Nordic 'unicorns' present opportunity for US venture

Since 2005, 9% of global exits worth more than $1bn have come from the Nordics, despite the region having a combined population of less than 30 million and only generating around 2% of global GDP, research by Nordic venture house Creandum shows.

Similarly, analysis by Skype co-founder Niklas Zennström's early-stage investment company Atomico shows Stockholm produces the second-most companies with billion-dollar valuations – the so-called ‘unicorns' – in the world at 6.3 per capita, just shy of Silicon Valley's 6.9.

Such successes have been good to quite a few Nordic venture players and investor appetite for venture funds in the region is higher than ever, evidenced neatly by the December close of Spotify-backer Northzone's record €260m seventh fund.

Interest in the market is also being shown from private equity houses, with EQT having hired three high-profile tech entrepreneurs, reportedly to head up a new technology-focused venture fund to be raised by the GP.

With Stockholm and Helsinki leading the charge and Copenhagen expected to come into its own as a leading Nordic start-up hub, the region should be a prime target for US VCs.

Enough money has been poured into Silicon Valley recently that it could be renamed the Silicon River of Cash, and some analysts are drawing comparisons between the current US tech boom and the dotcom bubble.

The Nasdaq closed at an all-time high of 5,073.09 on 23 April, surpassing the previous high of 5,048.62 set in March 2000 – which it reached right before the dotcom bubble burst. From a VC perspective, unlisted tech darlings Uber, Snapchat, and Slack have achieved valuations of $40bn, $15bn and $2.8bn, respectively, in recent funding rounds.

Likewise, analysis of start-up burn rates show similar levels to their dotcom peaks, suggesting a market that could be considered overheated (the counter-argument being that stock markets are buoyant in several economies, with quantitative easing depressing returns in other asset classes).

Coming from America
For the cash-laden US VCs that need to deploy their capital but consider the US tech sector to be overvalued, Nordic venture investing could offer a lower risk compared to their local market without necessarily sacrificing high returns.

Part of the reason for the success of Nordic start-ups is also what makes them attractive to non-Nordic investors – start-ups are very internationally focused from the beginning. The local market is simply too small for most ideas to be highly profitable without international scalability, so entrepreneurs almost always have global expansion in mind from the start.

For US venture capitalists, this means an understanding of the local market is not a requirement, but knowledge of one of the world's most important markets – the US – is an asset.

Some US firms may have already recognised the potential: Sequoia Capital's €1.3m January seed investment in Swedish map-crowdsourcing company Mapillary was relatively unheard of, as the US investor has very little history of making seed-stage investments in Europe.

Sequoia also participated in funding rounds for Nordic companies Klarna and Truecaller. The latter investment was made alongside Kleiner, Perkins, Caulfield & Byers in 2014 and valued Truecaller at $250m, although some analysts now predict it could soon reach 'unicorn' status at a $1bn valuation.

Sources in Nordic venture firms tell unquote" they are seeing more activity from US venture players, with some firms actively looking for Nordic investors to work alongside their US teams to invest in the market, while others cover the region from their London offices.

For their part, Nordic VCs have been welcoming of their US counterparts, with investors at the Slush start-up conference in Helsinki in November telling unquote" they saw it as an opportunity for cooperation. However, with more capital flowing into Nordic VC funds, that cooperation could quickly turn into competition in the search for quality assets.

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• Topics
• Venture
• Early-stage
• Nordics
• Nordic venture
• Top story
• United States
• Northzone
• Creandum
• Start-up
• Unq2015May