Financing: No Sweat for Good Concepts
Sweden boasts a mature venture capital (VC) market, with several life science specialists and coverage along all stages of company growth. “Companies with viable business models and a strong product portfolio can always raise capital,” says Lars Gatenbeck of venture capitalist firm H&B Capital.
From January 2003 to March 2004, close to Euro200 million were invested in 240 Swedish life science projects, according to Vencap, the Swedish private equity and venture capital association. Björn Odlander, founder of Healthcap, the largest life science VC in the Nordic countries, says Sweden offers very good access to private equity in the early stages. Several studies support his view. ”The proof is in the numbers. Sweden has the fourth largest biotech industry in Europe and many new companies have been started in recent years.”
Several Swedish VCs focus solely on life sciences and biotechnology. These include Healthcap, H&B Capital, Medicon Valley Capital and Scandinavian Life Science Ventures. Innovationskapital, Investor Growth Capital, Karolinska Investment Fund, Nordic Capital, SEB Företagsinvest, the Sixth AP Fund, the Swedish Industrial Development Fund, 3i Nordic and Innovations-kapital are other major venture capitalists active in biotech. An inflow of foreign VCs has brought international capital markets to Sweden. ABN Amro, Apax, HBM BioVentures, MPM Capital, and Schroder Ventures have all made investments, most often in syndicated deals with local VCs. Examples include financings of Affibody, Arexis, Biolipox and Biovitrum. Indirect foreign ownership is also frequent, as many Swedish VCs have foreign investors in their funds. For instance, more than 90 percent of the committed capital in Healthcap's fourth fund, or some Euro300 million, originated outside from of Sweden, with US investors accounting for over 50% of funds.
Quality and Originality
The hurdles to raise capital are lower for companies in the mid to later stages. ”There is a fair amount of risk aversion towards early-stage projects, and while the premium for companies with products in late-stage clinical trials is not so high, it is currently better to place your bets there,” says Gatenbeck, whose portfolio companies include Aerocrine, Biovitrum, and Cellavi-sion. Still, Gatenbeck says, start-ups with a good and clearly defined business concept usually find capital. Odlander points to the VC selection process: “We say no to over 90% of projects proposed to us. It's not surprising that the average entrepreneur will say raising capital is a challenge.” Since its launch in 1996, Healthcap has raised over Euro650 million for its four funds and invested in over 50 companies. Hans Nyctelius, CEO of SwedenBIO, the Swedish Biotechnology Industry Organization, says the challenge for Swedish biotechs are similar to the situation in other markets: “There is a lack of financing in both the early and late stages of development. The situation for mid-stage companies with a viable business model is better.” According to Nyctelius, an improved financing climate would serve to accelerate Swedish biotechnology.
Early-stage financing of biotech firms may soon get a boost from the government. A report commissioned by the government, has proposed the establishment of a national seed fund, with an asset base of up to Euro65 million in matching funds from the government and institutional investors. Creating tax incentives for business angels and a fiscal environment better suited for VC funds are among other proposals. “These are good initiatives,” says Gatenbeck. “Public support, be it through soft and hard measures, is vital for the industry.” For Nyctelius, measures to improve the industry-government collaboration are vital to capture the industry's full potential. “The government is clearly interested in biotechnology.”
The Swedish infrastructure for support in the seed and pre-commercialization stages include university technology transfer units, angel investor networks and commercialization support organizations such as Connect and Teknopol, which serve to bridge academic and commercial spheres. Vinnova, the Swedish Agency for Innovation Systems, also brings substantial resources to the table. It funds needs-driven research, often with a focus on collaborative industry-academia research projects, and sponsors 13 university-based technology incubators.
Academic research at Swedish universities is continuously yielding new companies, spurred by mechanisms such as the Lärarundantaget (“Teacher's Exemption”), a system that gives researchers the commercial rights to their discoveries. “While the pros and cons of this system are debated, there is no disputing of the fact that the result has been a surge of entrepreneurial activity and the creation of many firms over the years,” says Ingemar Kihlström, an independent consultant and analyst, formerly with ABG Securities. Agreements whereby the universities get a share of the commercial rights in return for commercialization and funding assistance are also frequent.
The IPO Window
Currently, some 20 biotechnology companies are listed on the Stockholm Stock Exchange. Whether any of the non-listed firms will make a debut soon remains to be seen. ”This is the multi-million dollar question,” says Odlander. ”The European IPO climate is lukewarm and a lot of people are waiting for someone to take the first step.” Gatenbeck's Biovitrum could be one IPO candidate. The company, one of Europe's largest biotechnology companies, signed a much-publicized collaborative agreement with Amgen in 2003. Gatenbeck remains cautious however, citing a number of not so successful biotech IPOs both in the US and Europe. Björn Ohlsson, head of life sciences at consultancy Ernst & Young, takes another view. “The Swedish economy is showing strength, and 2004 has so far seen several IPOs. The momentum should have an effect on biotechs.”