The Future of Venture Capital in Sweden. An optimist per definition

Abstract

The dot-com crash and recession that followed had a giant effect on the Venture Capital industry in Sweden. Invested capital and the number of Venture Capital firms decreased drastically, but even more significant was the change of behavior, characterized by risk avoidance and unwillingness to invest in Venture1. We are now in the beginning of an economic recovery, and the forecasts presented by Sveriges Riksbank2, present a further improvement of the economic conditions for the following years. When the economy picks up, it is generally easier to make exits through an IPO or an industrial sale3, which create opportunities to make good returns4 and attract new investors to the industry5. The economic outlook further increases risk appetite and creates a common optimism6 for this risky7, but exciting8, industry. It is however hard to ignore that the risk-adjusted returns for early stage investments historically been low9. Generally, the uncertainty is higher the earlier phase the investment is made10, which creates a risk / reward asymmetry favoring later phase investments i.e. Buy-out.