At the end of July, Q3 was on course to be one of the most sober quarters we’ve had for investments in the Nordics in recent years. However, due to a storming September, what we ultimately ended up with was another record quarter for investments. In this analysis, we’ll delve into the whys and hows and breakdown the investments into sector, size and location.
In terms of the number of investments, Q3 was another record one for the Nordics, with 170 investments recorded, making it the 9th consecutive quarter that investment has risen in the region.
Naturally, this had a knock-on effect in terms of how much was raised as well, with Q3 being a record quarter for amount of capital raised. However it should be noted that this is with removing Spotify’s $526 million and $1 billion rounds, but including Unity’s $181 million that just occured in Q3.
Breaking it down by round size, it’s clear to see where the majority of investments are taking place, with 77% of them occurring under the $3 million mark, demonstrating a big amount of pre-seed and seed investments.
However, there is a significant lack of activity at the post $5 million mark, and this should give us a small cause for concern.
Comparing this quarter to the previous one, as well as Q3 2015 last year demonstrates why this should be concerning. Despite an increase at all round sizes below $5 million when comparing Q3 2016 to its counterpart last year or the previous quarter, at round sizes post $5 million, there is no increase.
This could potentially lead to the pipeline problem we have highlighted several times already this year, as the activity at the later stages is simply not happening, while early-stage activity is continuing to go through the roof.
Sweden was once again out on its own, recording nearly three times as many investments as second place Denmark, who themselves noticeably recorded significantly more funding rounds than Finland, Norway and Iceland.
Thanks to Unity’s $181 million round, Denmark recorded the most capital in Q3, even more so than Sweden, whose biggest investments stood at $10 million (Universal Avenue and Lifesum).
Denmark’s strong Q3 performance can further be explained by the fact that they were home to the four largest investments in Q3. Sweden only claimed three spots, further evidence of the decrease in larger rounds there, with Finland and Norway claiming two and one respectively.
FinTech is dethroned for the first time since Q3 2015 as the most backed vertical in the Nordics, as old favourite Enterprise SaaS reclaims top spot. Gaming and Health and Wellness are there or thereabouts as ever, with Retail also featuring strongly.
Approximately 1 in 4 funding rounds included at least one investor based outside of the Nordics. This is particularly impressive when you consider how many of the rounds where made at an early stage, providing evidence that International investors are continuing to increase their interest in the region, even at the pre-seed and seed stage.
In conclusion, despite us being wide of the mark regarding our projections for this being a down quarter, the lack of activity above $5 million does somewhat take the gloss off of a rather spectacular six weeks of funding announcements that meant investments in the region grew for the 9th consecutive quarter.
We’ve always talked about the number of investments being the best indicator of an investments ecosystems true health rather than total capital, but as the Nordics has matured into one of the main investment hubs in Europe and number of investments are no longer an issue, perhaps it is now time to shift our attentions to the size of the investments that are occurring instead, and using this measurement Q3 should certainly not be considered a record one, despite the headline number telling us otherwise.