4. VC & Growth deals: Signs of recovery despite a slow start?
In 2023, 297 transactions were completed by venture funds in Nordic start-ups and growth companies. The amount invested in the segment remained high, with €1.5 billion in total. Compared to the average for 2018-2022, the invested amount was down only 13 percent. After declining in the latter half of 2022, the activity level started to pick up in the first half of 2023. The moderate growth in investments continued in the second half of 2023.
297
Investments by venture and growth funds in Nordic companies in 2023
For the first time since 2018, the number of venture deals fell below 300 in 2023. The deal count decreased by 23 percent relative to 2022 and was 35 percent lower than the record-setting number of deals in 2021. However, when compared to the activity level in the latter half of 2022, the activity in both halves of 2023 was marginally higher.
Amount invested by venture funds also declined in 2023. Compared to 2022, amount invested declined by 31 percent. Compared to annual average of the last five years, amount invested in Nordic venture and growth companies was down by 13 percent. However, the average deal size has only been higher in 2021 and 2022.
€1.5 bn
Amount invested in Nordic venture and growth in 2023
The largest deals involve a broader range of sectors
In contrast to 2022, when ICT dominated the largest deals, the largest deals in 2023 involved a broader range of sectors. Below are the eleven most significant transactions during the year.
ICT
- The Swedish software company HyperGene announced that Thoma Bravo would acquire a majority stake in the company from Monterro (read more).
- The Finnish company Hostaway raised USD 175 million in a round led by PSG Capital. The company specializes in providing all-in-one vacation rental software solutions, and this financing round is the largest in the sector to date (read more).
Consumer
- Tesi participated in a finance round to expand Valoo Fiber’s Finnish fibre rollout. The funding round was led by DIF Capital Partners, and raised over EUR 250 in total (read more).
- Matsmart, a Swedish company that supports the sustainable reform of the world's food system, raised EUR 40 million in a funding round led by Circularity Capital (read more).
Industrials
- The Swedish company H2 Green Steen, which aims to decarbonize the European steel industry, raised EUR 1.5 billion in equity from an investor group led by Altor, GIC, Hy24 and Just Climate. The finance round was the largest private placement in Europe in 2023 (read more).
- PSG Equity placed EUR 40 million in One Click, a world-leading decarbonization platform for the construction and manufacturing industries (read more).
Health Care & Life Science
- In February, Hemab Therapeutics announced a USD 135 million financing round. Among the investors where Maj Invest Equity and Avoro Capital. The company is a clinical-stage biotech company developing the first prophylactic therapeutics for serious bleeding and thrombotic disorders (read more).
- Neko Health, a health tech startup, raised USD 65 million. The funding round was led by Lakestar. Other investors were Atomico Ventures and General Catalyst Partners (read more).
- EQT and OrbiMed Advisors were among the investors who participated in a funding round where MinervaX raised more than EUR 125 million. The funds raised will be used to advance the development of the vaccine against streptococcus (read more).
Financials
- Brite Payments, a Swedish company specializing in instant bank payments, successfully raised USD 60 million to expand its instant account-to-account (A2A) payments and payouts across Europe. The funding round was led by Dawn Capital, with contributions from Headline and existing investor Incore Invest, aiming to fuel Brite's product development and further geographic expansion (read more).
Cleantech
- Aira, a pioneer in clean energy-tech solutions, secured EUR 145 million in a significantly oversubscribed Series B financing round. Led by Altor, Kinnevik, and Temasek, the funding will support Aira's mission to replace fossil fuel-based boilers, drastically reducing household heating costs and CO2 emissions with its innovative air source heat pump technology (read more).
VC and Growth funds still favor the ICT sector, though its appeal declines
The ICT sector continued to lead in attracting investments from venture and growth investors, securing 33 percent of the total investments. However, this represents a decline of 22 percentage points from the sector's average investment share during the period 2018-2022. In terms of deal volume, there has been a 56 percent decrease in investments compared to the average of the previous five years.
Industrial sector on the rise
For the second year in a row, the industrials sector has seen a surge in investments, reaching a record 51 deals—13 percent more than compared to 2022. This sector captured 17 percent of all venture and growth investments, a significant rise from 11 percent in the previous year.
Following the industrials sector, both the cleantech and healthcare sectors exhibited notable growth in investment numbers. The cleantech sector saw its share of investments more than triple in 2023, climbing from 3 percent in 2022 to 10 percent. Similarly, the healthcare sector expanded its share of investments from 10 percent in 2022 to 15 percent in 2023.
The financials sector also drew a considerable portion of investments, securing 8 percent of the total. Although the number of investments in this sector experienced a significant decline in 2023, it remains a key sector in the venture and growth investment landscape.
15%
Share of venture investments in the health care sector in 2023. This is 5 percentage points up compared to 2022.
Overall tougher market conditions – “but the fundamentals are still there”
Northzone started out in Oslo in 1996, with a focus on investing in the Nordics. Since then, the company has grown its presence, making over 175 investments around the world, and are now a full -stack investor, investing from seed to growth. Northzone usually invests €1 million to €40 million.
Jessica Schultz, Partner at Northzone, reviews the previous year and shares some of the highlights and challenges:
"I think we are seeing an increasing number of interesting opportunities across Europe and the US, with talent emerging outside of the historical tech hubs. There are now 2nd and 3rd generations of startups emerging from companies like Spotify, Klarna, UIPath, and Wise, to name a few. At the other end of the spectrum, we are observing many entrepreneurs working through challenging market conditions, something which we've witnessed firsthand in our portfolio as well."
She continues describing what she calls a clear bifurcation both in the private and public markets regarding what is perceived as quality companies:
“Overall, I’d say that most entrepreneurs have had a tougher time over the last few years, compared to the ZIRP world we've lived in for the past 10-15 years. That being said, the fundamentals are still there; there is talent, capital, demand, and opportunities to create something unique as an entrepreneur. I would be very excited as an entrepreneur starting today.”
“I would be very excited as an entrepreneur starting today”
Northzone pays close attention to trends in the market as they seek to invest in the most promising entrepreneurs. Schultz points out that they try to be as thoughtful as possible in terms of sectors and subsectors, themes, and where they spend their time:
“What that means is that we have multiple sectors and subsectors with theses, and we actively seek out entrepreneurs when we see there’s an overlap with what we find exciting.”
She continues:
“Naturally, the past year saw a lot of attention around the wider AI paradigm as well as ESG/Climate/Energy, and this is evident in the opportunities we've evaluated and the companies we've invested in. We are still seeing lots of opportunities across fintech, healthcare, and the wider B2B SaaS sector.”
Swedish companies dominated the venture segment
Sweden accounted for 37 percent of the venture market in 2023, while the rest of the deals were evenly distributed between the other Nordic countries:
- In 2023, Swedish companies remained at the forefront of attracting investments, with a total of 110 investments secured. This marks an 18 percent decrease from 2022, and a 19 percent decrease compared to the annual average of the last five years.
- In terms of number of investments, the Finnish venture capital market saw a slight decline of 6 percent in 2023 compared to 2022. Nonetheless, the Finnish market accounted for nearly 24 percent of all investments in the venture segment, and 31 percent of the total funds invested, and had the highest average deal size of all Nordic countries.
- Norwegian companies experienced a 48 percent reduction in investments in 2023 compared to 2022. The average deal size in Norway was also substantially lower in the other Nordic countries. However, it’s important to note that 2022 was a record-breaking year with 110 investments. Therefore, with 57 investments in 2023, the Norwegian market still witnessed a higher level of activity compared to historical averages.
- The number of investments in Denmark decreased by 13 percent compared to 2022. However, Denmark increased its share of total investments by 3 percentage points.
Swedish companies attracted the most capital: Swedish companies attracted over 40 percent of the total amount invested in Nordic VC.
Sharp increase in the share of Fund managers outside the Nordics, UK and the US
Increase in international investors increase: The share of international investors in the Nordics was 40 percent in 2023, up from 32 percent in 2022. The share of non-Nordic investors is the highest since Argentum started tracking the market in 2008.
In 2023, Fund managers from regions beyond the Nordics, UK, and US—termed as "rest of the world"—significantly ramped up their investment activities. Remarkably, for the first time, these global investors were the largest investor group in the market. Investors from the rest of the world increased their investment activity by 22 percent.
Despite the sharp increase in activity by investors from the rest of the world, the investment share from non-Nordic Fund managers “only” rose from 32 percent in 2022 to 40 percent in 2023. This is due to the lower participation of US and UK investors, who continued its downward trajectory from the previous year, albeit at a diminished rate.
The second most active investors in 2023 were Swedish and Finnish investors, both accounting for 19 percent of venture investments.
Following notable investment increases in 2020 and 2021, Norwegian fund managers pulled back their investments by 49 percent in 2023. Also compared to the annual average over the last five years, they reduced their number of investments by almost 30 percent. Similarly, Danish investors scaled back their venture segment investments by 36 percent in 2023.
The share of non-Nordic investors increased particularly in Norway, where the share of non-Nordic investors increased from 20 to 50 percent. A contributing factor to this trend could be the significant depreciation of the Norwegian krone, which effectively lowers the price-to-earnings (P/E) multiples when calculated in foreign currencies.