SVCA, the Swedish venture capital association, was founded in 1985. Tom Berggren, general secretary of SVCA has been with the association for four years and since that time it has grown almost three-fold. It now has 143 full members and around 94 associate members including business angels. At its peak in August 2001 the association had 160 members, but has experienced around a 10 per cent drop since then. This is partly due to consolidation in the industry, but also because some investors have lost interest in private equity due to a difficult exit environment, says Tom Berggren. Angela Sormani reports.
SVCA’s board has eight members including;
l Jan Sundberg of SEB Företagsinvest (chairman)
l Pontus Braunerhjelm of SNS
l Anne Holm Rannaleet of Industri Kapital;
l Lennart Samuelsson of Industrifonden
l Mats Augurell of Sjätte AP:fonden
l Anders Brännström of Volvo Technology Transfer
l Staffan Josephson of Investor Growth Capital
l Peter Lindell of ITP Invest
SVCA’s core activity is to promote the development of venture capital in the region, providing information on the industry including a directory and website; conventions and meeting places such as organised luncheons where industry professionals can network; training courses; ethical guidelines; research; conferences and government contacts.
Since 2001 it has had a very active VC-network for women to promote female entrepreneurs and investment managers.
A main event is the annual conference coinciding with the association’s annual meeting. Every six months one of the Scandinavian VC associations holds a networking event for Scandinavian VC firms and companies seeking early stage and expansion capital. In addition, the association recently started holding quarterly surveys with NUTEK (the Swedish Business Development Agency).
Legal and regulatory
There are a few factors that restrict the development and give cause for worry about future growth of the market, says Tom Berggren. Among these is the tax system, which normally creates a higher tax for investments in unlisted companies with an active ownership, than passive investments in companies quoted on the stock exchange.
For companies in the VC industry a change in the tax provisions would be of great importance if it meant that realised means from a sale can be invested in new companies without tax having to be paid every time a portfolio company is sold at profit.
The Parliamentary Committee for Certain Company Taxation Issues and Certain International Company Taxation Issues has issued a report (SOU 2001:11) addressing this issue and suggesting capital gains on business shares will become tax free and that capital losses will not be deductible. The new rules are proposed to become effective by July 1, 2003.
But even indirect investments need to be included in the proposed tax exemption as many VC companies are run as limited partnerships. “The important thing is to achieve tax neutrality versus foreign investors,” says Berggren. As a result of the tax system today, more and more firms set up funds outside the country, and if more funds leave Sweden the risk increases that Swedish growth companies will not receive the necessary funding and support.
Berggren says: “The SVCA has an important task in giving a clear picture of the industry in the media, which has resulted in not only a notable media coverage but also an increased interest for the industry from investors and from the government. This interest has led to a number of fruitful meetings with representatives from the government where
the association has been able to inform and educate on why the private equity industry is of such vital importance for the Swedish economy.”
He cites The Sixth National Pension Fund as an example of raised commitment to private equity. The fund is an independent trustee of Swedish pensions and in the late 1990s decided to change part of its investment focus to provide small- and medium-sized growth companies with equity.
Since then it has invested in 36 Swedish VC funds and has €1.7 billion under management. Since 2001 The National Pension Funds 1-4 are allowed to invest five per cent of their capital in unlisted companies. This amounts to around SEK2.7 billion, a development Berggren sees as positive.
;The SVCA’s promotion of the VC industry has also resulted in a great number of new funds being formed since 1998. Today our members have about €20 billion under management,” he says.
Berggren predicts an increasing interest from international investors probably connected with Sweden’s position in the IT, telecom and life sciences markets. Today he says
there is a foreign VC present in two out of ten deals in Sweden. He says: “With one of the highest penetrations worldwide for mobile phones, PCs and Internet, Sweden is generally regarded as a very good test market in Europe for products that need to expand internationally. It is a good place to do deals as everybody speaks good English
and a lot of our large corporations are international so there is a tradition of doing business internationally.”