Stockholm (HedgeNordic) – It is a great time to be at the helm of a technology start-up. Investors in start-ups are channeling capital into private tech companies more than ever. Nordic start-ups are receiving the same love from investors. Swedish fund management firm AIFM Capital, for instance, has partnered up with Nordic Tech Fund Group to launch a listed alternative investment fund that invests in unlisted Swedish technology companies at an early stage. Across the border in Norway, Oslo-based asset manager NOMA Capital has launched a closed-end actively managed alternative investment fund that invests in Norwegian early-stage tech-focused private companies.
The opportunity to invest in unlisted technology companies at an early stage has usually been reserved for wealthy individuals or venture capital firms. Actively managed venture capital fund Nordic Tech Fund aims to make the venture capital universe available to the broader public. “It has been difficult as an individual to invest in unlisted growth companies. It often requires a lot of capital, and given the relatively high risk, investors want to spread risk by taking positions in several different companies at the same time,” says Christian Björkman, the CEO of Nordic Tech Fund Group. “Even though we have venture capital funds in Sweden, by and large, they have so far been inaccessible to the public. We want to change that. We want to give investors access to an asset class that is usually untapped, hot Swedish unlisted tech companies.”
“We want to give investors access to an asset class that is usually untapped, hot Swedish unlisted tech companies.”
Through the first of a series of planned fund launches focused on early-stage companies, NOMA Capital is pursuing a somewhat different objective: keeping Norwegian-born private tech companies in the hands of Norwegian owners. “The biggest challenge is not that we lack competent entrepreneurs who are willing to invest everything they own to succeed,” says Thomas Raaschou, the CEO of NOMA Capital. “On the contrary, a great number of Norwegian “inventions” are leaders in their respective global markets today. But historically, we did not have a culture and framework conditions to remain owners all the way,” emphasizes Raaschou. “The foreigners have all too often taken over the ownership and run away with the majority of the value creation.”
“But we are experiencing a change in investor behavior. The positive value development in the capital markets in recent years has meant that many Norwegian investors have become very wealthy,” argues Raaschou. “Both the ability and patience to remain owners are increasing, even with a special Norwegian wealth tax as a handicap. The competence among investors for early-stage companies is also clearly rising,” he continues. “The establishment of Euronext Growth, as part of the Oslo Stock Exchange, has also made a positive contribution. This intermediate station has meant that many early-stage companies have been able to raise capital to further develop the companies here in Norway. They are no longer sold out of the country at the first opportunity, as we have experienced before.”
Explaining the rationale behind his focus on Swedish private companies, Christian Björkman of Nordic Tech Fund Group says that “the conditions are good for successful investments in Swedish tech companies.” Sweden ranks second in last year’s Global Innovation Index, coming in behind Switzerland and ahead of the United States, Japan, and all other countries. In fact, Sweden has been among the top three most innovative countries for more than a decade, according to the Global Innovation Index. “The Swedish start-up scene has been hot for several years and is constantly evolving,” says Björkman. “A prominent strength is Swedish companies’ ability to build systems that can scale up and generate growth globally for a long time and often breed spin-off companies. This tradition was started early by companies like IKEA, SKF, Autoliv and Tetrapak, and has been continued with Swedish tech stars such as Skype, Spotify, iZettle, Neo4 and Klarna.”
Tech Focus
Both NOMA Vekst I and Nordic Tech Fund predominantly invest in technology-focused early-stage companies. Nordic Tech Fund, for instance, focuses on tech companies involved with the Internet of Things (IoT), artificial intelligence (AI), computer games and companies with Software as a Service (SaaS) as a business model. NOMA Vekst I, meanwhile, seeks to invest in tech-focused private companies with scalable business models with potential for global expansion. Nordic Tech Fund already has nine companies in its portfolio at the moment, while NOMA Vekst I has invested in four Norwegian companies – Marketer, Wheel.me, 3D Radar and ODI Medical.
“Overall, many of the world’s challenges can be solved in completely different ways in the future thanks to an accelerating technological development.”
“Overall, many of the world’s challenges can be solved in completely different ways in the future thanks to an accelerating technological development,” Thomas Raaschou explains the technology focus. “The use of artificial intelligence and machine learning, which are processing large amounts of data, the Internet of Things (IoT), blockchain, data storage in the cloud and intelligent robots are just some of the innovations that create many opportunities.”
“From an investment point of view, the supply of early-stage technology-focused companies, often with scalable and capital-light business models, is increasing,” continues Raaschou. “Paradoxically, the Covid-19 pandemic has been a catalyst for the development of Norwegian expertise in areas that have lived in the shadow of traditional Norwegian industries, such as oil and gas, energy-intensive processing industry and salmon farming.”
Active Management
The teams at both NOMA Capital and Nordic Tech Fund Group rely on an active approach to investing in early-stage private tech companies. “We see ourselves as long-term investors who, through active ownership, want to contribute expertise to entrepreneurs and the companies in which they invest,” says Thomas Raaschou, the CEO of NOMA Capital. “As active owners and supporters, we want the entrepreneurs and management to build their companies as if capital is not a constraint. It is important, however, that the owners and supporters feel there are in the same boat as the entrepreneurs. The incentives of the entrepreneurs must therefore coincide with the ones of investors.”
“The end goal is contribute to cultivating a number of new Swedish and Nordic technology companies and at the same time generate a high return for investors.”
“The team behind the Nordic Tech Fund has extensive experience of the process of finding the right company, making investments and building value in unlisted tech companies,” points out Christian Björkman. “Nordic Tech Fund will be active owners towards the underlying investment companies and transparent managers towards the investors,” he continues. The end goal after all is to “contribute to cultivating a number of new Swedish and Nordic technology companies and at the same time generate a high return for investors. With the help of our experience and strength as a fund, we want to help the companies grow and become visible.”
This article featured in HedgeNordic’s “Diversification” publication.
Photo by Luca Bravo on Unsplash
