When Finansavisen presents it as news that the bankruptcy rate is 13 per cent for companies that have raised money via Folkeinvest, the real news is that this rate is astonishingly low. The number is likely to rise in the coming years. Is it a problem?
According to Harvard Business School, 75% of all start-ups that receive venture capital in the United States go bankrupt within ten years. So why do some of the world’s richest people put their money into investments they know have a high chance of losing? Among other things, because they consider that even if there is a high probability of losing money in nine out of ten cases, the return on what succeeds is worth the risk.
If there’s one thing Norway doesn’t have a lot of, it’s risk-averse early-stage private capital
One of the basic ideas behind Folkeinvest is that the capital market in Norway is dysfunctional. Early-stage investments through regulated players, who are required to conduct investigations, are almost exclusively intended for professional investors. The reason is twofold. First, older brokerage firms have little interest in taking on assignments for companies seeking amounts less than NOK 50 million. Second, they do not prioritize getting capital from “most people.”
Therefore, a number of companies with good ideas were previously mentioned and are practically raising capital through friends and acquaintances at the kitchen table. Many good companies have died in the cradle because they were not nourished. The Capital Access Committee noted that there is a capital gap for companies requiring capital of up to NOK 20 million.
We have one goal: to help democratize venture capital. Most people are referred to the stock market or real estate market for investment. There are many examples where the greatest increase in value has actually been achieved when the company is listed on the stock exchange. Naturally, trading in listed companies also involves less risk than buying shares in companies that go bankrupt in the first place. But for us, it makes no difference whether you have a few tens of thousands of kroner on the books that you want to use as risk capital, or whether you have a few tens of millions of kroner. The opportunity for high risk (with the potential for high gain) should be equal for everyone.
If you spread an investment of NOK 100,000 across ten companies and nine of them go bankrupt, but one company returns you 30 times your original investment, you still have a profit of NOK 200,000. Finansavisen mentioned MaxSnus, which raised capital through Folkeinvest. The company went public in Sweden four months after raising capital, giving early-stage investors a return of 112.5 percent.
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