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Nordic Seed Capital Initiative II: Creating Nordic Success Stories

  • Publisert 07.03.2010
  • Sist oppdatert 20.05.2011
Creating Nordic Success Stories - Enhancing cooperation on the Nordic seed capital market

Frontpage report

 

The venture capital market is an important engine for economic growth and the creation of new industries, companies and employment in the Nordic countries. Furthermore, it helps to attract international capital
to the region.

This fact has been acknowledged by all the Nordic countries and efforts have been made to improve regulations pertaining to the venture capital and private equity industry in the region as well as on a European level. Academic research has also revealed that no venture capital markets have been established without public support.

A well functioning Nordic venture capital market needs, in the long term, to be attractive to the private sector and particularly to institutional investors worldwide. Emerging from the recent financial crisis, the outlook for the Nordic seed capital as well as the venture capital market is more positive. However, it will be difficult to attract sufficient private capital in the foreseeable future and the markets will require continued public financing.

This report is part of a broad effort, the Nordic Seed Capital Initiative, aimed at promoting the Nordic seed capital market. The members of the inititative, the leading public seed capital investors, are working towards increased Nordic cooperation, continued effective public support as well as considerate policymaking for the development of the Nordic seed capital market.

Creating Nordic success stories is the overall theme of the initiative, since the successful start-up companies are the starting point and prerequisite for private investments in this area. 

In the Nordic countries the supply of private capital for the very early stage of venture capital – the seed stage - has been limited. Consequently, this space is at present dominated by public and publicly funded players. 

The resources on today’s Nordic seed market are scattered. Much is to be gained by benchmarking and sharing best practices among Nordic public investors and financers. Increased Nordic cooperation is expected to lead to higher critical mass and tighter networks that are vital for the success of early stage national investment programmes. Combined, the Nordic countries could constitute a common market of a size that would produce venture capital players in different stages with critical mass and global competitiveness.

Changes on a European level will take time, which present the Nordic countries with an obvious opportunity to create a competitive advantage by acting quickly to improve conditions for the Nordic market. This would further strengthen the Nordic region as a European leader in early stage investments.

The governments have chosen different ways of supporting the seed and venture capital markets in the various Nordic countries. Today, the challenges in the early stages are similar and include lack of private financing in the seed stage, difficulties for venture capital funds to secure new funding for the expansion stage, lack of patience and focus as well as scattered resources in publicly funded investment operations.

In order for the venture capital market to be effective in promoting innovation and sustaining viable start-up companies, it must function as a coherent system for innovation finance. It is imperative that there are a sufficient number of investors in each development stage, and that these investors have adequate funds to provide the capital necessary to finance the development and growth of start-ups. Otherwise, some of
the start-ups that obtained funding in the seed stage risk falling into a finance gap that impedes their development or, in a worst case scenario, forces them to close down. 

The members of the Nordic Seed Capital Initiative believe that governments in the Nordic countries should aim at creating a more risk taking environment by promoting private early stage investment. Policy makers should ensure that public policy (e.g. tax and regulatory settings) is conducive to venture capital investments. Furthermore, until there is sufficient private capital available, governments should, invest in early stages. In order to create internationally competitive companies, such investment operations need to be executed with patience and in tune with market needs.

Policy makers should also encourage Nordic crossborder investments, increased Nordic cooperation and experience sharing as way of developing the Nordic market. 

If action is not taken there is a risk of a major set-back in the development of a well functioning common Nordic venture capital market as well as the loss of a substantial part of the large public capital that has been invested in the early stages.

This report contains general recommendations for the Nordic countries in addition to national recommendations regarding the promotion of the seed stage in each Nordic country.

The main theme of the report is how to create Nordic success stories. Today many companies are born global and experienced and competent investors are key ingridients in making them successful. By joining forces and cooperating, Nordic early stage investors can become more effective in supporting the growth and internationalization of Nordic start-up companies.

Project duration: January 2010 - December 2011

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