Meet Norway’s newest LP to watch

Nysno Climate Investments, which has backed funds managed by Verdane and Energy Impact Partners, seeks to create capital bridges between Norway and foreign investors.

Nysno Climate Investments, a Norwegian state-backed investment company, is one investor changing the climate tech investment landscape.

Since it became operational in 2018, Nysno has backed 11 funds, including ones managed by Verdane, Energy Impact Partners and venture firms 2150 and AP Ventures. Norwegian solar companies Otovo and NorSun, transport company Torghatten and electric vehicle charging company Amina Charging are among some of its portfolio companies.

The firm, which is wholly owned and funded by the Norwegian government and has about €300 million in assets to date, gets its funding from the national budget, Lars Hvam, an investment director at Nysno, told Private Equity International. As such, the size of the annual contributions plays an important part when deciding strategies and priorities that the firm sets for the years ahead, he added.

At the commencement of its operations, the Stavanger-based investor was primarily focused on investing directly in climate technology companies. Almost four years later, its portfolio has shifted to a 50:50 split between direct investments and funds. The move to “ramp up” in this area was made to form long-term strategic relationships with fund managers and deliver superior financial returns, Hvam noted. Nysno made seven fund commitments in 2021, more than triple its commitments in 2019 and 2020.

Nysno - Ingvild Meland
Ingvild Meland: Nysno wants to create positive ripple effects in Norway

Its focus is primarily in venture capital, although it also has the flexibility to invest in growth-stage companies. Ticket sizes are between €5 million and €20 million.

Ingvild Meland, a strategy at communications director at Nysno, said: “When we invest in the different funds, we have requirements that they need to have a link to Norway – for example, by establishing offices in Norway or having Norway as one of their focus areas when they’re looking into investments.

“Norway is a really small market. We are 5.5 million people, so if Norwegian companies are going to grow, they need market access abroad,” she added.

Making an impact

Climate tech, which encompasses assets focused on reducing greenhouse gas emissions, is attracting growing investor interest.

Some $87.5 billion of investments were made between the second half of 2020 and first half of 2021, with the latter delivering a record $60 billion of investments, PwC’s State of Climate Tech 2021 report found. That figure represents a 210 percent increase from the $28.4 billion invested the year before. In addition, some 2,500 PE and VC investors participated in nearly 1,400 funding rounds over H2 2020 and H1 2021, a 56 percent increase from the prior 12-month period. Climate tech now accounts for 14 cents of every venture capital dollar, according to the report.

Meland noted that Nysno is a state investment company measured on profitability: “A pure commercial player, yet also set up to reduce climate emissions and to create positive ripple effects in Norway.

“I think we need to build on what we have done smart before, the knowledge that we have built up on technology and energy – but also see how we use our competence from the energy business to transform financial markets and investments in the right direction,” she said.

Hvam added that the firm is particularly interested in areas where Norway has a competitive edge. These include hydrogen, power-intensive and high-tech industries, green tech, clean tech maritime, offshore wind, carbon capture, and storage.

While returns from Nysno’s investments are still too early to assess given the portfolio’s relative immaturity, the pair noted that performance thus far has been satisfactory and was likely to hit their double-digit target returns.

Early-stage concerns

Nysno - Lars Hvam
Lars Hvam: active ownership is helping as many companies as possible to succeed

Hvam warned that the abundance of capital flowing into climate tech investments might increase competition for assets, and in turn command higher valuations.

“These I think would pose the biggest challenges in generating returns.

“We are primarily exposed to companies [that are] in the early stage of their life cycle and investing heavily in growth. This is risk capital, so there will always be some companies making it – and some that don’t.”

He also noted that Nysno’s portfolio could be negatively affected in the event that capital markets shrivel up. “We haven’t seen any indication of this to date. I think investor appetite for venture capital remains strong.”

For Nysno, active ownership means helping as many companies as possible to succeed.

When building a significant portfolio and securing a steady state of profitability, access to funding and growth capital is of utmost importance, Hvam said.

Snehal Shah contributed to this report.