This analysis was first published in SvD Näringsliv, in Swedish, on April 21st, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
After Alecta’s billion-kronor blunder, Sweden’s institutional capital is now focused on one question: how do we avoid the same thing? The answer risks prolonging the tech winter considerably.
A lot can happen in two years.
In 2021, the tech market was booming. The list of companies eyeing a stock market listing was long.
Alecta, together with other institutional investors, was actively investing in what’s known as the “pre-IPO” phase — companies not yet listed but intending to reach the market within 18 to 24 months.
Fast-forward 24 months and the picture couldn’t be more different.
Anxiety, inflation and rising interest rates sent tech stocks tumbling. And Alecta found itself in serious trouble after losing billions in the Silicon Valley Bank collapse.
The criticism of the pension company was fierce, and Alecta’s CEO Magnus Billing was fired.
Even though the investments in question were in American bank stocks, there is now a real risk that the large tech investments in Sweden will dry up entirely — at precisely the moment they are needed most.
As the tech sector has fallen sharply on the stock market, companies at earlier stages have also begun to feel the effects. Valuations have dropped, which can create a trap for companies that haven’t managed or haven’t yet been able to transition to profitability. The industry now talks of significantly longer fundraising processes than before, and tougher terms. For many companies, cash is running low, profitability is a distant prospect, and raising capital at decent valuations is harder than ever.
Meanwhile, the prospect of a stock market listing is more remote than it has been in years. For a tech company to go public in 2023 is widely considered a non-starter. Optimists sense a possible window opening sometime next year. Pessimists aren’t convinced about that timeline either.
In many ways, this is a golden moment for institutional capital. Those investors are sitting on well-stocked war chests and can access tech companies at far more attractive valuations than they’ve been able to achieve in recent years. Competition has cooled, valuations are down, and the need is great. Could the setup be better?
In theory, the moment is perfect. But in practice, the tech sector may have been contaminated by anxiety around Alecta’s banking losses. The association is right there in the name — Silicon Valley Bank. A bank with direct exposure to the world’s most dynamic region for startups and tech innovation.
Tech stocks carry high risk by nature. In a low-interest-rate world, investors went looking for returns wherever they could find them. The macro environment is now almost the opposite: high inflation, rising rates, and a war in Europe. Very little favors a high appetite for risk in this segment.
The question therefore becomes: how much tech-related risk is Swedish institutional capital willing to take on right now? The probability that Alecta would make further large tech investments this year has to be close to zero. Industry news that Kinnevik’s holding, food delivery company Mathem, has lost nearly 90 percent of its valuation since 2021 doesn’t help either.
Given Alecta’s outcome, attention now shifts to players like the AP funds, AMF, and Swedbank Robur. Will they take advantage of the market opportunity? With the risk that a handful of bad bets makes their own leadership team the next Magnus Billing? If one were to hazard a guess, most will sit tight and wait out this wave.
The “Alecta effect” may therefore have effectively shut down institutional tech financing for late-stage companies — at least for the rest of this year. Possibly longer. The irony is not lost: valuations haven’t been this low in over a decade.
