7 insights from an international VC on the Nordic tech scene

SaaS or Marketplace startup looking for late Seed/Series A funding ? get in touch here. VC/angel/accelerator/co-working space based in the Nordics willing to connect? feel free to shoot me an email.

It has now been a year since I started covering the Nordics for Point Nine Capital, the early stage VC based in Berlin. This was fairly new to me, but not to Point Nine. In fact, we’ve been fortunate enough to already work with amazing Nordic companies such as Xeneta and Automile over the past few years. Christoph, partner at Point Nine, was also one of the first angel investors in Zendesk, a success story that makes the region even more attractive to us.

After a couple of trips there and reading several reports, I wanted to share some observations that could be useful to other international investors starting to look at this great ecosystem, but also give a better idea to local entrepreneurs/funds on how an international VC perceives the region.

#1 Stockholm is still leading the way but other cities are catching up

Source: H1 2017 numbers were calculated based on several articles published on thenordicweb.com [1–11]. Snow Software’s $120 million round was not included as they are majority-owned by buyout fund, neither Unity’s $400 million round as they are headquartered in the US.

The main startup hubs are Stockholm, Helsinki, Copenhagen, and Oslo. Secondary hubs include Malmö (SE), Lund (SE), Gothenburg (SE), Aarhus (DK), Espoo (FI) and Reykjavik (IS).

Stockholm is the strongest tech hub but quite competitive from an international investor point of view, as the main Nordic funds are based there.

Some helpful numbers:

  • Sweden accounted for 62.3% of the total funding amount raised in the Nordic countries with $634.2M in H1 2017.[1-11]
  • $1.4B was invested in Stockholm in 2016 and accounted for more than 1 in 3 investments which occurred in the Nordics.[12]
  • The percentage of funding rounds with a minimum of one international investor in Sweden was 14.4% compared to 19.3% for the Nordics as a whole in Q2 2017[2,11], showing that even if Sweden is more mature and attractive to international investors, it is not so easy to compete with local players there.

Malmo and Copenhagen are picking up and are almost considered as one ecosystem, since they are located very close to each other and are moving to the same level as Helsinki.

Some numbers:

  • Denmark accounted for 11% of the total funding amount raised in the Nordic countries with $111.8M and Finland for 14.4% with $146.1M in H1 2017.[1–11]
  • Looking at the number of investments per city, there were 132 deals in Stockholm, 48 deals in Copenhagen,17 deals in Malmo, 28 deals in Gothenburg and 32 deals in Helsinki in H1 2017.[1–11]
  • In 2016, Malmo attracted $101.8M i.e 15% of the total amount raised in Sweden in the same year not taking into account Spotify’s $1 billion debt financing.[13] Notable investments in 2016 in Malmo include Min Doktor, Mapillary and Neo Technology.

Oslo and Reykjavik are still behind and are often ignored by international investors. But, the recent drop in oil price in Norway is contributing to the development of the ecosystem as the country has to bet on other industries and foster innovation.

Some numbers:

  • Norway accounts for 10.8% of the total funding amount raised in the Nordic countries with $109.5M and Iceland for 1.6% with $14,75M H1 2017.[1–11]

#2 Software is eating the Nordics

The Nordic countries are known to be strong in gaming and believed to have a very good mix of engineers and designers producing good consumer startups. Looking at the past, the consumer sector is driving the majority of exit value, followed by software, which is an increasingly important sector.

Source: Creandum; Nordic Tech Exit Report 2016

Looking the numbers for in H1 2017:

  • The verticals with the highest number of investments are 1) Enterprise SaaS with 45 deals i.e 12% of all investment made during that period 2) Fintech with 41 deals 3) Health and Wellness with 40 deals 4) Entertainment with 23 deals 5) Gaming with 22 deals 6) Retail with 21 deals.[1–11]
  • The top investment vertical in Sweden during H1 2017 was Fintech with 27 deals i.e 60% of all Fintech investments in the Nordics, Enterprise SaaS in Denmark and Norway with respectively 14 deals and 8 deals, Health and Wellness in Finland with 7 deals.[1–11]

Looking at the exits by vertical that occurred in the region in Q2 2017, FinTech and Enterprise SaaS performed most strongly with both 5 exits[14], indicating that software will continue to drive more and more of the exit value in the Nordics.

#3. Smaller ecosystems have stronger communities and are doing a great job at supporting international investors

Smaller hubs like Malmo, Oslo, and Copenhagen are in need of international investors and talents as they have a lack of local resources compared to Sweden or Finland. As a result, several great people are strongly involved in building the startup community, promoting it and proactively helping international investors to find their way and meet relevant people.

Some of these great initiatives include CPHFTW (Michael Bak, Danny K. Malkowski, etc) and Malmo Startups (Jeremie Poirier). Next to that, there are also many other people eager to promote their city as a startup hub, such as Neil Murray, Lars Johan Bjørkevoll or Jasenko Hadzic.

Sweden and Finland both enjoy a strong reputation on the international front already and communities helping international investors seem less strong there. Still, Finland has to rely more on outside money than Sweden as they have fewer local investment firms, and this is especially true for later stage rounds. The percentage of funding rounds with a minimum of one international investors in Q2 2017 in Sweden was 14.4% and 31.3% in Finland.[2,7]

International investors will probably get less proactive support in smaller hubs over the next few years as the ecosystem is getting more and more visible and attractive to international investors. 36% of investors in Q1 2017 had never invested in the Nordics before, indicating that a significant number of funds started to look at the region as well as an increase in new local funds and angels.[15]

#4. Waiting for the next success wave

Everybody seems to be waiting for the next success wave in the Nordics. In fact, the past decade has been pretty good for the region: from 2005–2015, the Nordic countries received 16% of tech venture capital and generated 50% of billion-dollar exits in Europe[16] with companies like Skype, Mojang and King! At a global level, this represents 7% of global billion-dollar tech exits, though they only have about 2% of global GDP.[16] It is worth noting that 66% of all exit value were created by 3% of exits.[16]

Source: Creandum; Nordic Tech Exit Report 2016

Looking at the data provided on CrunchBase, there are 61 Nordic operating startups that raised more than 10M and were founded after 2010. Other European hubs like France, Germany and Spain rank not too far ahead with respectively 82, 103 and 20 startups fitting the same criteria. Nordic rising stars include Min Doktor, Lendify, KRY, Kahoot, Huddly, Xeneta, Lifesum, Planday, Wolt, Fishbrain, Peakon and many others.

#5 Work/life balance matters

Work/life balance is important in the Nordics and especially in Norway, Denmark and Sweden. Don’t be surprised if offices are empty early and dinner starts at 6pm :)

A survey from Universum Global, mapped Nordic business, engineering and IT students’ favorite employers, career goals and found that attitudes towards work and Work/life balance are a key priority for students from all nationalities.[17]

The generous social safety net of the Nordic countries involves high taxes but also encourages people to become entrepreneurs as risks are more limited.

#6 There is a lot of public money

The Nordic welfare states are also supporting the ecosystem by investing directly in early stage startups. This is great as it fosters innovation. But, the relatively light screening before these investments makes some startups survive longer than they should.

Public actors include Pre-Seed Innovation (affiliated with SEED Capital), CAPNOVA, Syddansk Teknologisk Innovation and Borean Innovation in Denmark, Almi invest, Vinnova and Industrifonden in Sweden, Tekes in Finland and Innovation Norway in Norway.

I see these names on many cap tables and the most active one is probably Tekes. In 2016, Tekes granted funding for 825 Finnish startup companies that had operated for less than 6 years for a total of EUR 142 million in funding![18]

#7 There are many great events to attend and accelerators/ incubators / co-working spaces to hang out

Main tech conferences I’ve been to/heard of:

  • Copenhagen: Tech Festival & Tech BBQ
  • Malmo: Nordic Next (invitation only)
  • Stockholm: Stockholm Tech Fest, Sting day (invitation only), Nordic Startup Awards Grand Finale
  • Oslo: The Shift
  • Helsinki: Slush, Arctic 15

Some more details on conferences can be found here

Main accelerators/ incubators / co-working spaces I’ve come across/ been in touch with:

  • Copenhagen : Founders House, Founder.as
  • Malmo: The ground, Mink, Fastrack Malmo
  • Stockholm: Sup46, Sting
  • Oslo: Mesh, Startup Lab
  • Helsinki: Startup Sauna

Covering the Nordics has been a great adventure so far and I am looking forward to spending more time there and finding the next Zendesk :)

If you are a Nordic SaaS or Marketplace startup looking for late Seed/Series A funding, get in touch here.

If you are an angel investor, a person active in the community, accelerator, co-working space, fellow VC based in the Nordics or active there, I would love to connect and exchange thoughts. Feel free to shoot me an email.

Sources