Vidici Busting Myth on Nordic Fintech: It’s Still an Under-served Sector

There is a general misconception that fintech in Europe and especially the Nordics is well funded, and it’s no problem to raise capital. This might be true for large companies such as Klarna, Tink and Trustly, but for early stage fintechs, the reality is very different.

Stockholm City Hall

The Perception of European Fintech

Funding rounds made by large fintech companies continue to break records, in valuations and in funds raised. Klarna, for example, has a market cap larger than all but one of the main Swedish banks. This gives the impression of a well-funded sector with a lot of growth. The truth is that most of the capital goes to top-tier companies in the later stages. Of all fintech investments in Europe in 2019, around 86 percent of the capital went into the top 10 deals. This left only 14 percent for the remaining companies, who are supposed to set the stage for the next wave.

Sweden Leading the Way

Having generated the most unicorns per capita — second only to Silicon Valley — there is no denying that Sweden is a tech leader in Europe, especially when it comes to fintech. Klarna, Spotify, Mojang have reached unicorn status and Trustly are all moving closer. Why Sweden and the Nordics have become such a great region to start tech companies can be attributed to several reasons.

There is a “digital native” population, for a start, along with a digitalised infrastructure with Mobile BankID, a highly educated population, and a tech ecosystem from generations of ground-breaking tech companies such as Ericsson, MTG, and King. The many fintech success stories serve as inspiration for others, and have helped to create a large community of entrepreneurs and developers.

They are used to working with, and scaling, fast-growing companies, and they bring great expertise and knowledge to bear. This has increased the number of new ventures started and resulted in fintech hubs, networks, and associations. It has also opened investors’ eyes to the potential of fintech.

Investment in Early Stage Fintech Lagging

Fintech investments in Europe during 2015-2020 were estimated to have been €190bn, of which €22.6bn were VC investments. Breaking that number down shows that on a European level, €11.3bn went to late stage and €8.8bn went to early stage fintech companies. This could be considered reasonable, given that later-stage investments demand larger tickets.

But of the European VC investments, only €300m went to early stage fintech companies in Sweden — over a five-year period, during which the sector was growing rapidly, with attractive opportunities. The numbers also show that the average ticket size in early stages in Europe is €5.6m, while in Sweden it is only €3.7m. A survey showed that for 65 percent of the Nordic fintech companies, the number one challenge is funding, ahead of achieving scale and regulatory issues.

This has many causes. In general, VCs have started to focus more on later stages to avoid taking on too much risk, especially given that fintech can be more capital-intense. There is also limited activity from CVCs, in particular bank CVCs, and many previous investors have stopped their investments all together. Investors may have a fintech focus or a Nordic focus, but those with both are rare.

This means that one of the hottest tech- and fintech hubs in Europe is under-capitalised in the stages when funding is most critical. Fintech companies experience the “Valley of Death” issue — a long time for research, development, product launch, commercialisation and traction before achieving business success. What makes this valley even deeper for fintechs is that they have to do all this in a regulated space (with or without a license), they might be dependent on partnerships with large, regulated entities, and time to profitability is often longer due to lower margins.

Keeping an Eye on the Target

There is a clear market opportunity here. The new generation of fintech companies need to be funded at an early stage, or we will be missing out on the next big success. Vidici is determined to keep targeting a tremendous investment opportunity of this under-served sector.

The firm’s mission is to build on one of Europe’s most attractive ecosystems for innovation and new ventures, and to support the next fintech wave. Having spent several years delving deep in the sector in the Nordics, creating a network of critical partnerships, and building relationships with companies and communities, Vidici is confident that it can support these skilled entrepreneurs on their journey to success.

Vidici’s quest: To find and support the next Nordic fintech stars.