Sweden is currently one of Europe’s top destinations for foreign investors. The main attractions are thought to be the country’s highly educated population and the ability of Swedish companies to think globally from the word go.
Highly educated people are one of Sweden’s keys to success. Photo: Hans Bjurling / www.imagebank.sweden.se
Last year, Swedish companies attracted USD 1.07 billion in start-up and growth capital, according to the European Venture Capital Association. Investors from around the world, especially from the US, Europe and the other Nordic countries, are drawn by the high annual yields, which have maintained a steady 20 percent over the past ten years. By comparison, the average annual rate in Europe and the US is about twelve percent.
The Nordic countries are perhaps best known for their innovative and successful information and communications companies. But biotech remains the leading industry, in terms of both the number of investments and the amount of capital invested. Life science investments have increased dramatically over the past year.
High, stable returns
So why does so much foreign investment capital end up in Sweden? Jan Segerfeldt, Head of Communications at the Swedish Private Equity & Venture Capital Association (SVCA), says: “Swedish private equity has yielded very high, stable returns year after year, and this of course attracts foreign investors. Seventy per cent of the capital in Swedish venture capital companies comes from abroad. Investors are also aware of the high standard of Swedish technology, research, education and training.”
Jan Segerfeldt, Head of Communications at SVCA, believes that the Swedish tradition of thinking globally helps attract foreign investors. Photo: SVCA
Every coin has a reverse side, though. In Sweden, Segerfeldt argues, this is principally to be found in the entrepreneurial sphere.
“Our country has been dominated by a large public sector and many big companies, which means there haven’t been enough role models for small entrepreneurs,” he says. “The new government has said it sees the potential for improvement in this area and intends to invest in it, so hopefully things will change.”
Segerfeldt notes, however, that major companies like Ericsson and ABB have provided a good training ground for small businesses. Moreover, the relatively small size of the population means that companies are forced to think in terms of exports and diversification at an early stage.
Strong on life science
Ylva Williams, of the Invest Sweden, thinks that we also owe a debt of gratitude to the big pharmaceutical companies founded a century ago or more, such as Astra (now AstraZeneca) and Pharmacia (now Pfizer).
“Sweden has a long tradition in the life science field,” she says, “and this has given us training in the management of pharmaceutical companies. We have companies dealing with each link in the value chain – everything from innovation to development, formulation, clinical testing and production.”
Sweden has a good reputation in the life science field. Photo: Hans Bjurling / www.imagebank.sweden.se
More mature IT industry
Rebtel is one of the Swedish companies that has received large sums from investors in California’s Silicon Valley. Rebtel offers free mobile telephony – a hot territory in US venture capital circles. Rebtel Chief Executive Officer Hjalmar Winbladh feels that in general Sweden has good, innovative entrepreneurs in the internet and telecom sectors with plenty of experience.
But isn’t there a risk that we are seeing another IT bubble like the one we saw five or six years ago? Winbladh doesn’t think so.
“Both venture capitalists and entrepreneurs are more experienced nowadays,” he says, “particularly those who were involved last time round and have come back.” Segerfeldt shares this view. “We’re now seeing careful, intelligent risk-taking,” he says. “The industry has matured significantly in recent years, and operates differently now.”
Life science and IT are the current focus of attention. So what’s next?
“Cleantech” is coming
In surveys of attitudes on future development undertaken by the SVCA, environmental technology, or “cleantech,” is among the top three prospects.
Environmental technology is a hot area for venture capitalists. Swedish company Envac creates energy-efficient and clean waste collection systems. Illustration: Envac
American Andre Heinz, who recently founded the Swedish company Sustainable Technology Partners, is among the venture capitalists to have invested in Swedish environmental technology. In his view, attitudes and strategies in Swedish government and business have been among the most progressive in the world in this particular field.
“We see Sweden leading in quite a few clean technologies, such as geothermal heat pumps, district heating and cooling, energy efficiency, biofuels, recycling and purification technologies,” Heinz says.
He adds that many of the cleantech companies he now investigates have left the seed and start-up stages, and are growing fast. “These companies work with state-of-the-art technologies, but are benefiting from the enormous growth that's taking place in their respective sectors. It’s somewhere between 25 and 50 percent per year.”
A success story
The question remains why investment is increasing so rapidly in Sweden. Strong economic growth worldwide helps, of course, but Danny Rimer, general partner at Index Ventures (which also backed Skype), may have hit on the answer when he told Business Week:
“Scandinavia has created world-class entrepreneurs who’ve gone on to build world-class services. That has been amplified in the past few years. Success breeds success.”
Facts
- The private equity industry was etablished in Sweden over 30 years ago.
- Six out of ten Swedish stock market introductions 2000–2005 were financed by private equity companies.
- Sweden's private equity market equates more than 1% of the country's gross domestic product (GDP), which means that this is the second largest private equity market in Europe.
- Swedish companies financed through private equity generate a turnover of roughly SEK 170 billion (USD 24 billion).
- Around 70% of the capital in Swedish private equity companies come from foreign investors.
- Pension funds are the single largest investor in private equity with around 30% of the capital.
Glossary
Private equity = Investments in unlisted companies with active owners.
Venture capital = Capital invested in seed, start-up or expansion stages and targeting innovative companies with major growth potential.
Buyout capital = Investments in mature companies, usually ones with strong cash flows.
Life science = A collective term for biotech, medtech and the pharmaceutical industry.
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Charlotte Celsing is a freelance journalist, who prefers not to take risks with her own, very humble capital. But as a keen environmentalist she's all for the idea of cleantech or green technology.
The author alone is responsible for the opinions expressed in this article.
Translation: Stephen Croall
Classification: A177EN
© Photos 1 and 3: Hans Bjurling / www.imagebank.sweden.se
© Photo 2: SVCA
© Photo 4: Envac
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