We’re halfway into 2015 – Inflow of capital is about to reach an all time high, average valuations are going up and discussions about whether we’re in a bubble or not are becoming more frequent. The headline above could well have been taken from blogpost this week, or maybe a newspaper article from 2000, but it’s not. It’s from the Swedish magazine Affärsvärlden and the year is 1983 (screenshot below).
Venture capital (VC) was booming at the time and an estimated SEK 500M had been raised over the past 12 months. ”Venture Capital is not a Swedish phenomenon, it’s from the US where it’s been around for more than 25 years”. The numbers reinforce the story – in 1983 SEK 20B of new capital came into US VC; 40x that of Sweden.
I find data that 50% of all US VC capital goes into ”computers” or ”electronics”; in Sweden that figure is only 25% and focus is on industrial products rather than tech (see table below). There are countless references and comparisons to the US, not only in the Affärsvärlden article but in many Swedish articles and reports on VC from that time. Sure, Sweden and everyone else were doing their best to copy the US VC model, but I’d also like to think that one reason that US pops up everywhere is that we’re already then benchmarking ourselves to the best rather than our neighboring countries – a mindset that has been instrumental in creating so many Swedish and Nordic winners (see Creandum exit study for more info on that)
During most of the 70s Swedish entrepreneurs who were looking for capital were more or less left out to banks loans. Primarily as a tool to get Sweden out of the crises, state-backed VC was introduced in the late 70s, with entities such as Företagskapital, SVETAB and regional funds like Malmöhus Invest; and private VC got a large upswing in the early 80s. Swedish insurance giant Skandia, who today invests globally in Private Equity and is one of the largest investors in Private Equity in the Nordics (and yes, an investor in Creandum), launched Skandia Investment AB in 1983, the largest venture fund that came to the market that year (SEK 110M). A taste of what to come.
So in 1983 stock market was up, confidence was high and thanks to a more favorable tax and regulatory situation and the newly established OTC-market where VCs could sell of their holdings, venture money was flowing. Furthermore, there were as many as 35 VC firms in Sweden at the time. Affärsvärlden’s prognoses of the coming few years raised more questions for me than it gave answers but illustrates the difficulty of forecasting where this nascent VC market was going (see below – dotted lines is their forecast).
One of the more entertaining sections in the Affärsvälden article is an interview with the late Harry Schein, a chemical engineer and political debater part of the cultural elite in Sweden (see below). He thought valuations were “grotesque” and that the OTC market soon would have fewer companies listed than there were VC firms. He was also skeptical that VCs were made up of “financial analysts” rather than people with hands-on experience and sector expertise, an idea most of us subscribe to today.
In the following five years we saw a shakeout period and all but a handful of the 35 VC firms disappeared. In retrospect we can see that the period 1983-1985 was the first big VC wave in Swedish history with several more to come. From then to today we’ve seen inflow of VC multiplied, a more favorable tax/regulatory situation (although more can be done), huge technology leaps and new business models that lend themselves to more scalable opportunities. So what can we expect in the coming years? I’m sure
no one knows for certain and that most forecasts look like the one above from Affärsvärlden 1983 but I think we’ll be fine!
Pictures taken from: Affärsvärlden (1983), Riskkapitalet och de mindre företagen (Olofsson, 1986)