Martin Skoglund, Investment Manager, Wood & Hill Investment&

Martin Lackéus, PhD Candidate, Chalmers University of Technology

founders of the following companies

Idea on seed capital

Background

• Gothenburg’s regional growth is lower than the Stockholm region

– Stockholm is a larger region, and attracts many HQs

– Large public sector, well developed financial sector

• Companies need capital to grow

– Stockholm received 50% of the total amount of venture capital allocated in 2010

– Gothenburg received 5% of the total amount of venture capital allocated in 2010

• The most obvious lack in Gothenburg is seed capital

– Very few actors can and will invest in the seed phase

• We need to think anew!

Seed capital in Gothenburg region

• There is a total of around 50-100 MSEK available per year in seed & early

– Traditional types of venture capital funds are difficult to set up in Gothenburg - it is difficult to achieve reasonable IRR in early stages

– Chalmers, ALMI, VGR and Innovationsbron are examples of soft seed money, ~10-20 MSEK yearly

– Almi Invest, Innovationsbron, Chalmers Innovation Seed Fund, Chalmersinvest, Startinvest are examples of slightly less soft seed / early stage money, ~40-50 MSEK yearly (a guess)

– There are some business angels active in the Gothenburg region, often in syndication, ~10-20 MSEK

• The seed share of this is around 10-20% - 5-20 MSEK

The challenge

• The capital market doesn’t dare to invest in the seed phase

– There is not a viable business case if calculating strictly by Return on Investment

• Some business angels still invest in the seed phase

– This is often based on a personal interest or other non-economical reasons

• Business angels have today limited possibilities to build rational portfolios

– Those that have invested have invested directly into the start-ups, with mixed to low success

– Those that could be interested need a better opportunity to distribute risk

Seed Early stage Growth

Institutional investors NO! Maybe… YES!

Business angels Maybe… YES! YES!

Public support capital YES! YES! Maybe…

Investor’s rationale

Investor’s rationale

Seed Early stage Growth

Institutional investors NO! Maybe… YES!

Business angels Maybe… YES! YES!

Public support capital YES! YES! Maybe…

Investor rationale

…to invest in…

…start-ups in seed stage

Investor’s rationale …

• Because it is fun and interesting

• Because you help your fellow citizens and maybe your own kids

• Because you want your own region to prosper

• Non-monetary returns, feels good

• Appealing to the heart, not so much to the wallet!

…to invest in…

• Because it is fun and interesting

• Because you help your fellow citizens and maybe your own kids

• Because you want your own region to prosper

• Non-monetary returns, feels good

• Appealing to the heart, not so much to the wallet!

…start-ups in seed stage

Investor’s rationale …

• Because it is fun and interesting

• Because you help your fellow citizens and most often your own kids

• Because you want your own region to prosper

• Non-monetary returns, feels good

• Appealing to the heart, not at all to the wallet!

…non-profit societies (sport etc.)

How do non-profit societies finance their operations?

How do non-profit societies finance their operations?

Let’s use the metaphor of lotteries for start-ups

Let’s use the metaphor of lotteries for start-ups

EENTREPRENÖRSVERKET

EENTREPRENÖRSVERKET

Entreprenörsobligation

Pris: 5.000 kr

Let’s use the metaphor of lotteries for start-ups

• Not a pure lottery, but emulating some of its mechanisms

• People and companies buy a lottery ticket / bond each year

– 500 / 5.000 / 50.000 / 500.000 SEK

• The money is invested into regional start-ups in seed stage

• Exit money is used to give money back to ticket holders, in traditional lottery manner

– 33% to all

– 33% to a few selected winners, getting a substantial amount of money

– 33% to one winner

• Managed in co-operation with the universities, tickets sold by students in entrepreneurship

– Investment managers or managed through affiliates such as Chalmers Innovation

– Students sell tickets to learn selling and to finance students’ study visits to entrepreneurial regions

Let’s use the metaphor of lotteries for start-ups

Set-up

2012 year’s fund of 10-20 MSEK

2013 year’s fund of 10-20 MSEK

2014 year’s fund of 10-20 MSEK

Management / administrative team

Investments, 0,3-0,5 MSEK per case

Customers – companies and people with a heart

Students selling each year

Investment committee

Investments, 0,3-0,5 MSEK per case

Investments, 0,3-0,5 MSEK per case

Investments, 0,3-0,5 MSEK per case

Web-TV for follow-up & reporting, student led

Deliverables

• Doubled amount of available seed funding in a region

• At least 25 investments every year

• Feeding more cases into early stage and growth capital markets

• Boosting a region’s entrepreneurial ecosystem with more seed capital

– Incubators, entrepreneurship schools, innovators, etc

• Publicly promoting entrepreneurship and the start-up community

– Could be an interesting partner to national media actors

Others do similar things…