This analysis was first published in SvD Näringsliv, in Swedish, on March 5th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
A weak krona and uncertainty in the tech world are paving the way for an acquisition wave targeting Swedish startups. For American venture capitalists, the conditions couldn’t be better.
Two million paying subscribers. That’s the milestone newsletter platform Substack reached recently.
The American company offers a newsletter service for writers and takes ten percent of their revenue as a fee. Based on this, they have an estimated annual revenue of around 230 million kronor.
The problem for Substack — like many Swedish startups right now — isn’t the revenue. It’s the valuation.
Two years ago, the company was valued at around 6.7 billion kronor — with substantially lower revenues. Today it would be extremely difficult to find investors willing to put in money at that level, let alone at a higher one.
It’s worst for the more mature companies, the ones closest to being able to go public. Valuations are set by comparison with similar companies, and preferably listed ones to get an accurate market assessment.
But when tech stocks crashed in 2022, they pulled the unlisted companies down with them. Two online healthcare providers in Kinnevik’s portfolio — Teladoc and Babylon Health — lost 60 and 90 percent of their market value over the past year respectively. When Swedish unlisted equivalents like Kry, Mindoktor, and Doktor.se are valued, those comparisons can’t be ignored — even if they’d rather not make them.
Having a lower, and perhaps more realistic, valuation isn’t a problem in itself. The trouble comes when more money is needed to run the business.
Many of these companies are still burning through cash at a rapid rate and depend on continuous capital injections.
Existing shareholders may be reluctant to approve new share issues that write down their holdings to — from their perspective — very low levels. Depending on how the agreements are structured, transactions can be blocked or complicated by certain owners, and the dilution of ownership can become very significant.
This creates a trap that is, to put it mildly, complicated for startups to navigate. Capital is needed to run the company, but not at any price. And given stock market valuations, that route is currently almost entirely closed.
The situation points toward a new type of market dynamic: more acquisitions.
Unable to finance their companies through either revenue or investment, many will have to sell.
What makes Sweden’s situation particularly exposed is the weak krona. Over the past several months, the dollar has been stronger against the krona than at any point in over twenty years.
That in turn means Swedish startups are cheaper than they’ve been in a long time. Venture capitalists SvD has spoken with confirm that inquiries about potential acquisitions have increased in recent months.
The interest rate environment in the US also suggests this situation will persist for quite some time.
The companies in the most difficult position are mature firms where growth may have started to slow or that are far from reaching profitability on their own. If the sector also faces structural challenges (e-commerce) or is exceptionally hot (AI), that can further make the companies attractive targets.
If one allows oneself to speculate, one plausible acquisition candidate could be Juni, which provides financial services to e-commerce businesses. The company was valued at 6.4 billion kronor in the summer of 2022 — a figure that may be very hard to reach in the current market. In 2021, their revenue was just over 22 million kronor, and their loss was 68 million.
Swedish data company Funnel could also fall into this category. In the autumn of 2021 they raised over half a billion in investment, but losses have steadily grown in line with revenues. In 2021 they posted a loss of over 180 million kronor on revenue of 214 million.
Other potential targets are the Swedish online healthcare providers, where losses have accumulated over many years. A strategic buyer from the US could see substantial value in the technology platforms they’ve built.
The same applies to large fashion houses looking to get better at e-commerce. The expertise built up at a company like Nakd could be applied across a broader portfolio of brands. Nakd had revenue of over 2.4 billion kronor in 2021, but also posted a loss of over half a billion.
The shareholders of each company are ultimately the ones who decide whether a company gets sold. But count on the fact that anyone sitting on a pile of US dollars right now is running the numbers on possible deals. For the coming year, Swedish startups are on sale.
