Norway ventured, Norway gained

01 July 2009

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Government-backed LP Argentum has published its venture returns, showing that, despite common belief, stable and good returns can be made from venture investments. By Rikke Lilla Eckhoff

Nordic venture funds have generated an annual return of 11.6% over the past five years for Argentum, compared to an industry average of approximately zero. The LP puts this down to the selection of few funds with good track-records and experienced management teams with extensive networks. "The nature of venture relies on experience, network and the ability to attract and select good projects. We are applying the same criteria when we select our fund managers," CEO of Argentum, Joachim Hoegh-Krohn explains. The strategy implies backing fewer funds, but all top-tier.

Interestingly, looking at cash multiples of realisations by Argentum-backed venture funds, Norwegian funds outperform their Nordic peers. Hoegh-Krohn put this down to the difference in sector focus. For example, data from Private Equity Insight shows that biotechnology is the most active venture sector in Denmark. Characteristics of these investments are longer holding periods, usually a minimum of 10 years, and projects are also more capital-intensive. In Norway, on the other hand, venture has a larger exposure in oil services, which generates exit routes earlier on.

Yet, the majority of Argentum's portfolio is within the information technology sector with success stories from Opera, Trolltech and Nacre. Teknoinvest-backed Opera, an internet software provider, floated on the Oslo Stock Exchange in 2004. Similarly, Index Ventures, Northzone Venture and Teknoinvest reaped generous returns with the 2006 listing of Trolltech, a business focusing on software development tools and platforms for mobile devices. Also, Maxware, backed by Viking Venture and Verdane Capital was sold to Google in May 2007.

The gift that keeps on giving

Investing in venture funds becomes a means of contributing to overall economic growth. At the end of 2007, Argentum's Norwegian venture companies employed 2,365 people and generated NOK 2.8bn in turnover, which translated to value creation of NOK 700m. However, the report does not mention how these businesses fared at the end of 2008, with venture companies taking a beating from the global recession. Although these numbers are expected to be sombre, Hoegh-Krohn remains confident about the business model: "Private equity is part of the solution to the financial crisis," he states, arguing that active ownership creates economic growth and innovation by securing capital allocation to new projects and business ideas. Regulatory requirements and the much-talked about denominator effect have resulted in cut-backs in unlisted investments for a number of institutional investors. Nonetheless, many Nordic-based funds have considerable dry powder, after record breaking fundraising years. This ammunition is likely to cushion the effect of LP caution and enable funds to support new and existing businesses.