LP Profile: Vækstfonden

Click here for a full profile of Vækstfonden on Unquote Data, including comprehensive fund investing preferences and history

"We aim to boost the local ecosystem, and make it easier for companies to find financing and capital for growth and development," says Rolf Kjærgaard, chief investment officer of Danish state investment fund Vækstfonden. Also known as the Danish Growth Fund, Vækstfonden was established in 1992 with €269m of initial funding. It now has more than €2.3bn in assets under management.

"We primarily do direct investments in venture, but occasionally also co-investment," says Kjærgaard. "For now, we are going around to existing LPs and other interested parties to gauge appetite and allocation capability for future fund-of-funds programmes."

Vækstfonden works with institutional investors, financial institutions, private investors and other investment funds, among others. Kjærgaard commented that the state investment fund also manages money on behalf of several investors, but mostly from pension funds and endowments.

"We are going around to existing LPs and other interested parties to gauge appetite and allocation capability for future fund-of-funds programmes" – Rolf Kjærgaard, Vækstfonden

The firm provides a broad range of risk financing, including debt, direct equity and fund commitments. On the funds side of the business, it invests in venture and small- and mid-cap buyout vehicles, specialising in unquoted SMEs. It has more than 40 funds in its portfolio, from which it co-finances 75 companies annually.

On the direct equity front, Vækstfonden provides capital to young startups with high growth potential, providing active ownership. Its direct equity portfolio includes 35 companies, and it co-finances 7-10 per year. In terms of debt financing, the focus is on targeted SMEs with reliable plans for expansion but lacking leverage or the required funds to obtain a bank loan. The debt financing portfolio consists of 1,150 companies.

"Where we support companies is not by giving grants, or other types of soft funding," says Kjærgaard. "On the contrary, we invest alongside private investors on market terms, and we also provide credit and direct lending in close cooperation with banks." He adds that Vækstfonden's approach to the market is to look for private partners to engage with, either for syndicated or direct investments. Its approach also includes commitments to private fund managers in the venture, private equity or lending space.

Signed, sealed, delivered
Vækstfonden has delivered a 14% per annum return on equity over the past five years, consolidated across the three business divisions. As for the managed mandates, the first fund-of-funds vehicle, Dansk Vaekst Kapital I, is two and a half years through its four-year investment period and tracking 17.4% net IRR. Kjærgaard adds that the second vehicle, Dansk Vaekst Kapital II, is slightly more than halfway through the investment period and not fully committed, so it is too early to call.

"We see a stronger pan-Nordic fundraising market," Kjærgaard says. "Vækstfonden contributes to this through investment from Vækstfonden [directly] and funds managed by Vækstfonden, such as Dansk Vaekst Kapital, in funds ranging from EQT to FSN and Nordic Makers, among others." He adds that an increasing number of pan-European funds are building out their activities in Denmark, both on the venture and buyout side. He also says that all of this is fuelled by a large and growing contingent of both scale-up companies and mature businesses with strong growth potential.

According to Unquote Data, Vækstfonden has recently committed to Sofinnova Crossover Fund 1, EQT Ventures Fund, Sunstone Technology Ventures Fund IV and Gilde Healthcare IV. Kjærgaard says that, where Vækstfonden acts as a VC fund, it invests in a range of sectors including industrial technology, robotics, software, automation, education technology, e-commerce and medtech.

After a full-blown due diligence, we are prepared to engage with select first-time teams that seek to raise capital from long-term investors" – Rolf Kjærgaard, Vækstfonden

The typical size of primary funds that Vækstfonden backs is in the range of DKK 500m-2bn, while the typical investment is in the range of DKK 75-200m.

"There is also growing activity within specialised first-time teams in the Nordic countries, which we welcome," Kjærgaard says. "After a full-blown due diligence, we are prepared to engage with select first-time teams that seek to raise capital from long-term investors." He adds that this was the case with ByFounders and Nordic Venture Partners, for example.

Vækstfonden has 33 GP relationships, of which 22 are with VC managers and 11 with buyout managers. "We invest with both Danish and European managers, but when we sit down with fund managers, we look to be convinced that they will benefit the Danish ecosystem as part of their investment strategy," Kjærgaard says. "It is an expectation that if they end up investing in and contributing to our local ecosystem, we are much more likely to keep investing with them, and if they don't contribute, then we probably won't invest with them going forward."

Funds-of-funds
Vækstfonden also has LP relationships with several investors, due to its fund-of-funds arm, which has raised two vehicles so far. "In the initial fund, we have all the Danish pension funds, around 30 different LPs," says Kjærgaard. "In the second one, we have eight pension funds, one endowment fund, and a fund-type mechanism structured by one of the private banks in Denmark that has pooled capital from some of its private banking customers."

The state investment fund currently has seven investment partners focusing on direct venture capital investments. On the fund-of-funds side, there are another seven investment professionals and a group of analysts who focus on venture capital and private equity funds. Additionally, Vækstfonden has a full investment support team that includes legal, finance, HR, IT and communications.

 "On our direct investment platform, we have investment professionals working with investments, who have relevant experience from industrial or entrepreneurial backgrounds within the particular technology areas they invest in," Kjærgaard says. "In that respect – and this applies to all the different technologies – our teams consist of individuals with the skillset that you could find in private VC funds."

Vækstfonden pays a lot of attention to incorporating ESG criteria and responsible investing. It ensures that the companies that it is providing funding to and the fund managers it supports all act responsibly. Says Kjærgaard: "Whenever we delegate responsibilities on the capital we put up, we make sure that these individuals, companies and fund managers act responsibly. From the fund managers, we also ask them to provide their own ESG strategy and policy, and we look at how they have behaved historically in terms of investing in a responsible manner."

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