How the coronavirus affects Nordic private equity

Ingrid Teigland Akay is the managing partner at Hadean Ventures, which has a portfolio company that is developing a vaccine candidate to tackle the coronavirus. Photo: Maria Amelie

While 2019 was a golden year for Nordic private equity, 2020 looks to be a tougher one amid the ongoing coronavirus outbreak. We talked to some of the players in the region about how it affects them.

One of them is Ingrid Teigland Akay, managing partner at Hadean Ventures, a Nordic-based life science fund based out of Oslo and Stockholm. She says that all their portfolio companies collaborate in one way or another with a hospital, and that they expect delays as these hospitals are under severe pressure from the COVID-19 pandemic.

“Yet, once the situation starts to normalize, we expect a rebound effect as large groups of other types of patients need to be treated and healthcare systems may look for innovative and effective solutions to do this,” Teigland Akay says.

“We are in close dialogue with our portfolio companies to assess the impact on timelines and financing need so that we can plan for supporting them accordingly. On the positive side, we have portfolio companies that are working on products that potentially have an effect against the coronavirus,” she adds.

As a medical doctor, Teigland Akay is monitoring the groups that are working to find an effective vaccine to tackle the virus. One is being developed by Hadean’s portfolio company Themis Bioscience, and the goal is to have a vaccine candidate ready for clinical trials this summer.

“It is good that they are many groups working in parallel, as we do not know which approaches will work in the end. Hopefully, several of them will. The timelines that have been indicated by most is that a vaccine should be available for use approximately 12 months from now. Medio March, we got the news that the first clinical trial has started in the United States. This means the first vaccine is now being tested in humans after a very fast development process. I think we can be very hopeful that science will tackle this challenge,” Teigland Akay says.

Fund managers ‘open for business’

In San Francisco, Carl Fritjofsson, partner at Creandum, is seeing up-close how the venture capital industry is affected by the sudden market slowdown.

“All venture capital funds are going through their portfolio companies in detail now to understand how their runway is looking. Most of them also look over their reserves, because it is expected that many companies will need bridge financing to manage this period. The optimism is still there, and most fund managers say that they are open for business, and that they still look for entrepreneurs,” he says.

However, Fritjofsson’s experience is that startups are seeking funding at a considerably lower valuation than before the pandemic, which might indicate that the valuation will continue to drop in general in the coming months. This was apparent at the demo day of Y Combinator, a startup accelerator where founders can present their companies to investors, which was moved online because of concerns over COVID-19.

“Many venture funds are nervous about their own fundraising going forward, since many LPs will be over-allocated to venture because of the public markets crashing, which most certainly will mean less money to VC funds soon. Funds that are in fundraising now, or are planning to do so in 2020, will begin to plan how they can navigate through the uncertainty we are facing,” Fritjofsson says. The story continues beneath the picture.

Carl Fritjofsson, partner at Creandum

Carl Fritjofsson is a partner at Creandum and lives in San Francisco. He reports that many venture funds are nervous about their fundraising going forward because of the market crash caused by the coronavirus pandemic. Photo: Creandum

A challenging year ahead

For Nordic buyout fund managers, the focus and outlook has also changed rapidly in the first months of 2020.

“We have been in crisis preparedness mode for a while now, with teams working day and night to map out how portfolio companies might be affected by the crisis and find measures to protect profitability,” says Pål Stampe, partner at Altor.

“It is a severe situation for most businesses,” says Lars Grinde, managing partner at Norvestor. “The most important thing now is taking care of employees, both at Norvestor and in portfolio companies, and their families. Then, we are concerned about companies being able to deliver services and products to customers. In large, they manage to do this now, but the demand for the rest of the year is very uncertain.”

Stampe believes that 2020 will be a challenging year for business. Compared to the 2008 financial crisis, when the public was urged to go out and continue spending, people are now ordered to stay at home. This might lead to changes in consumer patterns, both definite and temporary ones, he predicts.

“The transfer to online channels can be accelerated because of the pandemic, by giving more people a push to try them out. People will also be more careful with travelling in the short-term, but that also means that they will spend more money in their own country,” Stampe says.

Altor and Norvestor are working on deals as before, but the economic situation of course affects these processes.

“Both as a buyer and vendor, deals are on hold but not stopped. We have a lot of dry powder and are ready to make deals when the activity is back in existing portfolio companies,” says Grinde.

Private equity is “well-suited”

Argentum’s CEO, Joachim Høegh-Krohn, believes that the economy will recover in the long run, and that the liquidity that is injected into the market will take effect.

“Governments have committed significant resources to boost business liquidity and to make business costs more manageable. It is also of critical importance that such countermeasures as guaranteeing corporate loans, covering the cost of temporary lay-offs, and postponing tax payments have been introduced,” Høegh-Krohn says.

Høegh-Krohn believes that private equity is well suited for times of restructuring and reorganization. The industry will face challenges because of the downturn, but also new opportunities.

However, the focus now should be at preventing the virus from spreading:

“The pandemic has affected those things that are most important to us – our families, our workplace, our communities, and our daily life. Our thoughts and best wishes go out to all those impacted,” Høegh-Krohn says.

You can read The state of Nordic private equity 2019 by clicking here.