By: Shawn Lesser & Alexander Lidgren
Finland, Sweden, Denmark, Norway and Iceland: These five countries are quite different from the “inside” – their economies have different structures, they use different currencies, even languages are not as similar as it might seem which often makes people resort to English in business discussions. The culture and mentality is certainly not the same. So why do we talk ‘Nordics’ and promote a common identity? Because despite the differences, there is a greater historical and social resemblance in this part of Europe that makes business relationships run smoother. Moreover, to the outside world, the Nordics (or Scandinavia) is a much stronger brand that helps putting those countries on the map. Together, these five countries have become the global leaders within the international cleantech industry. It is necessary to see what has made this geographic location stand out above the rest when it comes to clean technologies, including renewable energy and energy efficiency.
1. Not so small when combined. As pointed out by the Nordic Innovation Centre: The Nordic region combined is the world’s tenth largest economy. This gives a critical mass when it comes to finding deals, entrepreneurs and co-investors.
2. Big industrial actors in the cleantech race. The cleantech sector in all Nordic countries benefits from a number of established industries throughout the region that help to invest in, manufacture and produce items that can be used in the race for clean technologies around the world. These sectors throughout the Nordic countries that have adopted cleantech attitudes include the Swedish automobile industry, oil and gas companies throughout Norway, Finnish information technology and precision electronics, and geothermal industries throughout Iceland.
3. High environmental awareness and corresponding economic instruments. Both factors have greatly contributed to the development of what was first “alternative” energy sources. The Society of Nature Conservation, World Wide Fund for nature, and Greenpeace have some 500,000 supporters and members in Sweden, a country with a total population of 9 million. Denmark is a clear example of the latter taking the lead in race for wind power in the European Union (with 26% of the national generation capacity allocated to wind in 2009)
4. Strong cleantech research. The cleantech sector has strong routes in technical research institutions such as VTT in Finland, DTU in Denmark, KTH and Chalmers in Sweden, with new materials and renewable energy related research on top of their agendas.
5. Public money boosts cleantech in the right places – Research and development and demonstration plants. In all the Nordic countries, there is significant public support to the cleantech sector. Tekes and Sitra in Finland, Swedish Energy Agency and Vinnova in Sweden, Fornyelsesfonden and Danish Energy Agency in Denmark, as well as Norwegian Enova and Innovation Norway are good examples. Many of them are targeted specifically to renewable energy and energy efficiency technologies, with energy authorities being the most generous funders in Sweden and Denmark (providing over 80% of public funding share in 2009).
6. Internationalisation a necessity. For companies from the Nordic region, international expansion is not an optional benefit, but rather a prerequisite for success. Home markets are often too small to build up a solid customer base, and, especially for capital intensive energy technologies, there is not enough public funds and risk financing available for commercialisation of those technologies. As a consequence, foreign markets, primarily within the EU, are targeted by most cleantech companies early on in their development cycle. This process is starting to become well facilitated by participation of a foreign venture capitalist base with good market knowledge and industry contacts. During the last four years we have observed growing interest from international industrial and venture capital towards companies in the Nordics: four out of five largest investments in Nordic cleantech companies in 2010 involved non-Nordic capital.
7. Others have done it – so can I. Not to be underestimated is of course a currently thriving technology – entrepreneurship culture in general. The Nordic countries are home to recent international success stories on the general technology scene – Skype, MySQL, Spotify as well as internationally renowned cleantech companies REC, Vestas and Vacon. This provides entrepreneurs with role models, inspiration and mentors. Because the area is ripe for entrepreneurship opportunities, many newer cleantech companies look to not only invest in these countries, but also build their own businesses there.
8. Strong local venture capital community to syndicate with. A number of established venture capital funds in the Nordics now have cleantech as the main or one of the prioritised investment areas: funds like Northzone, Sustainable Technologies Fund, Stora Enso Ventures, IKEA Greentech, BankInvest, Vaekstfonden, VNT Management, Energy Future Invest, Volvo Technology Transfer – to name just a few – have been actively investing in cleantech growth during the past several years and back some of the companies profiled in this publication.
9. Now is the right time to invest. We have only seen the first wave of growth in the Nordic cleantech sector. Turn-over is growing among members portfolio companies and through initiatives such as Nordic Cleantech Open, a promising pipeline of new start-ups can be recognized. Exits and success stories have started to emerge (such as Swedish Solibro, providing their backer with EUR 30 million in profit over five years). With evaluations reasonable after the financial crunch and several success stories in the making but not yet exited, now is the time to invest.
10. Utilization of what they have. The most telling example is Iceland, a country geographically set apart from the rest, whose isolation has pushed them to look into renewable energy sources partly because of the increased price of shipping over fossil fuels. Iceland is more than 80% reliant now on renewable energy sources, mainly utilising their abundance of geothermal power. All the Nordic countries, whether it be bioenergy, wind, water, sun, or geothermal, know how to look at what they have and utilize it to the utmost degree to get the renewable energy they need.
The Authors Shawn Lesser & Alexander Lidgren can be reached at shawn.lesser@sworldcap.com and bigge@cleantechscandinavia.com
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