pattern in times of financial turmoil.
The case of Swedish VC funds in the 2005-2012 period
Master Thesis in Economics of Innovation and Growth
EKATERINA DIAKOVA
Master’s Degree Project
Stockholm, Sweden 2013
times of financial turmoil. The case of Swedish VC funds in the 2005-2012 period
Ekaterina Diakova February 24, 2013
Master of Science Thesis IS 2013:06 KTH Insdustrial Engineering and Management
Economics of Innovation and Growth
SE-10044 STOCKHOLM
Changing of VC funds’ investment pattern in times of financial turmoil.
The case of Swedish VC funds in the 2005-2012 period
-
Ekaterina Diakova
Approved Examiner Supervisor
2013-02-24 Kristina Nystr¨ om Terrence Brown
Abstract
The Venture Capital (VC) industry is of major importance for economic growth, since in some cases VC is the best option for start-ups and “young companies” to secure funding to grow. Studying and understanding VCs behavior is important not only from an academic viewpoint, but also for firms seeking investment, the funds investing in VC as an asset class, and VC funds themselves. Despite the fact that VC industry remains in a state of continuous change, and VC’s are reluctant to share internal information on internal operations and decision making, this study has explored a way to analyze VC’s investments and track changes in their behavior over time.
This master thesis tries to answer the main research question: “Have Swedish VC funds changed their behavior in the period before, during, and after the 2008 financial crisis?” We selected the following criteria as indicators of VC behavior - the number of investments, sector preferences, amount invested, stage preferences, and syndication with other funds. The auxiliary research question links the change in the VC funds behavior to the main economic trend by comparing investment patterns to general economic indicators. This master thesis is unique, since nothing completely similar was done before.
The analysis section consists of: information collation, statistics, trend anal- ysis, and qualitative research. This research is limited to the venture funds, whose target market includes Sweden.
The analysis showed that the number of investments stayed the same, while the invested amount decreased in 2009, nevertheless, both these indicators in- creased in 2011. During the period 2007-2012, the preferred stage of investment shifted to include growth equity and seed companies along with early stages firms and start-ups. VC funds have preferred to diversify their portfolio among different sectors, and to syndicate more during the 2008 crisis.
Addressing the main question above, yes - the venture funds’ behavior did change during the period 2005-2012. The examination of this pattern has in- dicated that the funds’ change corresponds to the main economic trend with a one-year delay.
Keywords: the 2008 financial crisis, crisis, VC funds’ behavior, 2006-2012,
preferable sector, preferable stage, investments number, amount invested, VC
funds, behavior change, Swedish economic trend, Economic Tendency Indicator,
Sweden, Nordic, investments trend, invested amount trend.
This master thesis gave me many possibilities to enhance my knowledge of the VC market, gaining deep understanding of the current situation in the industry, realization of VC funds strategies, and their behavior. Firstly, I would like to thank my supervisor, Terrence Brown for his guidance, and constantly helping me connect my thoughts into a structured thesis. Without his support, this entire effort would not have been possible.
I would owe special gratitude to David Sonnek, who showed great interest in the research topic, and was a qualified guide through the VC funds’ market.
I would like to thank him for his help despite me not being his thesis student.
He was my only connection with different organizations. Without Davids assis- tance, this research would not contain such relevant data.
I would like to thank again these two people for finding the time to guide me through my questions and problems. Finally, I would like to express my grati- tude to Conor Venture Partners and SVCA for sharing the valuable information for this research.
Diakova Ekaterina
October 2012
Stockholm, Sweden
List of Figures 5
1 Introduction 7
1.1 Introduction . . . . 7
1.2 Problem formulation . . . . 7
1.3 Purpose and Perspective of the Research . . . . 8
1.4 Research questions . . . . 9
1.5 Limitations . . . . 9
1.6 Methodology . . . . 10
2 Literature review 11 2.1 About venture funds . . . . 11
2.2 History of venture capital firms . . . . 12
2.3 History of the Swedish venture capital industry . . . . 15
2.4 Further development of Swedish VC industry. The 2008 financial crisis. The situation after and before . . . . 17
2.5 Conclusions after SVCA reports preliminary analysis . . . . 25
2.6 Venture capitals investment criteria and behavior . . . . 25
3 Methods 29 3.1 Participants presentation . . . . 29
3.2 Collection of data . . . . 32
3.2.1 General funds information from SVCA . . . . 33
3.2.2 Creating the funds profile . . . . 33
4 Analysis 34 4.1 Funds syndication . . . . 34
4.2 Investment pattern changing . . . . 35
4.2.1 Difference in number of investments . . . . 35
4.2.2 Fluctuation of invested amount . . . . 37
4.3 Comparing economic cycle and VC funds cycle . . . . 39
4.3.1 Sector preferences . . . . 40
4.3.2 Changing of preferable stage preferences . . . . 42
4.4 Solo investments . . . . 44
5 Results 45
6 Discussion 48
6.1 Generalization and Use of Results . . . . 48
6.1.1 Theory . . . . 48
6.1.2 Practice . . . . 48
6.2 Limitations . . . . 49
6.3 Further research . . . . 49
7 Conclusions 50
A Definitions of a company stages 54
B Tables 56
2.1 Commitments to the Venture Capital Industry (billions of 1999
dollars) . . . . 13
2.2 Venture capital investment worlwide, 1992 to 2007 . . . . 14
2.3 The evolution of the Swedish venture capital market . . . . 15
2.4 Number of raised Nordic VC funds (active on the Swedish mar- ket) and total commited capital 1983-2010 . . . . 17
2.5 Investment in the Nordic region ( e million), 2007-2009 . . . 18
2.6 Divestment in the Nordic region ( e million), 2007-2009 . . . 19
2.7 Divestment by method (% of total), 2007-2009 . . . . 20
2.8 Sources of funds raised in the Nordic region (% of total), 2007-2009 21 2.9 Venture investments in Sweden, 2007-2009 . . . . 21
2.10 Evolution of Nordic venture investments by number of companies Index H1 2007=100 . . . . 22
2.11 Evolution of Nordic venture investments by amount Index H1 2007=100 . . . . 23
2.12 Venture divestment of Sweden, 2007-2009 . . . . 24
2.13 Sectoral distribution of venture divestment in the Nordic region ( e), 2007-H1 2010 . . . 24
2.14 The evaluation criteria by rank order of importance . . . . 27
4.1 Syndication between VC funds . . . . 34
4.2 Total number of Industrifonden investments . . . . 35
4.3 Total number of SEB Venture Capital investments . . . . 35
4.4 Total number of Northzone investments . . . . 36
4.5 Total number of Conor Venture Partners investments . . . . 36
4.6 Total number of Creandum investments . . . . 37
4.7 Total number of Via Venture Partners investments . . . . 37
4.8 Total number of POD Venture Partners investments . . . . 37
4.9 Total amount invested by Northzone, Creandum, POD Venture Partners, and Conor Venture Partners (M$) . . . . 38
4.10 Total amount invested by Industrifonden, SEB Venture Capital, and Via Venture Partners (M$) . . . . 38
4.11 The Economic Tendency Indicator and the number of VC funds’ investments . . . . 39
4.12 The Economic Tendency Indicator and the invested amount by VC funds . . . . 40
5.1 Quantity of the VC funds investments . . . . 45
5.2 Amount of the VC funds’ investments . . . . 46
5.3 The data from SVCA . . . . 47
B.1 Industrifonden investments . . . . 57
B.2 Industrifonden Exits . . . . 58
B.3 SEB Venture Capital . . . . 58
B.4 SEB Venture Capital Exits . . . . 58
B.5 Northzone Ventures . . . . 59
B.6 Northzone Ventures Exits . . . . 60
B.7 Creandum . . . . 60
B.8 Creandum Exits . . . . 61
B.9 POD Venture Partners . . . . 61
B.10 POD Venture Partners Exits . . . . 61
B.11 Via Venture Partners . . . . 62
B.12 Via Venture Partners Exits . . . . 62
B.13 Conor Venture Partners . . . . 63
Introduction
1.1 Introduction
Economies experience downturns and upturns, peaks and bottoms. Geomet- rically we can illustrate its trend by a sinusoid curve, which indicates that economies goes in cycles. Several scientists all over the world have concluded this, and one of them was Schumpeter as far back as the year 1939 in his book
“Business Cycles: A theoretical, historical and statistical analysis of the Cap- italist process”. Even though cycles seem to be predictable and resemble to each other, in reality it is not like that. In his study, Schumpeter claims that every business cycle is unique, and the reason of this is progress. In economy new factors, new inventions, and new resources appear, changing its structure, making it grow. Nothing is ever able to come back at the same place as it was before, and business cycles always originate in different starting points.
As for last economic cycle, its downturn started in 2008 when the time- proved Lehman Brothers bank cleared its bankruptcy, according to Block and Sandner (2009). The next company who faced hard economic problems was American International Group. One by one, many American companies begun to suffer from liquid crisis, losing their value and seeking for government help.
After diminishing of the stock prices, recession began.
This study is focused on tracking the effect of the 2008 financial crisis on the venture capital market. Venture capital funds are a strong source of financ- ing, which has its own rules and specifications. As every market, it deserves individual attention and consideration. Although some assumptions can be made without deep analysis, even they should be checked. For instance, invest- ments reducing during the crisis, since the investment economic climate is not favourable for them. However, even such a reasonable thought can be wrong or right with some exceptions. By focusing on the Swedish venture capital mar- ket, one of the most active and dynamic markets in Europe, many interesting conclusions and regularities can be drawn.
1.2 Problem formulation
The venture capital market is a significant link of an investment chain, which not
only sponsors companies, but also provides consulting services and guidance as
far as it owns some shares of a firm. A venture fund is a complex mechanism, the behaviour of which is not completely identified by any source. Sometimes this mechanism is the last possible source of investment for early-stage innovation companies (after families and friends). Since banks prefer to not work with risky assets, and new firms cannot provide stable profit, start-ups are not able to negotiate a bank loan. Another way of financing, public equity is possible with the growth of company’s repute, for what new firms are not conductive either. Hence, venture funds are companies that boost innovation. In their research, Kortum and Lerner (2000) discovered that VC is accountable for 10%
of US innovations, and their industry activity leads to patent motion in this area. To such a degree, analysing this crisis impact on VC is highly significant not only for the VC industry, but also for almost any production, especially for hi-tech business.
There are at least two sides of VC that can be affected by the crisis: a VC fund as an investor and a VC fund as a company, seeking for investments.
Last characteristics applies for VC funds when it comes to the search for money from larger investors as pension funds, banks, or insurance companies. Banks and insurance companies are some of the first crisis sufferers. As for pension funds, there is a tendency to invest gingerly and carefully, which means that investments flow shrinks, and the longer this recession continues, the less money is going to be invested in. So far, 2008 financial crisis is still maintaining, VC funds should be deprived of almost any investments, but government support.
The behaviour of VC funds as investors probably adapts to the crisis. Firstly, the amount of money at VC funds disposal is diminished. Secondly, prolonged crisis leads to revenues lowering. Average customer has less money to purchase, which followed by lower sales of product, which turns into low companys val- uation. Finally, as investor, VC fund becomes a shareholder of the company, which means that its profit depends on stock market, on which this company is listed at. Within 2008 financial crisis, stock prices have tendency mainly to decline, and IPO market is not active.
Summing up all specified factors, the next assumption can be build: VC funds behaviour has changed since this crisis beginning. The question is in which degree and which way does the recession affects VC.
1.3 Purpose and Perspective of the Research
The purpose of this study is to find out which kind of changes that have hap- pened within VC funds and their behaviour during the period from 2008 to 2012 on the Swedish market. This research can be valuable for different types of organisations. Venture funds can observe an average trend, and investments movement, companies can spot firms profile (ex. BioTech, Advertising) and stage type (Seed, Start-up), in which funds are investing. With all collected information, it is possible to draw every studied VC funds outline, and this outline is going to be real, based on facts about the fund, not the information that is listed on their Web page.
I would like to underline that nothing completely similar to this master thesis
have been done before. The information is sensitive and hardly reachable. This
Master Thesis correlates with SVCA annual reports, however, it digs deeply
into every VC funds data.
This master thesis is unique, since it includes investments lists of all the participants of the research, from which investments patterns are drawn. Each fund is observed from different sides, for instance, the number of investments, preferable sectors, invested stage, syndication, etc. The corporation of VC funds investment patterns with the economic situation has been also hardly used be- fore in exactly the same manner. The purpose of this comparison is to find out the relation between the economic situation and VC funds reaction on it.
1.4 Research questions
According to the main hypothesis, which we take into account, venture funds did change their behaviour during 2008 financial crisis. Proving or rejecting this hypothesis is the main question of this research. However, this change in activity level can consist of different points, which are going to be research sub-questions:
• Have VC funds changed their sector preferences?
• Have they shifted from one stage to another?
• Is there any difference between investments number before and during the crisis?
• Have their total capital need varied during the period?
The second main research question, which follows after the confirmation of the primary hypothesis, is that VC fund business cycle can actually be different from the economic cycle, and presumably, it is a little slower than the world economic trend. The purpose is to find out the time lag between the two cycles.
1.5 Limitations
First delimitations of this research can be pointed out already from the title.
The observation is going to be performed during the limited period: from 2005 until 2012.
Among all venture capitalists, only venture funds will be taken into account, and the number of them is limited to 8-10 that is not many, but enough to reveal shared patterns and trends. The available data is also mainly limited by VC funds themselves. They do not use the strategy of the information closure often, because the announcing of investment is a good chance to advertise themselves, and if any company has their financial data opened, it means that it has nothing to hide and represents it as a responsible and trusting firm. In some cases, the amount of investment is hidden; in other cases, companies as Scope prefer to share no information about their investments, but a date of the first investment, and the name of a company.
Moreover, the results of this research can be applied only in Sweden, because
most of the respondents are Swedish VC funds. There are two non-Swedish
companies, but they are active on Swedish investment market at the moment.
1.6 Methodology
In the methodology section, methods and rules of the research are analyzed.
Firstly, eight venture funds have been determined, which are going to be ob- served during this study. The first stage of the research is participants observa- tion. At this phase, the purpose is to gain close acquaintance with VC funds, and to collect as much information as possible. Next stage is statistics, when the data is collected, and processed to be structured, analyzed, interpreted and represented.
Among all types of analysis, a couple has been chosen for this research.
Trend analysis is used to track certain events in past, in this case it is the effect of 2008 financial crisis on VC funds. Hence, the pattern of VC behavior during the period 2006-2012 is going to be studied.
After revealing the trends of VC funds, we are going to adopt Qualitative
research, which accomplishes the potential to get a deep understanding of VC
funds behavior, why and how do they change their strategy. Moreover, this
analysis will provide empirical support for the hypotheses.
Literature review
2.1 About venture funds
“Here’s what you should say [to investor]: “This is what my company does...” It is that simple. What you are trying to do is get potential investors to fantasize about how your product or service will make a boatload of money. They cannot fantasize if they don’t know what you do.”
Guy Kawasaki For companies with intangible assets especially at an early stage- for instance, high technology firms with significant share in R&D, it is hard to find financial support. The main disadvantage with such firms is impossibility to predict precise returns, which means that entrepreneurs can try to avoid providing the whole pool of information, since it cannot be tracked. Even if entrepreneurs reveal all information, there is still risk of uncertainty, i.e. that some things can be non-quantifiable. Thus, with intangible assets information is mostly treated as having different degrees of certainty, which makes external financing hard to achieve.
To solve the problem of information asymmetry, a reasonable solution, is to turn to venture capital organization, which has its own tools for information gap reduction and risk misleading. According to Gompers and Lerner (2001), these tools are allocation of the investments into several stages during the whole period, syndicating with other venture capitals, occupying some seats on the board of directors, and compensation agreements. Staged infusion is one of the most powerful tools, since if the project gives negative returns; further investment is simply cut off.
However, despite the common notion that venture capitals invest in R&D
and inventions, in 1997, only $600 million out of $10 billion were invested in
start-ups, less than $1 billion was provided to R&D, which mainly received
money from the government and corporations (Zider 1998). Venture capitals put
their money into the next stage, when firms commercialize their invention, which
is called innovation. The investment is generally going to a company’s balance
sheets, and infrastructure, therefore the company can be sold to a corporation,
or publicly traded.
Why do venture capitals exist?
Venture capitals make high-risk investments, which guarantees a niche in the venture capital market to them. Since investment banks would have asked for too high debt repayment, which is forbidden by the laws of any country. Thus, there is no chance that banks will support high-risk business.
2.2 History of venture capital firms
Investment history started with wealthy American families such as Rockefeller, Bessemer, etc., whom hired teams of managers to sort out new prospective firms, in order to invest in them, and make more money out of them (Gompers 1994).
However, first examples of venture capital firms were publicity traded closed- end funds. “A closed-end fund is a mutual fund whose shares trade from investor to investor on an exchange like an individual stock. These funds raise capital up front by selling shares to investors” Paul Gompers and Josh Lerner (2001).
One of the well-known funds was American Research and Development (ARD), which specialized on firms developing World War II technology. If the closed- end fund does not see any sense in further investment, one can always sell their shares, which makes the investment in intangible assets more secure. Institu- tional investors were not attracted to these shares, since this type of investment was considered unstable: that is stocks can be sold anytime, hence then it was mainly individuals who owned ARD shares.
Next step in venture capital’s evolution had been made in 1958, by organising capital limited partnership. Common areas for partnership activity were mainly real estate, and the exploration of oil fields. The difference between partnerships and the earlier kind was that partnerships had a limited lifetime after 10 years it was obligatory for partnerships to return stocks to investors.
During 1960s, the US government launched Small Business Investment Com- panies (SBICs) program, wherein small private capital firms could gain from the government’s big financial support to invest in early-stage business. How- ever, strong regulations of this program had frightened most venture capital, the remaining rest were venture capital that had poor prospects, or companies, owned and lead by friends or families. SBICs did not lead start-up managers, they evaluated firms depending on loans repayment (Gompers 1994). However, some SBICs put their investment firms on IPO market, which with oil embargo of 1973-1974, started to fluctuate, and SBICs lost a lot of money. In addition, loan pre-crisis of the 1980s situation brought with it changes, and a big share of SBICs became bankrupt.
The situation was considerably different with the rest of venture capital industry, in late 1970s and early 1980s (Figure 2.1), when there was significant growth in the venture capital market. One of the reasons for this growth was a new law in 1978, which decreased taxes for venture capitals from 49.5% to 28%. The sources of venture capital financing had also changed by another act, which allowed pension funds to invest in venture capitals. In 1978, the biggest share of investment was in the hands of individuals, but in 1979, pension funds started investing in high-risk assets, thus in 1986 more than half of investments were done by pension funds (Gompers and Lerner 2001).
In 1999, when the industry became saturated (Gompers and Lerner 2001),
and there was a time to select industries for investment more precisely, about
60% of venture capitalists turned to informational technology areas, 10% went to medical care and science, the rest was in different industries.
Figure 2.1: Commitments to the Venture Capital Industry (billions of 1999 dollars)
In the Figure 2.1, there are two waves of growth in venture capital industry.
First wave arose from the early 1980s and declined in 1987. The fall was linked with accumulation of investors uncertainty, provoked by SBICs’ bankruptcy in 1980s. Second wave appeared between 1991 and 2000, since many inexperienced venture capitals collapsed during 1980s, and return from this sector increased.
There are more explanations of the second wave. Investors’ attention was attracted by a few successful investments such as eBay and Yahoo!. Another reason is changing of companies’ structure: innovations started to play one of the main roles. For R&D firms need a stable cash flow, and in some cases, it is more efficient to ask money from external, but not from internal investors (Gompers and Lerner 2001).
Growing popularity of the Internet gave more possibilities for business, and for new ideas. On the one hand, as the external way of financing, venture capitals were the most appropriate choice in this situation, if firms do not have enough resources to initiate their expansion to the Internet. On other hand, quite a few innovations arose in the Internet field, such as e-shops, e-games, social networks, etc., almost every individual personal life has been transformed by the Net (Lerner 2009). In accordance with this, the same services as in real life appeared in the Internet. Partly, they were just units of real life firms; some of them were completely new e-companies, which needed financial support.
As the result of all these changes, a new form of venture capitals was created,
joint ventures with companies independent venture groups. Since venture in-
dustry became overloaded, cooperation with firms provided advantages. Many
venture capitals started to look not only for money from them, but also for
syndication.
Even though limited partnerships still had the main share on the market, pure venture funds also revived (Lerner 2009). This made investors to put even more money in the industry. At that time, even middle class started trying to invest. However, regulations on venture industry were strict, and allowed only people with high income to make investments; venture capitals followed the rules severely, and in most situations accepted money only from reliable “old”
investors.
However, the second growth wave did not last for a long. Already in 2001, there was a sharp fall in VC investments. The problem was linked with the lust for money, showed by institutional and individual investors, attracted by high returns of VC funds. The lust and the sharp growth were linked with inadequate syndications between investors, and hasty and poorly thought-out decisions (Lerner 2009).
Figure 2.2: Venture capital investment worlwide, 1992 to 2007
VC funds evolved dramatically from 1980 to 2007, their volume increased from $1 to $100 billion, and such a sharp growth was worldwide (Figure 2.2).
Since 2000, VC funds have been growing global and international. VC became
concentrated in particular points of the world, such as Silicon Valley, Cambridge,
etc. The U.S.A. always has had a loin share of funding; however, recently, Asian
economic became tremendously growing and extremely attractive for investors
(Lerner 2009). VC attitude is sharply changing under the influence of global-
ization process, since less than 10 years ago, VC funds were mainly investing
into companies, situated nearby.
2.3 History of the Swedish venture capital in- dustry
During 1970s, Swedish economy was having the period of stagnation, and one of the possible ways to undertake it was to create more liquid capital market and favorable economic climate by applying new legitimations. In 1980s, af- ter all these changes had been done, Swedish government has also established some regional supporting firms and funds. All these actions provoked the first Swedish investment wave (Olofsson and Wahlbin, 1985). Around 30 venture capital companies with a few government funds were founded from 1982 to 1984 (Fredriksen, 1997).
In 1985, the stock market collapsed, and many venture capital firms became bankrupt, only few companies as Euro ventures and Scandinavia Investment, and several government funds stayed on the market (Karaomerlioglu and Ja- cobsson, 2000). Among the reasons, why some capitals went out of the market, there was underestimating the necessary period of having positive cash flow.
Many entrepreneurs expected some paybacks from the investments, and when it did not happened, they refused to put new money. Incorrectness of the chosen model for business can be also counted as a reason: even the funds were small the management team used the models for big ventures.
Figure 2.3 shows the evolution of the Swedish venture capital market (Karaomer- lioglu and Jacobsson, 2000). In 1983, the whole pool of venture capitals (both government and private) was SEK 478 million, 20% of which was government share. After 5 years, the market volume was already SEK 4 billion, where government had almost the half.
Figure 2.3: The evolution of the Swedish venture capital market
In 1992, government established new investment corporations, Atle and
Bure, where it invested SEK 6.5 billion. In 1995, their shares were sold out
on a stock market, except 10%, which government was still keeping as pension funds investments. In the end, Atle and Bure became later stage investors.
Along with government support, which was done at that time, new insti- tutions for supporting entrepreneurs and venture capitals were created. The Swedish Board for Technical and Industrial Development created programs to help businesses, which is linked with technical innovations at the early stage.
The ways of this help were different: loans or project guarantees. Moreover in 1995, The Innovation centre was created, which helped technical innovations at the early stage by paying technical and commercial licenses. The Swedish Indus- trifonden also has changed its policy to support early stage by providing money for: “specific projects (maximum 50% of total costs); capital against royalty (maximum 50%); credit guarantees (maximum 80% of the loan); and, in partic- ular after 1996, VC in exchange for shares or convertible loans” (Karaomerlioglu and Jacobsson, 2000). These and the growth of a stock market trigger off in- crease of the venture capital industry.
The Swedish venture capital evolution happened because some necessary changes have been made. Firstly, in 1980s insurance companies were not al- lowed to support start-ups. From 1996, government pension funds also started to give money to start-ups, however not directly, but by investing in venture capitals. In compassion with U.S., Sweden was 17 year behind. The six AP fund (government pension fund) expanded 10% of its savings on venture firms (Karaomerlioglu and Jacobsson, 2000). Nevertheless, it was only small share of the fund’s money - the most part was inaccessible. The Swedish venture capital sector changed its infrastructure by introducing new form- limited partnerships, which in 1990 became a dominant one. Legitimation’s improvements also took place. The most intensive one was dated in 1990-1991, which reduced max personal income tax from 85% to 55-58%, and lowed corporate tax rate until 28%.
Still compared to U.S., Swedish tax system is more exigent. In Sweden, taxes are paid three times: company income taxes, the venture capital dividends taxes, and the taxes that investors are paying from their dividends. In U.S. taxes are paid two times, limited partnerships are tax-free that rises their investment attractiveness.
In 1990, three new over-the-counter markets were created: AktieTorget, Stockholm Bourse Information, and Innovationsmarknaden. Within the stock market boom, firms will be more attracted towards placing their shares in Swe- den market, venture funds to have high returns through IPO their portfolios (Karaomerlioglu and Jacobsson, 2000).
In the late 1990s, there were 200 firms with investments more than SEK 120 billion on the Swedish venture capital market. This leaded to the concentration of high-risk investments, and high valuations. In 1999, Sweden was the most investing country in Europe (SVCA, 2000). The overheated market collapsed, many new firms became bankrupt, and so high interest to invest into early stage disappeared because of the high uncertainty.
Further evolution of the Swedish market is shown on the Figure 2.4 (Sderblom,
2012), the figure includes raised Nordic funds, which are interested in the
Swedish market. The number of venture capitals on the Swedish market was
diminishing until zero the year 2004 that followed by a sharp increase and de-
crease until zero again. The figure clearly indicates that the number and amount
invested in the Swedish market dropped over time. However, the size of the ven-
ture capital pool did not diminish as much. One of the possible explanations for this is that companies which collapsed were mainly small and inexperienced, but the rest and new players are mature and lager (SVCA, 2003). The venture capital also shows mainly the size of a market, but not its activity.
Figure 2.4: Number of raised Nordic VC funds (active on the Swedish market) and total commited capital 1983-2010
The share of non- Swedish funds with interest in Swedish market increased over time (S¨ oderblom, 2012). Last two funds raised on the Swedish market were Danish and Norwegian. There are also few international funds on the Swedish arena, which are interested in Swedish start-up companies. Thus, within the time, the Swedish market have become more and more international.
2.4 Further development of Swedish VC indus- try. The 2008 financial crisis. The situation after and before
In 2007, Nordic private equity market increased significantly up to 40% com- pared to previous year, so when in 2008 global economic crisis was initiated, the Swedish market reached its peak.
1Before the crisis, Swedish investments divided on venture (17%) and buyouts (over 80%). Compared to 2006, in 2007, 27% more companies were invested, and number of investments grew by 43%. In 2006-2007, economic area situation in the Nordic region was better than in Euro zone. Real GDP of Denmark, Finland, Norway, Sweden exceeded GDP of European countries, and inflation
1All the data from this section is taken from SVCA reports of 2008-2010 years
remained lower. In 2008, there were around 70 venture funds, located in Sweden (EVCA Nordic report December 2008). Net return from investments since 2006 in the Nordic region overstepped European average: in the year 2007, it was 15% compared to 12.1% for Euro zone.
The year 2008 changed nothing in fundraising in the Nordic area, but invest- ment activity dropped down by 35% in value. The figures of 2009 showed that there was a steep slowdown in private equity activity; however, while having 11 bilion of euros
2available, players were careful to invest. In 2009, the situation on Nordic market became worse, affected by the global situation. All market indicators were falling continuously, at this time, even fundraising fell by 40%.
The figures of 2010 showed that Nordic private equity investment market started its recovery faster than European one. On the second, half of 2009 investment grew by 23%, compared with 18% for Europe.
Venture investment activity fell by 40% in in the first six month of 2008 related to the year 2007. The most preferable areas were business and indus- trial (30%) by money invested-in, and computers and consumer electronics by number of deals made. Life science’s share, which was at 30%, decreased to only 10% of total investments. However, in the interval from the rest of 2008 to 2011 business and industrial sectors were main divestment areas. Life science, on the contrary, was a popular area for investment by amount.
During the whole time between 2007 and 2010 Nordic countries attracted the same share of European capital investments: around 10-13%. Hence, 80-90% of deals on Swedish market were mostly made by domestic funds with domestic companies. However, concerning the amount invested, 27% of it was made out- side of the home country, 40% of that was invested in Nordic region, and 60%
outside the union, preferably in west Europe, Germany secured more than 60%
of these investments. In 2007, Sweden had negative balance of finance; it in- vested 659 million of euros more than it was invested-in, the situation continued to be negative, and in 2008 net inflow was already -787 million of euros. How- ever, with sharp increase in the share of Nordic countries investment inside the region, not outside as in 2008, in 2009 Sweden had net inflow of e 160 million.
Figure 2.5: Investment in the Nordic region ( e million), 2007-2009
2The estimated capital available for investment is calculated as the difference between the cumulative funds raised in the period 2004 H1 2009 and the cumulative investment value during the same period.(Nordic Report 2009)
Even though the private equity market was rising before the global economic downturn, the influence of the crisis had shown up almost immediately. As it was written above that in the first half of 2008 venture investment fell by 40%, during first six month of 2009 it continued falling even more down 65% compared with the second half of 2008. However, even if by number of deals investments had decreased, by size of money invested in, a sharp growth was observed.
In 2009(Figure 2.5), situation was surprisingly better with investment of only e 2.9 billion in Nordic region, and e 1.1 billion in Sweden, which was 68% less than previous year. Nordic firms invested around e 2.7 billion, of which 22%
were financed in non-original country, in 75% of cases this company was located in Nordic countries, compared to the year 2008, when 70% of investment was in non-Nordic region. Nevertheless, in 2010 Nordic countries went out of the downturn, and increased their investment to 23% on the last six months of 2009.
The venture sector had growth by 6%, around 450 firms had their financing.
Speaking about the situation of 2008, Sweden represented the most venture active country in Nordic region with 20% out of total investments going to venture industry. In 2009, with 19% of venture capital investments Sweden still was the most venture- focused country in the Nordic union.
Figure 2.6: Divestment in the Nordic region ( e million), 2007-2009 Compared to 2006, share of divestments rose by 53% in Nordic union in 2007, with leading by sales to other equity firms (29%), and followed by trade sales (27%). Total amount, divested on Swedish market was around 1.4 billion of euros (Figure 2.6), which was done by 188 divestments. By flotation, Nordic region was the second active region after Germany at that time. Taking into account number of deals and number of companies divested, Nordic union was at the same level as the UK. In 2008, Swedish divestments decreased significantly by 50% of the 2007-years amount that became e 587 million divested by amount (Figure 2.6). Only two invested by ventures companies went public in the first six months of 2008.All deals were done at small and mid- market scale not only in Sweden, but also across the Nordic area as whole, where about 90% of firms divested were small size. In this year, the most popular type of disinvestment appeared to be trade sales with more than 40% at cost, and 25% of the total companies exited (Figure 2.7). Write-offs of companies exited went up by 40%
compared to the 2007 data. In 2008, divestments mainly were on domestic
level, with sharp reduction of European private equity firms share in five times, and shutting down non-European private firms divertissement activity to zero.
Nordic divestments grew slightly in 2009, so for Sweden the value was up 49%, which equals e 724 million (Figure 2.6). Compared to 2008, where there were no big divestments, in 2009 two large divestments were done by total of e 404 million. Nevertheless, the biggest share (95%) formed by small-sized firms. As the result of the crisis, not only in Nordic area, but also in Europe as whole, there was a growth in write-offs by more than 40% (Figure 2.6). Second popular type of divestment was trade sales with a share of 25%. In Nordic region, divested firms were mostly local around 87%, which corresponded to 58% in money equivalent. Even if there were some divestments from abroad, they all came from other countries, located in Nordic region, mainly Sweden.
Figure 2.7: Divestment by method (% of total), 2007-2009
Sweden was successful in fundraising during 2006 and 2007. In the first year, the amount earned by Swedish funds was around 9,500 million of euros, which fell down to 5,000 million of euros in 2007. At this time, more than 60% of Swedish money was raised abroad. During 2006-2008, main sources of financing were pension funds, insurance companies, and funds of funds, which contributed around 56% of raised funds (Figure 2.8). In 2008, Sweden raised around 7,000 million of euros. Largely, the amount was greater than in 2007 because of closing of two large buyout funds, which resulted in e 6 billion of inflow.
Except buyout sector, there was significant decline in all other sectors like
at venture capital deals by 60%, at commitments of generalist funds by 86%,
and amount raised by growth capital funds was down 80%. Swedish funds lo-
cal fundraising fell from 40% to 10% in 2008. Fundraising in the Nordic union
followed European pattern and fell by 89%. The reason of such a major decline
was drying out of three billion buyout funds of the 2008 year. Buyout funds cap-
ital diminished by 94%, growth capital funds commitments decreased by 83%,
and amount raised by venture funds fell by 50%. In this complicated situation,
domestic investors played a certain part as a primary investment source. In
Figure 2.8: Sources of funds raised in the Nordic region (% of total), 2007-2009
2009 when the situation was completely hard, pension funds declined to sup- port Nordic funds as before, so government agencies became a main subsidizer with a share of 31%.
Figure 2.9: Venture investments in Swe- den, 2007-2009
Singling out only venture in- vestments, between 2006 and 2007, Swedish venture market increased by 100 million euros by amount, the number of deals enlarged from 500 to 650. In consequence of the highest R&D spending on GDP, which equals the share of 2.8%, while on average in Europe it is 1.9%, seed market took the second place after Germany in terms of activeness. Nevertheless, Nordic region outstripped Germany by two times, with respect to the amount of seed companies invested- in. The trend continued in 2008, when 20% of all companies financed were companies from Nordic region, which were invested by total amount of e 963 million, which equals to 14%
of total European investment. As it
was during preceding years, Sweden
was the main driver in this area with a
share of 50% of amount financed, and
40% of invested-in companies (Figure
2.9). By influence of global crisis, the
financed amount was less than in 2007
by all types of investments, but seed, which increased by 14%. Nordic compa-
nies mainly (around 80%) were financed by local private equity firms. In 2009,
Nordic venture market started to recover with 35% growth in the second half,
the increase continued in the first half of 2010 up to 6%. This pattern had an effect on the number financed companies, which significantly rose by 42% from 238 to 337 firms, between 2009 and 2010 (Figure 2.9). The european market on the contrary continued to decrease. Later-stage investments peaked to e 138 million, but slightly diminished in number five investments less. Seed invest- ments as start-ups remained stable, except the last growth by 50% taking into account firms financed. By number of firms, life science and computer and con- sumer electronics were the most invested-in sectors in the first half of 2010, but life science was already in third place ( e 61 million) after computer and con- sumer electronics ( e 82 million), and energy and environment (e 66 million) by investment. In spite of consistent decrease during the past few years, Swedish venture market remained the most active in Nordic region with e 201 million of investments and 234 firms financed in 2009. In Europe, the Nordic market was second after Germany.
Figure 2.10: Evolution of Nordic venture investments by number of companies Index H1 2007=100
In 2008, venture divestment equaled to e 407 million in Nordic union, where
Figure 2.11: Evolution of Nordic venture investments by amount Index H1 2007=100
Sweden took the lion share of 55% (Figure 2.12). Strong disinvestment fluctua- tion in venture sector started in Nordic region in the first half of 2009, when 50 financed by venture funds firms were sold, which corresponded to a drop of 80%
by amount. As in the previous two years, the situation remained the same, and
trade sales had the most share divestments (39%) at cost, sales to management
was the main divertissement type by number of companies though. The most
divested sector was life science with 40% of total amount, unlike in 2008, when
it was communications (Figure 2.13). Observing market by amount of exit, the
leading place is taken by the computer and consumer electronics sector. In the
first half of 2010, there were only 54 divested firms that was 26% less than pre-
vious period. The most popular type of venture divestment was trade sales with
33% by value, and write-offs with 15 firms exited by number of companies. In
both 2009 and 2010 life science counted for the biggest share by amount ( e 57
million) and companies divested (23) (Figure 2.12). The pattern of divestment
remained stable, except from quintupling of agriculture sector divestment by amount, in the first half of 2010 (Figure 2.13). Nordic divestment market rep- resented a share of 11% of European market, which was 90% less than its share of 2007; however, both markets diminished in their size.
Figure 2.12: Venture divestment of Sweden, 2007-2009
Figure 2.13: Sectoral distribution of venture divestment in the Nordic region
( e), 2007-H1 2010
2.5 Conclusions after SVCA reports preliminary analysis
This economic crisis is a worldwide event, in order to the venture industry to stay untouched. After the consideration of last reports of Nordic venture industry, it is possible to draw some conclusions. Firstly, the main investors of venture funds are mainly pension funds, banks or insurance companies, which are highly affected by the crisis. Thus, they will be more careful with their investments or stop their financing at all. In terms of the situation with the Nordic investment market, governments agencies and funds-of-funds became primary investors, even if before they were pension funds.
Observing a situation with funds raised within these pre-crisis and crisis years, fund stage focus had also changed. Less attention was given to the early- stage; whereas the later stage venture funds raised twice more capital in 2009 than in 2007. The largest difference was noticeable in balanced venture funds activity, which made three times more commitments in 2009. Thus, if focusing on one stage is more profitable than the others, most probably venture funds would change their target companies too. Besides, during the crisis, the sit- uation on the market in unstable, and investing in the later stage would be safer.
There are only a few conclusions, which can be drawn from the Nordic region market analysis. We can see that the venture capitals did change their previous tendencies in some spheres.
2.6 Venture capitals investment criteria and be- havior
Venture capitals do not invest in every industry. Because the effect of failing projects are different, and high-risk companies are prone to collapse. Thus, venture capitals cash flow shifts from one industry to another depending on the punishment of the industry. Within the time the capitals trends has also been changing. In 1980s, one prospective industry was energy, then all capital moved to informational technology sector. Later more than 25% of venture capital activity is situated in the area, linked with the Internet, some funds specialize only in e-commerce.
Every market has its own stage, and it attracts venture capitalists only at its stable phase. The phase, when market is known, it is low competitive, and low growth. As far as time means a lot in such a market, and it is hard to distinguish between a winner and a loser, since their growth rate looks the same (Zider 1998), the management team, which is able to react fast, and to know how to present its product will be high valued by venture capitals.
“Three reasons seem to explain the strong interest that this field of research
has attracted. First, knowledge on VC evaluation criteria helps those seeking
funds to better judge their own venture project and to avoid potential flaws in
their proposals. Second, the findings provide members of the VC community
with an aggregate view of the evaluation criteria in use and with an empirical
basis for comparing their own judgment to that of their peers. And third, as VCs
are considered experts in identifying promising new ventures, their evaluation
criteria are often interpreted as success factors for emerging firms (Riquelme and Rickards, 1992; Shepherd and Zacharakis, 2002).”
From all companies, in which venture capitalists invest in, only around 20%
are successful (Zider, 1998). Considering this fact, evaluation of the company’s project is very delicate procedure, which demands not only strategy, but also luck. This evaluation depends on several criteria. From literatures point of view, the conclusion is that venture capitals pay attention to the entrance market: its stage, and growth, the product, the rate of return, and the measure of the projects risk. However, the value of various criteria is different, and probably changes over time. There are quite a few studies, which are related with this topic.
In the Figure 2.14 below, we can obeserve main evaluation criteria of venture capitalists from several sources (from the study by Franke, Gruber, Harhoff, and Henkel, 2008). From this table, it is clearly noticeable that in this researches there are a few primary points, which have a great influence on investment decision-making.
One of the criteria, which matters in decision-making is the experience of venture capitals (Shepherd, Zacharakis, and Baron, 2003). Not only confor- mation to criteria is important, but also how a venture fund interprets them.
Experienced capitalists are able to apply more mature concepts, to create richer links between them, and to have better understanding of an “invested-in firm”
(Lurigio and Carroll, 1985).
However, experience is a decision-making criterion for the both sides: ven- ture capitalists, and entrepreneurs. According to Franke, Gruber, Harhoff, and Henkel, 2008, there are several types of experience. Firstly, industry and lead- ership experience, which become knock-out criteria for venture capitalists. It is remarkable that usability of having one member in a management team with industry experience gives it much more usability than an employment of the whole team with industry experience. This means that for being investment- attractive it is enough to have one or two managers with industry experience.
The same pattern is observed for leadership experience.
Secondly, the company team should be heterogeneous consisting of engineers and managers. A homogeneous team with only one type of members on the board will have almost zero value.
Thirdly, academic background is inherent. By that one means the team level of education is significant, but according to Franke, Gruber, Harhoff, and Henkel, the 2008 research, not all team members academic background signifies, but only some of them. Next type of experience criteria, which is analyzed by venture capitalists, is acquaintance of the team members. Among the facts that are important is durability and type of relations: private ones are less valuable than ones which are based on a professional background.
Last criterion, which is significant for venture capitalists, is age. They give zero usability for a team that is composed of only young people (25-35 years), 20% more for a mixed team, and 0.51 evaluation of an older team (35-45 years).
According to Izindi and Visagie (2011), among valuable criteria, there are
management team, market drivers, product, scalable business model, commer-
cial proof of concept, venture capital specific factors such as pre-existing portfo-
lio and fund phase. According to the author’s conclusion, market and manage-
ment team are the most important factors for venture capitalists, and depending
on funds size, they will set one or the other as the prerogative. Moreover, the
Figure 2.14: The evaluation criteria by rank order of importance
order of criteria is changing with the stage of investment in company. Later- stage investors will give higher importance to commercial proof of concept then early- stage investors. Product is by far the most important criterion, and ven- ture capitalists will look at specific factors in the last turn. However, it does not mean that if the least important parameter does not fulfil requirements, that venture capitals will still invest in a business. All criteria eventually are significant for the funds decision-making.
One of the most valuable criteria is an industry of invested-in company (Hall and Hofer, 1993). Venture capitalists will not put their money into their non- target field. Also in the view of the authors, introduction of the firm’s project plays a certain part and no matter how genius an idea is, without a professional presentation, the firm will be declined. However, professional demonstration of the project works only one way, and it does not ensure that venture capital will invest in this firm.
The study, which has been done by Macmillan, Siegel, and Narasimha (1985),
claims that “the quality of the entrepreneur determines venture capitalists’ de-
cision”. All business plans are important only because of their identification
of entrepreneurs capability of tracking records, knowledge of market, and can react to risk appropriately.
However, venture capitalists criteria are subjects to criticism. According to
most recent researches, most venture capitalists cannot give a clear explanation
on how they make decisions (Zacharakis and Shepherd 2001). Even if al criteria
are used, it does not lead to the best investment (Mainprize, Brent, Hindle,
Kevin and Mitchell, Ron 2002). According to the previous authors, there are
two types of schools: “espoused criteria” and “known attributes”. The first
school names criteria, which venture capitals claim they use, the other school
proposes a few attributes, which are innovation, persistence, flexibility, rarity,
value and non-appropriability (Mitchell 1998), that are necessary for ventures
successful survival.
Methods
3.1 Participants presentation
For the research, seven participants were picked up. Some of the funds are bigger, some smaller, but each of them is a significant player on the VC market.
There are several reasons why only these seven funds have been chosen.
Firstly, we are looking only at institutional investors. Secondly, our research observes the VC funds market during the period 2005 - 2012, and our purpose is to examine the funds, which are the main drivers of the market. Thus, we are taking into account only the funds active during the completely studied period.
That raises one more requirement: the fund should have done at least one investment per year on average. Finally, we are interested only in funds of two types: Swedish, focusing on Sweden, or Nordic, having Sweden as a preferable investment location. As a result, the only funds fulfilling all the requirements listed above are the selected seven funds. During the period 2005 - 2012, only these funds were active, and Swedish market can be characterised by their data.
The first observation of the funds was made directly through their sites, and some key points were underlined. These summaries are listed below.
Industrifonden
1Industrifonden was founded by the Swedish government in 1979.
Assets under management: SEK 3,8 billion, of which SEK 1,4 billion is in- vested in firms.
Number of Companies under control and successful exits: 50 exits af- ter 2000. It currently holds shares of 90 companies.
Focus: small and medium- sized Swedish companies, preferably with equity capital. The firm should have not more than 250 employees, and maximum of SEK 40 million in sales. The ownership interests should be between 15 and 50 percent. The investing amount differentiates from SEK 5 to 100 million.
1The information is taken from http://www.industrifonden.se/ as it was on 26th of Septem- ber 2012.
Target industries: IT, telecommunications, electronics, life sciences, indus- trial technology, energy and environmental technology (CleanTech).
Additional information: Industrifonden prefers to syndicate, only in rare cases it performs as solo investor. The year 2011 the company reached
“the best result ever”, the reason for such a success is the sale of Qlik Technologies Inc. shares, which brought 40 times more than its invest- ment. In addition, Industrifonden made 12 new investments.
SEB venture capital
2SEB venture capital is a part of SEB bank. SEB VC was established in 1995.
Assets under management: SEK 2,4 billion, of which SEK 1,8 billion is in- vested in companies.
Number of Companies under control and successful exits: Since 1995, the company has done 95 investments, with 60 successful divestments. It currently holds shares of 27 companies.
Focus: emerging companies within technology and life science as well as more mature growth companies in most sectors. The sales of a target com- pany should suit range of SEK 100-500 million. Preferable shareholding is between 20 and 49 percent, investing amount vary from SEK 20 to 100 million Target industries: IT, life science.
Additional information: SEB venture capital rarely does investments in early stage. The target company’s revenues should prove viability of its business model. The investment horizon is from four to seven years.
Northzone Ventures
3Northzone was founded in 1996 as technology investment partnership.
Assets under management: SEK 3 billion, SEK 1 billion out of which is investment capital
Number of Companies under control and successful exits: Northzone has done over 75 investments, and currently it is investing in 25 firms. Focus:
start-ups, early, and expansion (only currently) stage companies. The company investments vary from SEK 5 to 100 million.
Target industries: mainly IT.
Additional information: Northzone ventures raised six funds since 1994 year.
2The information is taken from http://merchantbanking.sebgroup.com/our-services/SEB- venture-capital/ as it was on 26th of September 2012.
3The information is taken from http://www.northzone.com/ and http://www.nordicventure.net/NorthzoneVentures.asp as it was on 26th of September 2012.
Creandum
4Creandum is a partner owed venture capital firm.
Assets under management: SEK 1,05 billion.
Number of Companies under control and successful exits: Creandum is currently investing in 17 companies.
Focus: seed, early and later stage firms from Northern Europe. The investment amount differs from a company’s stage: between SEK 0,8 - 8,8 million in seeds, SEK 8,8 35 million in early-stage A rounds, and SEK 44 - 88 million A-rounds of companies that have come further in proving their business and business models.
Target industries: IT.
Additional information: Currently, it is the fastest growing independent part- nership in Nordic region.
POD Investment AB
5POD was founded in 2000 as a privately held company.
Assets under management: SEK 1,4 billion, SEK 0,7 out of which is in- vested.
Number of Companies under control and successful exits: Now the fund is holding shares of 9 companies.
Focus: “The fund is interested in mid stage, growth capital investments, and syndicating later stage investments in corporate spin-outs, bridge, man- agement buy-outs, recapitalizations, and privatizations of mature compa- nies” in Nordic region. The target company’s revenue should be in the range between SEK 44 and 444 million.
Target industries: IT, Communications, Consumer sectors.
Additional information: The fund prefers both solo investments and co- investments. POD also is open for investments in non-technological con- sumer goods and services.
Via Venture Partners
6Established in 2006, Via Venture Partners is an independent and privately owned VC fund.
Assets under management: SEK 2,5 billion
4The data is taken from http://www.creandum.com/ and
http://www.nordicventure.net/Creandum.asp as it was on 27th September 2012.
5The information is taken from http://www.podinvestment.com/ and http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=1061755 on 27th September 2012.
6The source of information: http://www.viaventurepartners.com/about-us.
Number of Companies under control and successful exits: The company currents hold shares of 14 firms, and have had two successful exits.
Focus: growth stage companies, which are ready for commercialization outside Nordic region. Via Ventures is also interested in seed and early stage. The target company revenue should be from SEK 44 to 656 million. Maximum investment is SEK 175 million.
Target industries: Exceptional Technology (ICT), including Internet, Com- munications (Software). Second target areas are industrial and health markets, as far as they are going along with IT decisions
Additional information: Their only limited partner is ATP (the largest Den- mark pension fund).
Conor Venture Partners
7”Founded in 2005, Conor Venture Partners is owned and operated by partners Sami Ahvenniemi, Jari Mieskonen, Manu Mkel and Jarkko Penttil”
Assets under management: SEK 0,7 billion, with SEK 0,2 billion of invest- ments.
Number of Companies under control and successful exits: 10 current in- vestments.
Focus: early stage. Initial investments vary from SEK 4,4 to 13 million, but during the investment lifetime it increases to SEK 70 million.
Target industries: ICT, electronics, embedded systems, and new materials and optics.
Additional information: Conor does not have any interest in local compa- nies, only global mindset. Currently manages two funds: Conor Technol- ogy Fund I and Conor Technology Fund II.
3.2 Collection of data
The first step, familiarization with eight venture funds through their own Web pages, is done. Hence, the first impression about them is formulated according to their own presentation. Further research will include deeper insight into statis- tics. One of the data sources is SVCA (Swedish Venture Capital Association), where all eight funds, but Via Ventures are currently participating. Another source is databases and news that allows us to create a table, which includes all investments at least from the year 2006 to present. Detailed description of these two methods follows below.
7The information source is http://www.conor.vc/about-us/.
3.2.1 General funds information from SVCA
The Swedish Private Equity & Venture Capital Association (SVCA) is “the industry association for the private equity industry in Sweden. Private equity
& venture capital are active forms of ownership and act as catalysts for growth in the Swedish economy”
8.
Some years ago, SVCA had been publishing an annual book, where it had included brief information about all its members. Although, Via Ventures does not have SVCA membership, this data is significant in order to create funds’
development timeline. Thus, it is possible to track their changes.
After analyzing, and extraction of data, the tables with several fields are created. The most important for us is “Classification”, which describes the funds’ focus.
3.2.2 Creating the funds profile
Next step provides closer view to all research participants. Since the table created from SVCA database does not contain enough information to make conclusions, this is the reason why the specified table for every VC fund is going to be created.
All examined venture funds have their own vision and strategy that makes them unique and attractive targets for the research. From their own description, it is clear that mostly they prefer to co-invest; that makes us draw a conclusion that there can be some type of alliance, and allies can have similar behaviour pattern.
Closer look at every fund grants completeness of the research, and assures about conclusion’s correctness. Thus, the full table of all fund’s investments is going to be done. The sector of every invested company will be defined, in order to underline if there any preferable sector (such as IT or BioTech). With the same purpose, the field “Venture Round” is going to be included. Moreover, the time of every investment will be specified to organize prototype of timeline. If there is such information in the Internet, the amount of the investment s is going to be indicated. However, some companies prefer to disclosure this data. By the end of every year, these amounts will be sum up into the annual number that helps to see the change of investment pattern during all the period 2006-2012.
For observing alliances, the fields “Number of investors” and “Co-investors” are added.
For searching such a sensitive data, funds’ Web sites can be used. However, if the fund prefers not to disclose its investments information, there can be different ways to find it. First way is news: sometime even if it is not specified in companies’ sites, some information can filter into press. However, there is a better way than just to search for investments one by one: databases. In this research we use CrunchBase, CB insight, and BizzSparks as information sources. Only in cases when these data pools do not have a complete fund’s profile, we are going to analyse news reports.
Observation of not only investments, but also exits has high importance for this research, since it can be also affected by 2008 financial crisis. Thus, not one, but two table for every fund (if the found information is going to be enough) will be created, sixteen tables in total.
8http://svca.se/en/About-SVCA/.
