VC spotlight with Node VC
TL;DR
- Node VC launched its flagship fund earlier this year with its first close announcement, having raised over 70% of a targeted €70m fund (800m SEK).
- We met John Elvesjö, Managing Partner at Node VC, to chat about the new fund, fundraising from LPs and which sectors have caught his eye.
The quickfire round…
Where is the team based?
Stockholm, Sweden.
Due to our Nordic focus, we try to have people within the major Nordic cities but our HQ is here in Stockholm.
And how big is the team?
There are 8 full-time, 3 part-time and 1 intern.
It’s a small team but large for the fund size. We are proactively investing in building a strong future VC firm rather than optimising for the short-term.
What is the structure of your fund, and how big is it?
So the fund is an early-stage Nordic VC fund denominated in Swedish Krona. We have a target of €70m with more than 80% of that already covered. We have been fundraising for three-quarters and recently did our first close.
Great! Pre-empting my geographic focus question there, so are you only interested in Nordic-based companies?
Our primary investment focus is the Nordics, however, we might do some early participation in some non-Nordic countries, but the vast majority will be in Nordic companies.
And have you split the fund within the Nordics and allocated specific amounts to an area?
We are flexible and you will most likely see activity from us in all of the Nordic countries; we are looking to see where the best opportunities are and go with that.
The strongest deal flow historically for us has been Sweden, so it’s reasonable to expect that to be the largest allocation. But all of the other Nordic countries are equally interesting, and I do hope to see some participation from the fund in Baltics. But crucially it all boils down to where we find the best opportunities.
What is your sector focus?
The fund is sector agnostic. Given the team’s strong operational and technical backgrounds, we focus on a wide range of sectors and technical complexities, but we have chosen three areas to focus on: Entertainment, Future of Work and Platforms.
You titled the fund earlier as an early-stage Nordic fund. What stages do you typically invest at, and what’s your average ticket size?
Our sweet spot is between €1m — €1.5m. Whilst we can invest pre-revenue, the only firm criteria that we have is that the startup needs to have a well-defined product, business model and team.
What is the background of the founding partners?
With the Partners, we have a very operationally experienced team who have helped to build companies as CEOs, Co-CEOS, CTOs, CMOs etc.
Daniella worked as CMO from the start of Paradox, a leading Nordic gaming studio, until long after the business’s IPO.
Mårten and I founded several tech companies together, including Tobii (the eye-tracking company we grew to north of 1,000 employees and a Nasdaq IPO).
Henrik founded two of the Nordic region’s most well-used business intelligence systems and websites .
But we aren’t just ex-operators. We have also done a fair bit of investing as Angels or VCs for circa 4–6 years, post our entrepreneurial journeys, before starting Node.
A deeper dive…
Amazing, I think that has set the scene nicely. I’d love to dive into the detail of the fund now.
We discussed the €70m fund that is now 80% committed. What are the sort of institutions/LPs that you have raised from?
The money we have closed so far is a significant commitment from the partnership, north of 15% of the fund, a couple of institutional investors and the remainder from a network of more than 50 entrepreneurs and founders. Many of the finest founders in the Noridcs, including founders of VC firms, are active LPs in the fund.
We have been delighted with this strong interest from the entrepreneurial community, as it has allowed us to create a strong unofficial advisory network of founders, who come to our events, share their deal flow, provide advice, and, crucially, are available to speak to us.
We have made it so that all investors are equal. We are all investors in the fund with the same terms. Even the partnerships are investing with fee and carry. We believe this is why we have had such strong support from the community.
With the remaining quarter of the fund, we hope to get more institutional LP money, but these conversations take much longer.
I can imagine! It’s a tricky time in the market to raise capital, whether you are a founder or VC.
You mentioned that you want to fill the remainder of the fund with institutional LP money. How have these conversations been going? Can you give an insight into what fundraising has been like for you?
We launched the fundraise late last year. It was well received by the institutional investors, and we had some excellent dialogues. Even though the LP base knows my colleagues as individuals, it’s the first fund under the Node name. So the LPs want to get to know us and see what we can do over a period of time.
All the LPs are actively evaluating and actively maintaining the dialogue, and that’s all we can ask for. They are just not committing and are not eager to do so.
As we have approached 75%, the possible allocation has got narrower, and now, in the last few weeks, we have received a lot more attention from LPs to participate — similar behaviours to what we see in my job as a VC. If you can wait, get more data, and do more research, you should.
We want to be firm with our fundraise target rather than keep it flexible and potentially overfund. We are looking just to fill the remaining €15m and close at our target. If you have three €5m tickets left, with one spoken for and therefore two remaining, that’s when the LPs get moving.
So we found no one was looking to commit until they had to, and then there has been a good catch-up effect.
That’s an interesting insight seeing that time, exclusivity and FOMO — a lot of the things we see in the Founder/VC relationship — also coming up with the VC/LP dynamics.
Two of my favourite investors, who I would love to be involved with so I can use them as a sounding board for fund-related things, are also fundraising! So I am trying to figure out whether I should wait for them or push to close the fundraise on target as soon as possible. Do I get the investors I want to be involved or make sure to fill the fund target?
Again, these are very similar to our discussions with Founders. Do I look for the perfect investor to get involved, or do I raise the money as soon as possible and then figure out how to get them involved in the next round? Very interesting you hear you have very similar dialogues with yourself and your team.
It was interesting to hear your comment about the Fund of Funds fundraising at the moment as well and the difficulties they are having — everyone is looking for capital at the moment!
We are actually in the midst of writing up one of the largest Fund-of-Funds analysis in Europe, specifically looking at VC, which will be coming out in September!
What is also great to see is the FoF becoming more transparent than they were previously about fundraising, the challenges they see, etc. As an entrepreneur, when I raised capital between 1999 & 2013, the VCs, especially around 2007 and 2009, were extremely secretive about their fund structure, LP base, etc. Things are changing to be more transparent and collaborative compared to the old days.
Great to get your insight into VC/LP fundraising process. So, you previously talked about your three pro-active sectors. Can you tell me more about each of the areas?
So we have chosen three themes to focus our efforts on. We are not limited to these three but have chosen them for the proactive areas that we go after.
1) New Experiences / Entertainment
It’s very interesting to see the fusion of what has been fairly siloed parts of digital entertainment. There are always multiple platforms at all levels of entertainment. Take on-demand streams, user-generated content and produced media, for example, podcasts, music and TV, or viewing, gaming and social. We believe there will be a lot of fusion in these areas.
We are also excited by the output of this fusion. There will be a lot more things needed to carry on this ecosystem—advertising, for example. The viewers shift fairly rapidly from one media form to another, and advertising money has and wants to follow.
2) Platform technologies
The Nordic region has a very strong background in Cloud, Database, API aggregators and Cybersecurity. They are all API-less database structures. Essentially the piping behind data, fintech, and transactional things. It becomes fairly technically advanced; many of these companies are Deep Tech. Disregarding how you label it, these structures have technical complexity. The Nordic founders have strong DNA in this area, and we have a strong capability to analyse and understand what is going on in these specific investment opportunities.
3) Future Work
This is all about digital collaboration. We still have industries that are just starting their digitalisation journey, such as Healthcare, where digital collaboration is very low. Within other areas, there are simple tools for managing, collaborating, and sharing information, but actual tools for collaboration still need to be developed further. It’s also something that, using AI and other tool sets, could do very well. Not only using AI for production, editing or something similar but using it to collaborate in the right way.
Taking these sectors into account, what are you looking for in companies that sit within one of the three buckets?
The earlier stage that you invest, the more founder dependent your analysis will be as you’ll have less data to go with. So a crucial aspect is a really strong founder/management team.
It often boils down to meeting the founder/team, feeling like they are onto something and having the right attitude towards entrepreneurship and the correct set of competencies to pull it off.
So regarding selection criteria, it’s very much case by case. But it always gravitates around an excellent team pursuing an exciting opportunity with a tailwind of disruption in that industry. Beyond the founder, we are interested in the market size, competitive landscape, defensibility and a feeling that we can add something to the team.
Looking to the future…
What are your views on the Nordic ecosystem, and where will it go over the next couple of years?
The Nordic region has been extremely good at producing exciting companies. We have the second-highest amount of unicorns per capita, for example. So, I’m slightly surprised that very few LPs have a Nordic focus.
The Nordic region has an extremely strong entrepreneurial DNA, fueled by being a leading area in technology and innovation. And with very good and reasoned examples from Spotify, Klarna, Zettle, as well as many others within the gaming industry.
One successful company feeds the creation of new startups. They establish the sensation of possibility through the thought, ‘If they could do it, then maybe so can I?’, as well as creating business angels and advisors. There are so many amazing entrepreneurs here. They are all walking the streets in this region, sharing advice, investing their own money through funds or sometimes direct investments, or both! I’m sure the Nordic region will produce some impressive companies.
We completely agree, and that’s why we have an active focus on the Nordics as well.
We partnered with Slush last year in hosting their LP VC Day, which was a huge success and attracted a lot of Nordic Familly Offices looking to get into venture.
What are you most looking forward to about Node VC over the next year?
I have a handpicked team of people I have previously worked with and are approaching almost a year under Node. We have a fund that has come together how we wanted, and interest for the remaining chunk looks good. So we still need to include a few minor pieces to the puzzle, but we are already at a level where the fund is healthy and going.
So for me, I am looking forward to working with a handpicked team who are all my favourites, investing in a very interesting climate with a fund of fresh money. We are ready to get going and deploy the capital!
We talked about your sector focus as a fund, but what are two key trends exciting you personally at the moment?
So many things it’s difficult to choose. I like the fusion between AI and crowd; that is a joint superpower waiting to be utilised. Using AI along with a static database is a good tool. Crowdsourcing of text, or anything else, is a hard-to-manage data source. The fusion between the two will be fascinating.
The other area I like is FinTech solutions, particularly payment solutions within the corporate side. The P2P is leading the way, B2B is lagging, solution-wise, and I’m excited to see what comes out of this space.
Yes, those are ripe for disruption. We recently closed a round in that Corporate FinTech space that Lloyds led. They help institutions to orchestrate large-scale and complex payments, finance and treasury processes.
Finally, what is your prediction for 2024?
I believe that what we have seen in 2023 will continue into 2024, and in 2025 we will see a significant change. So much of the same for 2023 & 2024 is my prediction, unfortunately.
Interesting. Well, let’s chat in a year and see how we are getting on!
John, it’s been an absolute pleasure chatting with you, and I wish you all the best for the future.
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Read previous VC spotlights with ScaleUp Capital here, Crane Ventures here and Samaipata here.
