Venture Fever Hits Scandinavia

As recently as three years ago, “venture capitalism” in Scandinavia meant lending 50 bucks to your friend Soren – the one who’s fond of the racetrack. And even though Scandinavia is known throughout Europe as a hotbed of really smart people making exceptionally sexy technology, until recently entrepreneurs were, in essence, good technicians who didn’t understand commercialization.

Let’s fast forward. In the past year, more than 60 VC firms and incubators have been formed in Stockholm alone, a combination of professional VCs, as well as groups of angel investors, who have bundled themselves into unions. Many are local players, but some are international capitalists coming from the US, Finland, Norway and the Netherlands.

Last summer, did a feature on Swedish VC firm e-Chron, which had established a contest and networking event for Swedish startups called the E-Challenge. At the time, the founders said they were starting the event because of “the slow and difficult process of getting venture funding in Sweden.” E-Chron wanted to make it easier for startups to grow by bringing together entrepreneurs and the support industries that surround them, such as VCs, professional service providers and larger ICT corporations.

Since then, the VC industry has ballooned in Sweden and elsewhere in Scandinavia, in large part due to the fact that wireless is the flavor of the month. In fact, the whole VC vibe is more sophisticated and connected, with large sums of money available and a clear keenness to do deals.

VC firms are forming alliances in order to share resources and expertise, in an aim to fund more deals and better serve existing portfolio companies. One such alliance is the Global Venture Alliance, bringing together 2m Invest, Telenor Ventures and Ledstiernan. Schmooze sessions are also on the increase with events like the invitation-only Sockerbiten (“sugar-bite”), which offers a clubby atmosphere of VCs exchanging ideas and business cards and just, well, talking to one another.

Why all the hubbub? “Greed,” said Niclas Carlsson, CEO and Founder of e-Chron. “People look at this old, socialistic country and then Altitun sells for $860 million – people go crazy.”

Okay, he admitted, it’s more than greed; it’s an attitude shift as well. Scandinavian VCs agree the most important change in the last two years is that entrepreneurs are more mature. They’re packaging themselves better, making it easier for VCs to invest. However, entrepreneurs also have a lot more capital to choose from.

“It’s definitely easier to start up here than ever before, and absolutely easier to start up here than even in other areas of Europe,” said Panu Mustonen, CEO of Springtoys, which makes games and entertainment software for mobile phones and PDAs. Springtoys recently closed its first round of funding, which included a 15 percent stake taken by Eqvitec and a 20 percent stake taken by Sonera.

Some investors say the draw of Scandinavia is that there are so many competent small enterprises in the region feeding off the well-established market of the larger players, especially in the wireless sector. “The proximity of Ericsson and Nokia, and mobile in general, has done a lot,” said Jukka Hayrynen, a partner at Helsinki-based Eqvitec. “When we built our technology fund in 1997, people said, ‘technology – that’s so narrow.’ Now they say, ‘technology, that’s so darn broad.”

Such a flourishing of technology startups can only benefit regional VCs, who are seeing an increasing demand for specialized expertise. Local VCs have the ability to concentrate on specific niches, learning the ropes of a particular business space.

In Finland, the amount of money available has made it difficult for some VC firms to find enough partners to manage their range of portfolio firms effectively, said Mustonen. That means VCs who really know a specific sector are in demand. “If I were a venture capitalist myself,” he said, “I would concentrate only on exactly what I know best; if you understand the sector, can limit yourself to just five companies and concentrate on building their businesses, you’ll make a killing in this city.”

Joining together with other VC firms is one way to concentrate efforts and expertise. “There’s a real attempt to get together and gear our resources,” said Kim Bach, vice president at 2m. Joint activities such as co-investing, sharing knowledge, extending buying power and working with shared databases could help VC firms “reach critical mass in sectors faster than we ever were able to before,” Bach said.