Bottlenecks in financing for Nordic cleantech companies

According to the study, it is estimated that the Nordic cleantech market will need a cautious estimate of at least EUR 15 billion in venture capital investments over the next five years to maintain a good growth trajectory.

"This estimate does not include massive funding rounds like those of Northvolt and H2 Green Steel, which would further raise the financing need significantly. It is clear, however, that if we want to attract billion-euro industrial projects to the Nordics, sufficient funding must be found for them both locally and internationally," comments Jakob Sandell, Research Manager at Tesi, who oversaw compiling the study.

On average, a Nordic cleantech startup receives its first venture capital investment approximately two and a half years after its founding. Software companies raise funding the fastest, while financing for manufacturing industry companies is slower. The first early-stage venture capital investment round is typically around half a million euros in size.

Last year, seed-stage funding decreased significantly: by the end of the year, only 24 cleantech startups received venture capital investments. This decline is significant, as there were 59 startups that received investments in 2022.

"The need for companies tackling global challenges and their sufficient financing has not diminished. International competition in developing clean solutions is fierce, and it is essential that the Nordic countries stay in the game," commented Pia Santavirta, CEO of Tesi.

Nordic investors alone are not enough to finance future growth

In addition to cleantech companies and venture capital investments, the study also examined Nordic private equity investors investing in cleantech companies more broadly. The study includes funds exclusively focused on cleantech as well as funds investing in other sectors but have made investments in cleantech.

The study includes both early-stage venture capital funds and buyout, growth, and infrastructure funds investing in more established growth companies.

Based on previous investment data, these funds have approximately six billion euros available for investment in cleantech companies.

"Nordic cleantech investment capacity is limited compared to the much larger financing need. Therefore, the practical options are either relying on foreign investors or developing the Nordic capital market by increasing its size or focusing more on cleantech companies," commented Sandell.

The study from Cleantech Scandinavia shows that during the past years, the share of Nordic investors in the financing of cleantech companies has decreased. In 2017, the share was nearly 50 percent, but by 2021, it had dropped to less than ten percent. Part of this change can be attributed to the increased volume of international financing since the turn of the decade.

"Few Nordic investors have the resources to finance the largest growth leaps, so the role of European and global investors is particularly essential, especially in later funding rounds. If capital is not available for later stages, companies may face significant challenges in reaching the industrial production phase," commented Sandell.

1,600 companies, with a particular focus on capital cities

The study has identified approximately 1,600 Nordic cleantech companies that both utilize new technology and grow at an ambitious pace. These companies employ a total of approximately 32,000 employees globally and in the Nordic countries.

The group of companies includes companies of various growth stages, from very early-stage startups to larger companies that have built million-dollar factory projects. Particularly prominent in the group are companies related to the circular economy, which lead both in terms of the number of companies and revenue.

The companies are particularly focused on the capital cities of the Nordics as well as Gothenburg.

Cleantech companies are established in the Nordics at a steady pace, roughly around 140 annually, although the pace of establishment seems to have slightly slowed down in recent years.

"Reaching the 1.5-degree target of the Paris Climate Agreement requires industrial-scale solutions. Here at Tesi, we see a significant opportunity in building future industrial operations around clean and affordable electricity production based on new technologies, where Finland has a strong competitive advantage," says Santavirta.

Click here for the study deck

About the study

The study has examined the venture capital funding received by Nordic cleantech companies. The companies in the study have been categorized into ten different categories according to HolonIQ's classification, ranging from very early-stage startups to significant-scale growth companies. There are approximately 1,600 companies included in the study.

The majority of the companies in the study have received venture capital funding between 2018 and 2024. In addition, the study includes companies with more than ten employees whose growth has reached a twenty percent annual rate in revenue or workforce. Additionally, some companies have been selected that do not fit into the aforementioned categories but are significant cleantech companies. Furthermore, the following criteria must be met: The startup has an emissions-focused or net-zero-focused strategy. The company's operations are closely related to a theme essential for achieving net-zero goals. The company demonstrates innovation or the use of technology.

In addition to cleantech companies, the study examines Nordic venture capital and private equity investors and their ability to finance the growth funding needs of cleantech companies operating in the Nordics.

The study has been conducted by Nordic actors Tesi, Climate Fund, Industrifonden, Almi Invest, EIFO, Investinor, and Nysnø Climate Investments.