of new capital in the venture market and the access to capital has improved, which again is great for innovation.
However, when globalization is in decline, as it is now, we get trade wars and political parties that seek economic activity to happen at home. The ongoing Sino-U.S. trade war truly came into effect in 2019, when President Trump introduced punitive duties on Chinese goods. For a player like us, who seeks to grow companies from small and open economies like the Nordic ones internationally, this will cause real issues if the trend continues.
Q: Can you tell us about your investment focus? You made many e-commerce investments in 2019, what are the prospects for this sector?
A: We are on the lookout for well-managed category leaders within three long-term growth trends: digital consumer, the sustainability challenge, and cloud-based SaaS (typically a software subscription service, ed.). We believe that these are three main “waves” that will drive market growth above GDP growth in the years to come, and we organize our teams accordingly. Verdane invests a minimum of €10 million in each case, but we do acknowledge that our partnership is through the growth phase. Profitability is not critical to us.
Verdane jumped on the digital consumer trend 15 years ago. Since then, consumers are increasingly migrating to online channels and worried about the climate footprint of their shopping. The change on our part is that we used to invest in online stores with many brands. Now, we are on the lookout for brands that go directly to the consumer and own the whole value-chain, so-called digitally native vertical brands. Even though the total consumer market is in decline, the online channels are growing each year. Our e-commerce investments grew 30 percent per year through the financial crisis.
Q: How has the competition to join the best cases changed, and do you see any increased activity from international investors in the Nordic market?
A: We see more international investors in the Nordics, definitely. We have a robust venture capital and private equity ecosystem that nurtures a lot of highly innovative firms geared to grow both inside and outside the Nordics, so naturally, that attracts international capital. About the competition, it varies a lot.
Sometimes, we meet a local generalist, other times an international specialist, and they act very differently. We stand out by being more specialized than most local generalists, and more local than the behemoth international funds. Another aspect is having people on our team who have founded or run businesses themselves and using our comparatively large data pool to get specific on drivers that can unlock growth. When there is a lot of capital in a crowded market, businesses are more confident asking for proof that you’re the best investor to help them grow.
Q: BlackRock chairman and CEO Larry Fink recently talked about how climate change “has become a defining factor in companies’ long-term prospects.” Was 2019 a year when PE started matching its rhetoric with action in this field?
A: This is not news to us. We made our first cleantech investment (as it used to be called then) 10 years ago and started buying carbon offset quotas around that time. The increased focus on ESG was to my mind the single most important change in the industry in 2019, but despite a lot of glossy presentations I have yet to see a single firm that has cracked how best to operationalize this. The good news is that Nordic private equity, with firms such as EQT, Summa and us, are early movers globally. Hopefully, we can turn that into a sustainable competitive advantage.
A great example is our holding The Humble. Co, which makes eco-friendly health and wellness products. The entire journey started with Humble’s signature bamboo toothbrush after the founder realized that billions of plastic toothbrushes were being thrown away each year. Humble has entered a large and consolidated market and managed to take a substantial share in only a few years as a direct consequence of a change in consumer behavior, and competitors are launching greener alternatives.
For change to accelerate, however, we need more push from governments and stricter accounting standards. What we don’t need is more red tape, like yet another ESG reporting format. To reach the Paris Accords, IMF has measured that we need a carbon price at around USD 70 per ton. Bold moves such as that would cascade down value chains and lead to massive innovation and value-creation. We are miles away from that target now, with a global average price of USD 2 per ton.