An integrated and effective Nordic ecosystem for innovation and green growth A closer look at access to risk capital in the Nordic countries BY IDAR KREUTZER 1 An integrated and effective Nordic ecosystem for innovation and green growth A closer look at access to risk capital in the Nordic countries Idar Kreutzer ANP 2018:814 ISBN 978-92-893-5805-7 (PRINT) ISBN 978-92-893-5806-4 (PDF) ISBN 978-92-893-5807-1 (EPUB) http://dx.doi.org/10.6027/ANP2018-814 © Nordic Council of Ministers 2018 Layout: Mette Agger Tang Print: Rosendahls Printed in Denmark Nordic co-operation Nordic co-operation is one of the world’s most extensive forms of regional collaboration, involving Denmark, Finland, Iceland, Norway, Sweden, the Faroe Islands, Greenland, and Åland. Nordic co-operation has firm traditions in politics, the economy, and culture. It plays an important role in European and international collaboration, and aims at creating a strong Nordic community in a strong Europe. Nordic co-operation seeks to safeguard Nordic and regional interests and principles in the global community. Shared Nordic values help the region solidify its position as one of the world’s most innovative and competitive. Nordic Council of Ministers Nordens Hus Ved Stranden 18 DK-1061 Copenhagen K www.norden.org Download and order Nordic publications from www.norden.org/nordpub An integrated and effective Nordic ecosystem for innovation and green growth A closer look at access to risk capital in the Nordic countries PHOTO: UNSPLASH.COM 4 FOTO:FOTO: DSB.DK SCANPIX.DK FOTO: DSB.DK To the Nordic Council of Ministers Thank you for this opportunity to take a closer look strengthen access to risk capital in the early phase. at the need for, and access to, risk capital for early Some work well, but there is significant potential and growth-phase companies in the Nordic coun- for improved effectiveness. tries. This report is based on my observations from more than 60 meetings and consultations with The Nordic region represents a large market and is ministers, ministries, national and international one of the most digitalised, technologically ad- institutions, relevant organisations, banks, inves- vanced and best-integrated regions in the world. tors and important parts of the Nordic innovation Seen from the perspective of international capital ecosystem. I am grateful for their patience and markets, the Nordic countries are often viewed as a wisdom. I would like to thank the Nordic Council of whole – as one integrated region. On a standalone Ministers for all its support of my work, particularly basis, the Nordic countries have limited access to the hard-working, professional and ever-positive international markets for early-phase risk capital. Elvar Knútur Valsson, without whom this report However, an integrated Nordic innovation eco- would not exist. system could develop into a very attractive region for international investors, and it would make sense Job creation and green growth are top political for large international investors to spend more time priorities in all the Nordic countries. New jobs will developing their knowledge of the Nordic coun- be created in existing companies and organisations, tries. In a challenging geopolitical environment, a but a significant number of new jobs will have to be region known for strong institutions, transparent created in new companies based on new tech- and well-functioning markets and political stability nologies and new business models. At the same has significant potential to strengthen its market time, the Nordic countries have all set ambitious position. targets for reducing carbon emissions and have pledged to switch to a low-carbon economy. The This report shows that there is currently very limi- green transition is a challenging task, but also ted actual integration and co-operation between represents major business opportunities. New com- the Nordic countries when it comes to innovati- panies are being developed by innovative entrepre- on and risk capital for financing job creation and neurs throughout the Nordic countries. They need green growth. This report also points to a number access to relevant, competent risk capital to grow, of concrete steps that could be taken to develop a and to create value and new jobs. more integrated Nordic Ecosystem, to realise the significant potential of this region through more The Nordic countries enjoy well-functioning capi- effective use of the current financing mechanisms, tal markets with strong banks and a professional and to attract more risk capital from new investors investor community. The economic cycle is positive, in the region and internationally. It is my hope that and access to capital is good on a macro level. At the Ministers will find this report inspiring and that the same time, there are important differences it will be a small, yet helpful tool in building a stron- between the Nordic countries, between sectors ger, more integrated and greener Nordic region. and in different phases of the development of new companies. Access to long-term “patient” capital is an issue. All the Nordic countries have introduced a Yours faithfully number of different public financing mechanisms to Idar Kreutzer 5 6 Contents 08 Executive summary 10 Key observations 13 Context 19 Status in the Nordic countries – point of departure RECOMMENDATIONS 28 Better-integrated Nordic countries 32 Strengthen the Nordic market 40 Effective framework conditions 46 More co-ordinated and targeted instruments 53 Appendix I: Mandate and limitations 54 Appendix II: Financing mechanisms in the Nordic countries 60 Appendix III: Investments in the Nordic countries 66 Glossary 70 Endnotes 7 Executive summary In 2017, Norway held the presidency of the Nordic An overview of the recommendations is as follows: Council of Ministers. In line with the Norwegian presidency’s emphasis on increased competiti- For better-integrated Nordic countries veness and the green transition, this study was • The Nordic prime ministers are encouraged initiated by the Ministers for Nordic Co-operation. to communicate their common ambitions to The purpose of this study is to explore the potent- create a Nordic, world-leading ecosystem for ial for increased Nordic collaboration in relation to innovation and to develop an action plan ba- financing early-phase companies and companies in sed on the study’s recommendations. the growth phase. • Policy guidelines for stronger Nordic mandates of national institutions should be developed In a global context, the Nordic countries are small, to provide a common approach for national and the Nordic region as a whole is economically instruments to support an integrated Nordic strong, representing a significant, technologically innovation ecosystem. advanced market. Although the Nordic countries • The regulatory framework and relevant tax do compete with each other as attractive domi- rules should be benchmarked between the ciles for companies and investments, there are Nordic countries and with other competing clear synergies in co-operation when it comes to regions on a regular basis. Framework conditi- competition with other regions of the world. This is ons and tax rules should be aligned where this important as companies in each of the Nordic is relevant. countries are facing increased competition natio- • The public sector’s role in financing early-pha- nally, on a Nordic level and on a global level, in their se and growth companies should be defined search for the best competences and access to more clearly. competitive financing. To strengthen the Nordic market Joint Nordic efforts will increase the region’s com- • To further incentivise business angel invest- petitiveness through common political ambitions ments, regulatory frameworks and tax treat- and concrete actions. The region can thus become ment for angel investors should be benchmar- more attractive. This may contribute significantly ked with progressive peer regions. to job creation and green growth in the Nordic • A Nordic white paper should be produced on region. the regulatory changes that will be required to motivate institutional investors, including pen- A number of the recommendations in this report sion funds, to invest in startups and innovative are directed at national ministries and institutions SMEs. in order to improve and develop national instru- • Established national fund of funds structures ments, schemes and the national ecosystems for should be given Nordic mandates, and new entrepreneurship and innovation. Further optimi- fund of funds structures established. sation will make Nordic co-operation an effective • A Nordic plan for green and innovative instrument for helping the Nordic countries reach procurement should be produced with the their national goals, while simultaneously making aim of accelerating the green transition and the Nordic region as a whole more attractive. creating a more integrated Nordic market. Other recommendations are directed at more Ongoing work in the Nordic countries for systematic and targeted Nordic collaboration innovative and green procurement should be where Nordic added value can be achieved by aligned on a Nordic level. joining forces. 8 To create more effective framework To ensure more targeted instruments conditions • National instruments for supporting innova- • The regulatory framework in relevant areas tion and growth can be made more targe- should be improved and harmonised. This ted, effective and co-ordinated by instituti- should be done by learning from Nordic