We had long been warning of a slow Q3, however, after a pick-up in pace at the end of August it looked like we were wrong to have been so cautious. Ultimately though, our initial projections were not far off, as Q3 2017 ended up being the quietest quarter for Nordic investment for 15 months.
*A quick word on our methodology before we dive deeper; We only record private minority (equity and loan) investments into Nordic tech companies, we do not include secondary investments, nor do we include accelerator investments (for entry into a programme).
As mentioned at the top, with 164 investments, Q3 2017 was the slowest quarter since Q2 2016, with no year-on-year improvement from Q3 2016, coming in at 6 deals less. Q4 2016 is increasingly looking like an anomaly and we have now seen the number of deals in the Nordics plateau. Let’s hope that Q3 is not the start of an increased dip in action.
Despite the fluctuation in the number of deals, the amount of capital has remained fairly steady. In fact, Q3 2017 was the 3rd highest quarter for capital invested since 2016, demonstrating its strength and the fact that despite less deals happening, the money coming in hasn’t been affected, largely due to the number of larger rounds that are happening (more on that below).
By comparing with Q2 2017 we can begin to see where the shortfall occured for the number of investments on a country basis. Surprisingly, Sweden saw 22 less investments than the previous quarter, however, they couldn’t solely be held accountable for the slow quarter. Norway was the only country that recorded more investments in Q3 than Q2 and that was by just one, showing that the summer slowdown was in force across all Nordic countries. (We will be publishing individual country Q3 analyses soon)
As touched on above, the reason why capital remained high and constant was due to the number of investments happening above the $10 million mark, with more investments happening there than at $3-5M and $5-10M, a trend we have seen throughout 2017 as a lot of the companies that benefitted from the increased seed investments in the region in the last 18 months or so are moving through the pipeline and proving themselves worthy of Series A+ investments. Incredibly, 1 in 10 Nordic investments in Q3 were $10millon+. Elsewhere the revival of action in the $500,000-1M bracket continued, although $1-3million (as ever) was the bracket with the most investments being made.
Health and Wellness continues to be the dominant flavour of interest in the Nordics in 2017, keeping previous favourites “Enterprise SaaS” and FinTech” in 2nd and 3rd respectively. Entertainment and Media and Retail had strong quarters, as did Deep Tech, who continued their strong 2017 with another solid quarter of investments. EdTech was the one vertical to add themselves to the mix in Q3 from Q2.
Largely due to the increase of funding rounds above $10 million, International participation has continued to rise throughout 2017, with 21.3% of investments containing at least one investor from outside of the Nordics in Q3 2017, up from 19.3% in Q2. This in turn was a marked increase from Q1’s 16.2%, demonstrating the continued rise during this year, as the region looks outside once more to support its growth companies.
There is no hiding from the fact that investment activity was slow in Q3 2017, contributing to a 2017 that has hardly been impressive on this front. Despite this, Q4 only needs to record 168 investments in order to see another growth year (admittedly one that will most likely be very small) meaning that we shouldn’t be in any danger of a downturn on an annual basis. Most positively though is the continued increase in the number of $10 million+ rounds, as the ecosystem continues to mature both in terms of its companies and its investment scene, with not even summer able to derail this.