Hans Christian BjørneInnovation Advisor

h.bjorne@nordicinnovation.net | www.nordicinnovation.net  

Update on Nordic Risk Capital Market

EU Finance Day 23/4 - Oslo

• Innovation Policies• Venture Capital• Borderless region • Functional Food• Creative Industries• Commercial Networks• Innovative Tourism• Innovative Building• Micro- and Nano technology• Environmental Technology• Technology Foresight• Food Safety

On-going Programmes

Nordic Innovation Centres´ two main objectives:

1. Stimulate increased Nordic innovation

2. Promote a borderless Nordic region

“a single, inner market”

The Nordic Council of MinistersBusiness, Energy and Regional affairs- Ministers of trade & industry

Nordic Innovation Centre

EK-NE/N + EK-NE/E- Committees of senior officials

Nordic cooperation – Nordic Council of Ministers

NICe’s view on innovation

– Innovations are important in all sectors

– Active participation from the entire innovation system necessary.

• (business sector, market, capital, knowledge communities, and

public sector)

Focus on Nordic Risk Capital

NICes overall objectives:

1. To stimulate the creation of new jobs and industries in the Nordic region

2. To remove barriers and to strengthen the Nordic private equity market.

>> Facilitating cross-border investments >> Attracting foreign capital>> Increasing level of Nordic cooperation>> Increasing level of Nordic experience sharing

Why important?

Because: Private equity financed companies grow faster

Source: SVCA Report ”Private equity backed portfolio companies’ development”

21,0%

7,0%

1,5%

7,3%

2,0%

0,0%0 %

5 %

10 %

15 %

20 %

25 %

Swedish PE portfoliocompanies

Companies on SE Total active Swedishprivate & public

companies

Sales Number of employees

Yearly average growth

Relative Market Sizes (% of GDP) in 2007

VC investment per GDP in 2007 in Europe and selected other countries and regions (by country of portfolio company approach)

1.

031

%

0.79

9 %

0.71

9 %

0.23

4 %

0.21

2 %

0.20

7 %

0.19

3 %

0.18

4 %

0.17

1 %

0.14

5 %

0.12

5 %

0.11

3 %

0.11

1 %

0.11

1 %

0.11

0 %

0.09

7 %

0.08

2 %

0.07

4 %

0.05

0 %

0.04

6 %

0.04

4 %

0.03

4 %

0.02

2 %

0.01

5 %

0.00

2 %

0.0 %

0.1 %

0.2 %

0.3 %

0.4 %

0.5 %

0.6 %

0.7 %

0.8 %

0.9 %

1.0 %

1.1 %

VC p

er G

DP (c

ount

ry of de

stin

atio

n ap

proa

ch), 200

7

Sources: EVCA and PEREP_Analytics, * NVCA/ PwC Moneytree and Bureau of Economic Research** IVC Research Center and CIA, *** NVCA/ PwC Moneytree and Bureau of Economic Research

– Nordic countries relatively well performing (VC per GDP)

• But far behind market leaders

– Foreign investments regulatory improvements in recent years

• Double taxation for direct investments mostly eliminated

in Nordic countries

• Still various legal obstacles to overcome, especially regarding

cross-border investments in funds that invests in companies

– Different fund structures and regulatory frameworks

– cause legal uncertainty >> hamper foreign investments

– Still too fragmented (across borders, sectors, stages)

The Nordic Risk Capital Market – room for improvement

– Dialogue and willingness to cooperate between the countries

– Political backing – well functioning venture market recognized as one of the

cornerstones of the Nordic innovation system

– National differences create opportunities to learn from each other

• Finland has taken many steps to remove legal obstacles and uncertainties

Double taxation for foreign investments in Finnish funds mostly

eliminated

• New fund of funds structure launched by FII which blends private and

public capital (60/40)

Governmental VC fund attracting private investor

The Nordic Risk Capital Market – cooperation

NICe – a true Nordic catalyst

– Public initiatives are vital for the development of well functioning

venture capital markets

– NICe is a true Nordic institution without national agenda or

considerations

– functions as a complement to the national public organizations and a

facilitator for Nordic cooperation.

– NICes initiatives involves private and public market players, Nordic

ministries, legal experts and academia

– Has engaged Nordic Investment Solutions, a Nordic advisory firm within

private equity, as competence partner and coordinator

Developing the food chain of capital

For the development of a well functioning common Nordic venture

capital market it’s vital to focus on all stages of the so called food

chain of capital.

NICe therefore has and will execute initiatives within:

– Seed & Early Stage

– Venture Capital (here defined as expansion)

Downloads available at www.nordicinnovation.net

Background: Performed studies since 2004 - >>

>> NICe has executed a number of inititiaves within the expansion phase of venture capital.

The Nordic Venture Capital Forum

A reference group with leading public and private market playerswas formed for the venture capital initiatives.

Representatives from the private market:

HealthCap (S) - Anki Forsberg, Partner and Chief Administrative Officer

CapMan (FI) - Petri Niemi, Senior Partner and Head of Technology

BaltCap (EST) - Peeter Saks, Managing Partner

Northzone Ventures (N) - Tellef Thorleifsson, General Partner

Representatives from public market players:

Sjätte AP-fonden (S) - Cecilia Gross Friberger, Portfolio Manager Venture Capital

Vaekstfonden (DK) - Christian Motzfeldt, CEO

Tredje AP-fonden (S) - Claes de Neergaard, CEO, Industrifonden, Chairman

New Business Venture Fund (IS) - Jon Steindor Valdimarsson,  CEO,

Nordic best practice studies, 2006 & 2007:– Lacked structures to compete successfully with foreign funds.

– Limited Partnership seen as the only appropriate vehicle for

venture capital funds by international investors.

– Lack of favorable tax treatment and trust

– Investors expected full tax transparency

– All the Nordic countries (except Denmark) had disfavourable

legal and/or tax related issues

• creating obstacles for international investors.

– VAT on management services to the fund – non-recoverable

Obstacles to Nordic Venture Capital Funds

Mannheimer Swartling

Borenius & Kemppinen

Wikborg, Rein & Co.

Plesner

Deloitte

Nordic Investment Solutions

Nordic Council of Ministers > appointed Task Force to follow up on the recommendations of the NICe reports.

2008 study:

THE NORDIC RISK CAPITAL MARKETA Review to Support Nordic Venture Capital Policy

by Professor Markku Maula TKK Helsinki University

A Review to Support Nordic Venture Capital Policy

1. Must work toward fully integrated market.

– Cross-border, -sector, -stage

2. Need higher levels of investments in early growth stages.

Problem:

Institutional investors not investing in start-ups due to high risk and long-term yield expectations

>> creating an equity gap

Recommendations for further development

3. Work toward Mutual Recognition of fund structures by removing remaining legal barriers and uncertainty, and eliminate the need for permanent establishments.

>> Attract foreign investments and facilitate cross-border investments

4. Complimentary measures

>> Nordic Venture Fund Program, Business Angels matching, etc.

Problem:

Variations in national fund structures and regulatory environments cause uncertainty

>> obstacle for cross-border fund of fund investments

Recommendations for further development

Feb 09: Nordic Council of Ministers: Committee of Senior Officials EK N/NE

– Asked Nordic Innovation Centre (NICe) and Finnish Ministry of

Employment and Economy to gather public VC investors to

discussion.

– NICe to update status in each country

Recent developments

• Venture Capital:– Follow-ups now being planed:– Legal issues regarding the establishment of funds– Mandates for national investors – still an obstacle?– Funding for private venture capital firms – a potential Nordic

program?– Nordic Public Investor Summit, Copenhagen (September?)

Going forward – NICe’s current and planed initiatives

NICe will continue to focus on Venture Capital and on Seed & Early Stage

• Seed & Early stage:– Nordic Seed Capital Initiative 2009 now in execution– Formation of the Nordic Seed Capital Forum– Writing of “Challenges and Initiatives for the Nordic Seed Stage”– Nordic Seed Capital Summit, Stockholm, June 4

• Could a Nordic inititive be created to facilitate increased Nordic cooperation, increased visiblity for the seed stage and and a joint Nordic voice towards political decsion makers?

Can we establish a Nordic seed community that can interact efficiently with entrepreneurs, international players and the venture capital community?

Nordic Seed Capital InitiativeBuilding blocks: Nordic Seed Capital Forum – a reference group for the initiative and for the Nordic seed segment towards decision makers with key organizations from each country as participants Challenges and Initiatives for the Nordic seed stage - a description of joint challenges and suggested solutions and initiatives

Nordic Seed Capital Summit in Stockholm, June 4

Nordic Public Investor Summit in the planningOwner of the initiative Coordinator

Nordic Seed Capital Forum

– June 4th, Stockholm

– First gathering of Nordic public and private seed stage investors

– Facilitate discussions among investors and among investors and

policy makers

– Nordic seed stage report: “Challenges and Initiatives for the Nordic

Seed Stage”

www.nordicinnovation.net/seed

Nordic Seed Capital Summit

Nordic legal project report (TBC)– Description of national regulatory

changes since last report– Description of planned regulatory

actions– Update on legal and taxation

obstacles for foreign investments in nordic risk capital funds

– Nordic and national recommendations

– Description of mandates of national public funds

– Changes in mandates from 2004– Description of obstacles caused by

mandates of public funds

In the planning

– Well functioning risk capital market essential for innovation and job

creation

– More integrated market (sector, border, stage) needed to foster high-

growth Nordic companies

– Removal of legal barriers and increased Nordic cooperation will

stimulate cross-border investments and attract foreign competent

capital

– NICe’s focus is on the food chain of capital with initiatives within:

– Seed & Early Stage

– Venture Capital

>> NICe is a true Nordic facilitator developing Nordic markets

In Summary

Thank you for your attention!

Questions may be sent to:

Hans Christian Bjørne

h.bjorne@nordicinnovation.net

www.nordicinnovation.net