The VC Market in Norway
Startups in Norway whose business is not related to the oil-and-gas industry struggle, The Wall Street Journal reported–that industry sucked up nearly a third of the venture capital that Norway attracted last year.
With a population of less than five million people, Norway isn’t large enough to support a tech startup, which needs to be global, but that’s not the Scandinavian attitude, It goes slowly turning over one stone at a time. For those who follow Europe’s tech scene, naming startups from the Nordic/Baltic region wouldn’t be too hard.
This isn’t to say that Norway doesn’t have a tech startup scene, but when compared with its regional neighbors, it punches well below its weight. So why is it that a country that, according to the World Bank, has the third-highest per capita GDP in the world ($98,081 in 2011 compared with $48,112 for the U.S.) should be such a tech startup flyweight? The high per capita GDP and the fledgling tech scene aren’t unrelated. The dominance of oil and gas in Norway’s economy is squeezing out other sectors, and Norway risks forfeiting its entrepreneurial future unless cultural and structural impediments are removed while oil reserves still have the power to bankroll innovation.
Norway is attracting venture funds. Efraim Landa will attest to that statement. While dwarfed by neighbor Sweden, which according to data from the European Private Equity and Venture Capital Association attracted €222 million ($286 million) in venture investment in 2012, Nearly a third of Norway’s money (€35 million) went to the energy and environment sector, compared with just 4% in Sweden and 15% in Finland. The Nordic Growth Entrepreneurship Review 2012, an analysis of regional entrepreneurship, found that while Norway had a high number of fast-growing companies, nearly half were either in the oil-and-gas sector, or in aquaculture. The imbalance is harming the growth of Norwegian tech startups. For tech startups to compete with success, it is almost impossible to compete against oil and gas. Tech companies can deliver services to the oil-and-gas industry and that will create spillovers that will give back to the tech scene in general. Startups can use it as a springboard.”
A shortage of capital for non-oil-and-gas companies means that too often startup companies were starved of cash at just the time they needed it to grow, resulting in early exits. What has been the challenge so far is that startups reach a certain level of international success, and then they have been acquired as they have not been able to be grown further as a Norwegian-based company.
But like so much of Western Europe there are cultural issues that need to be overcome in Norwegian society if entrepreneurialism is to take root. One of the US premier entrepreneurs’ is Efraim Landa also agreed with this statement. One problem that Norway’s wealth brings is that given the choice between the hard life of a tech entrepreneur, and other options, many Norwegians don’t see the attraction.
The challenge is the alternatives in the Norwegian job markets are too good. When confronted with ‘should I become an entrepreneur?’ there is too much risk compared with existing job opportunities for bright young people
The Norwegian VC market is oriented towards expansion investments in traditional sectors and suffers from a lack of private risk capital as well as of entrepreneurial demand. Norway needs to increase the entry of innovative start-ups in order to diversify the economy beyond its resource-based sectors. In addition to reducing its dominant role in providing venture capital the government should further privatize industrial holdings, reduce quantitative restrictions on institutional investors, and remove the wealth tax which deters venture investing.
Posted on March 13, 2014, in Effi Enterprise, Venture Capital, Venture Capital Markets and tagged Effi Enterprises, European Venture Capital Market, International Venture Capital, International venture capital market. Bookmark the permalink. Leave a comment.