Vækstfonden (The Growth Foundation)

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Vækstfonden, also known as The Danish Growth Fund, is Denmark's state investment fund established to promote growth and innovation in Danish companies.
What are the main aims and objectives?

The primary goal of Vækstfonden is to foster economic growth and innovation within Denmark by providing crucial financial support to Danish businesses, particularly small and medium-sized enterprises (SMEs). It aims to bridge the gap in the market where traditional financing options may be limited, offering a range of financial instruments including loans, guarantees, and equity investments. The fund seeks to promote entrepreneurship and support companies with high growth potential, ultimately contributing to job creation and economic development in Denmark. Additionally, Vækstfonden aims to catalyze private investments by co-investing with other financial institutions and venture capital firms, thereby multiplying the impact of its resources. 

How does the program work?

Vækstfonden (The Growth Foundation) supports Danish companies by helping to finance R&D, internationalisation and skills development projects. It invests in early stage ventures that focus on life science and high tech, and provides mezzanine financing (a loan where the costs are dependent on the success of the firm) to a broad range of industries.

Financing Options:

Vækstfonden offers a range of financing solutions tailored to the needs of different businesses. For startups with aggressive growth plans, they provide convertible loans through their Early Engagement facility. More established scale-ups can access traditional loan schemes for long-term financing without risking equity dilution. The fund also offers a Start Loan scheme, which is particularly popular among young entrepreneurial enterprises.

Investment Approach:

  • The fund operates by co-investing with private investors and financial institutions. This approach not only provides necessary capital but also leverages private sector expertise and resources. 

Equity Investments:

  • Through its venture capital department, VF Venture, Vækstfonden makes direct equity investments in SMEs. This allows the fund to take an active role in the growth and development of promising companies.

Loans and Guarantees:

  • In collaboration with Danish financial institutions, Vækstfonden provides loans and guarantees to businesses. This partnership approach helps to distribute risk and ensure that funding reaches a wide range of enterprises.

Socio-Economic Focus:

  • The fund's operations are guided by a mandate to achieve greater socio-economic returns. This means that beyond financial considerations, Vækstfonden aims to contribute to job creation and overall economic development in Denmark.
What is the overall cost?

Since 1992, Vækstfonden has co-financed growth in more than 7,900 Danish companies with a total commitment exceeding DKK 24.9 billion (Approx. $3.5 billion)

How was it implemented?

Vækstfonden was established in 1992 as Denmark's state-regulated investment fund. Its creation was part of a broader initiative by the Danish government to promote growth and innovation in the country's business sector, particularly focusing on small and medium-sized enterprises (SMEs).

The fund was set up with a specific mandate outlined in its governing act. This act stipulated that Vækstfonden's primary purpose was to promote growth and renewal for SMEs in Denmark, with the ultimate goal of achieving greater socio-economic returns. This mandate has guided the fund's operations since its inception.

Since its creation, Vækstfonden has played a crucial role in the Danish economic landscape. It has co-financed growth in thousands of Danish companies, providing not just capital but also expertise to help create and develop new businesses. The fund's approach has evolved over time, expanding its range of financial instruments to include loans, guarantees, and equity investments.

In recent years, Vækstfonden's role has continued to adapt to the changing economic landscape. As of January 2023, it has been incorporated into a larger entity called Denmark's Export and Investment Fund. This integration is part of a broader strategy to streamline and enhance the country's financial support for businesses, combining the expertise and resources of multiple state-backed financial institutions.

What impact has been measured?

In 2018, the companies co-financed by Vækstfonden employed over 65,500 people. Additionally, Vækstfonden claims to act as a catalyst for private investment with every DKK 1 invested by Vækstfonden via a fund, companies ultimately receiving more than DKK 10.

Notes + Additional Context

About policy instruments related to debt (excerpt from Nesta's ‘Idea Bank’ for Local Policymakers):

Debt is the most common means of external funding for small businesses in Europe. This may include bank overdrafts, credit card finance, loans from family and colleagues, bank loans and mortgages. Such debt is often personal in nature, frequently secured using the entrepreneur’s personal assets (e.g. their home) as a guarantee. This entails a significant personal risk for the entrepreneur – greater than other forms of finance – but has the benefit that the entrepreneur is not required to give up equity or control of the business.

Startups often struggle to raise debt because they lack the assets required to secure a loan or because banks are reluctant to lend to businesses without a proven track record. In addition, there is evidence that the more innovative firms are actually less likely to secure loans than their peers. Importantly, a significant proportion of small firms (40% according to one study) apply for finance within a week of needing it, meaning that speed of decision-making is important.

State support is typically focused on increasing the supply of capital (either directly or via commercial banks) and incentivising other financial institutions to lend money through standing as guarantor for loans. National examples include the Danish Growth Fund (‘Vækstfonden’), the British Business Bank (which is government-owned, invests via intermediaries such as banks, leasing companies) and the Dutch SME Loans Guarantee Scheme (‘BMKB’). 

CURATED BY

Simona Bielli

Research Programme Coordinator – Digital Startups
Nesta
United Kingdom