Is Scandinavia finally catching up?

It’s no secret that I’m no fan of how VC-fueled companies who aren’t even close to having a sustainable business model get funded and valuations wound up these days. Companies like WeWork and Casper come to mind as great examples why I have little faith in the particular kind of company-building that has been spearheaded in the Valley.

I’m certainly not objecting to venture capital as a key element of the startup ecosystem — we’re investors ourselves — but it seems to me that at some point, focus shifted from using external financing as a tool to build the company you wanted to build to raising as much capital as possible to boost valuations for short-term profits.

Up until recently, most of these disasters happened in the U.S., but just last Friday, a Norwegian company, Hudya, IPO’ed on Nasdaq First North with an all too well-known pattern. Initially priced at SEK 13.75, shares dove to SEK 5.15 during the first day of trading. As of this moment, shares are down further to SEK 4.35.

To me, it’s pretty obvious that the valuations by the “in-crowd”, e.g. the cool angel investors, VCs and all other players who are profiting from an ever-rising share price don’t hold up when they face scrutiny from a wider audience, i.e. the investing public. Some of you will probably object to this and say: wait a minute, this is because the investing public don’t understand these investments. That they can’t price companies in strong growth, that are pre-profitability, have innovate business models etc. And perhaps you’re right, maybe they don’t.

But you know what? It doesn’t matter. The share price at any given moment is the price at which a seller and a buyer are willing to make the trade. You can lean on all sorts of models to justify your price point, but this is what it boils down to. Thus, if a company’s share price collapses the second it goes public, it must be overvalued by definition.

I genuinely hope that we don’t see many more of these disasters, but I fear that won’t be the case. It does however seem that Scandinavia is finally catching up with Silicon Valley, which has been a wet dream of many.