Tomorrow I am joining a panel discussing where Nordic venture capital will be in 25 years. The reason for this is not by any means that I would hold the answers, but rather that at least there is chance that I would actually still be around in 25 years. And although the time frame of course is ridiculously long (especially considering how young the Nordic venture industry really is) I have put together some thoughts on the topic.
On a very high level, I think there are a few general areas that will determine how successful venture capital will be in the next 25 years:
Good entrepreneurs & companies to invest in
Most important area and I think this will improve in the next 25 years. The situation today is better than 10-15 years ago. More people are interested in entrepreneurship. Founders are the new rock stars. There are more serial entrepreneurs with experience & capital to build new companies. People have more international experience & exposure. Eventually regulation will improve (even politicians will realize that we cannot rely on old, large companies or public sector for growth & job creation).
There will always be good and bad times but I think the landscape will change. The default exit route for larger exits of Nordic companies have by default been to US or maybe a local IPO, but given time India and China will become more active acquirers also of tech companies (they’re already active in traditional industries). But it will still take time, companies in these countries don’t have the experience of US firms to acquire innovative, fast-growing companies and initially there will be lots of failures.
I also think that there will be a diversification of exits. Unless a company is riding the hype-curve optimally, it will be difficult to get large exits (> €100M) without significant revenues. This will most likely mean that it will take longer to get to a big exit. On the other hand, there will continue to be plenty of tech exits w/o significant revenue picked up for their technology or products with good multiples for investors if they didn’t invest too much. This is something investors must adapt to.
Usually there’s financing for good companies as well as top-performing VCs. But general access to and the price of financing will go up & down. Maybe we won’t see capital ever being as cheap again, but I still don’t think that there will be long-term major changes in the coming years.
It takes time to build good companies but also to build good venture investor teams. We need to learn from mistakes and also find the right mix of senior, experienced investors and young, hungry go-getters. With venture capital being out of fashion, there is plenty of risk that the venture capital industry is being hacked before it has really matured.
For Nordic venture capital, I see a few threats:
- Increased regulation – politicians seem to have a hard time to understand the difference between valuation arbitrage and value-creation and are now on a rampage to regulate anything involving risk & investing thus pushing hedge fund-related regulation on to venture capital.
- Lack of critical mass – the Nordics is a small market and there are definitely areas within the eco-system where there are just too few professional investors. Also, the gaps between various type of investors are sometimes too wide meaning that companies get stuck or die on the way.
My bet is that there short-term will be a continued shake-out of institutional, classic VC-firms with the Nordic region as an important focus. However, the ones that survive will mid-to-long term have improved performance. I also think that there will emerge other types of investors to cater for the needs of a complete eco-system.
Finally, a note on what I would like to happen within the next 25 years.
Firstly, I am convinced that the best way to create a good venture capital industry is to provide the best possible framework to build great companies. This means more favorable regulations for startups & founders, promotion of success and acceptance of failure, and tax-incentives for angel investments. This is more important than the regulation / conditions for venture capital companies.
Secondly, I hope that VCs can really prove their worth for good companies. The role of the VC is not only to provide financing for companies that otherwise would die or never get off the ground, but more importantly to be considered a natural choice as part of creating great companies.