The Nordic connection

Johan Pontin, a co-founder of Boston-and Stockholm-based Pod Holding, likes to point out to skeptics an often-overlooked fact about the Nordic region: According to the World Economic Forum's Global Competitiveness Report, Sweden, Denmark, Norway, Iceland and Finland consistently feature among the 10 most competitive economies, along with the US, Taiwan and Switzerland.

With their small but highly educated and innovative populations, the Nordic countries have long seen success through export-oriented businesses. Among the region's most successful businesses are top telecom companies like Nokia and Ericsson. Pod Holding, founded in 2000, thinks its approach to venture investing takes advantage of three unalterable trends in the world of information and communications technology (ICT) – the global nature of company building; the importance of the US market to a tech company's early stage, and the need for venture investors to bring differentiated resources to an investment syndicate.

?Obviously, we have industry expertise, says Jon Chait, a principal at the firm. ?But most of the deals we're in, we're in because of our dual geography. We are able to work with the strongest co-investors in each region. If you want to operate within the ICT space, you can't operate in isolation.?

Pod Holding was founded with two offices, with two founding partners in each office. Pontin, based in Boston, is a Swedish national and former PricewaterhouseCoopers M&A consultant. He also worked in M&A for security company ASSA ABLOY. The other founding partners include Eric Douglas, who along with his family is a controlling shareholder of the Securitas security firm; Peter Lawrence, a former attorney with Boston's Mintz Levin; and Tom Nyman, a technology entrepreneur and the former CEO of Jobline Nordic.

Five years into its existence, Pod Holdings is ?still a start up. It's still early days, admits Pontin. But he adds that his firm has acquired a reputation for getting involved in deals that involve international complexity, which is precisely where the venture business is headed, argues Pontin.

As an example of Pod Holding's transatlantic sweet spot, Pontin notes the firm's investment in Core Street, a firm that provides physical and electronic security products. Core Street's main technology was developed by a professor at the Massachusetts Institute of Technology, but the school chose Pod Holding as a lead investor because of the firm's expertise in security and access to the Swedish market, which, with its advanced SmartCard technology and security community, makes an ideal test market and base from which to launch a new company in this area.

?US companies are less apt to be the first to test new things. Nordic cultures like to test things first.?

The Nordic connection proved valuable in Pod Holding's stewardship over Transmode Systems, which received an initial round of financing in 2003. Transmode, an optical networking provider, is based in Stockholm and has as its founding investors Amadeus Capital Partners and European Equity Partners. Last year, the company added private equity capital management giant HarbourVest Partners during a followon, $15 million round of financing. The new investment allowed the company to acquire another Swedish optical networking company, Lumentis AB.

In another investment, a technology created overseas reached the US market with Pod Holding's help, although the Nordic region played only a supporting role. The technology behind OzVision, a video security company and Pod Holding portfolio investment, was created on a kibbutz in Israel. Boston venture capital firm General Catalyst tapped Pod Holding because of its experience transferring a company from its country of origin to the more robust markets of the US. ?General Catalyst had no plans to invest in a company in Israel, notes Pontin.

Before establishing OzVision's headquarters in Boston, Pod Holding leveraged its relationship with Securitas in conducting due diligence.

BORDERLESS INVESTING
In structuring the firm, Pod Holding was careful to ensure that the Atlantic Ocean was only a geographic and time-zone divide. ?We have a one-team approach, says Pontin. ?We've created an incentive structure where people don't get penalized or over-rewarded just for sourcing a deal from a given office. ?If 80 percent of our deals are in Europe and 20 in the US, well, that just means that the US team has to travel more.?

The two offices stay in touch via video conferencing and travel. There are two partner meetings per week, on Monday and Friday. Pontin estimates that he spends roughly two hours per day in communication with the Stockholm office. The European partners frequently find themselves having conversations at 1 or 2 in the morning. ?It's no different than working for a large, multinational corporation, says Chait. ?But for a typical VC firm, this is very different.

Being different is important in a venture market where plain-vanilla money is not hard to come by. Even in the wake of the tech bubble, capital is still flooding into tech investing, making access to the best deals difficult. Pontin argues that his firm's ability to tap Europe and the communications expertise of the Nordic region makes Pod Holding capital appear smart to top US venture capital firms, while its foothold in the US is deemed an asset by European VC firms like CapMan and Amadeus Capital.

From a purely sectoral standpoint, Pod Holding is making a bet on convergence between infrastructure, wireless technology and software. As the information and communications industries move forward, innovation is blurring the lines between these formerly distinct technologies, says Pontin. Here again the Nordic countries present an advantage. For whatever cultural reason, Nordic consumers are more comfortable trying out new information and communications products than are consumers in the US. As a result,?US companies are less apt to be the first to test new things. Nordic cultures like to test things first, says Pontin. ?The idea is not to build out a company in a small country like Sweden, but you use the market there to get to bigger markets.?

One event that has suddenly and dramatically raised the profile of the Nordic region as a breeding ground of innovation and investment potential is the sale of Skype to eBay for $4.1 billion. Skype, with engineers in Estonia and a headquarters in Luxembourg, was founded by Niklas Zennstrom and Janus Friis, Swedish and Danish citizens, respectively. The fact this company and an earlier ground breaker from the same founders – file sharing platform Kazaa – got its start in the Nordic region was not lost on many investors.

?If you talk to investors, they'll say that venture capital in Europe has not really proven itself yet, says Pontin. ?But one thing that has been proven is the need to bridge toward the US. We don't know whether we'll prove that venture capital in Nordic countries is the best thing in the world, but we do know that building a bridge between the two areas is very important.?

Pod Holding
Offices: Boston, Stockholm

Founded: 2000

Total no. of employees: 9

Partners: Johan Pontin, Tom Nyman, Peter Lawrence, Eric Douglas

Controller: Mats Löfgren

Name of recent fund: Pod Holding LP

Size of fund: SEK802 million ($103 million; €86 million)

Date closed: Nov.2000

No. of current portfolio companies: 8

Exits since inception: 3 (1 IPO, 2 trade sales)

Limited partners: 100% family offices and individuals

LPs by geography: 1% US/ 99% Sweden

Software and systems:

Windows NT servers running MS/Exchange w/BlackBerry Enterprise Server, MS/Sharepoint and MS/Office customized applications over VPN/LAN and GPRS to WindowsXP, Macintosh OSX and Blackberry clients. Polycom Video Conferencing over ISDN and Genesys Global Telephony and Web Conferencing Bridge. XOR Compact accounting software system by VismaX or for WindowsNT and XP.

Outsourced professional services:

Accounting & Audit (US) – PricewaterhouseCoopers

Accounting & Audit (Sweden) – PricewaterhouseCoopers

Legal (US) – Mintz, Levin, Cohn, Ferris, Glovsky and Popeo

Legal (Sweden) – Flood Advokatbyrâ

Public Relations (US) – Schwartz Communications

Public Relations (Sweden) – StockholmOne