Benchmarking government support for venture capital: Denmark

Recent trends in the national VC market

Total VC investments by Danish VC funds were hit hard by the Great Financial Crisis (GFC) of 2008. After reaching the peak of EUR 1.7 billion in 2008, they dropped to EUR 0.5-1 billion between 2009 and 2017, with the exception of 2011, when VC investments reached EUR 1.3 billion. Since 2018, VC investments have grown considerably, reaching EUR 3 billion in 2018 and 2019 and even EUR 8.5 billion in 2021, which is an exceptional value by previous standards. In 2022, VC investment declined, mirroring global trends, and in 2023 it rebounded to reach EUR 6.3 billion.

According to industry experts, the 2021 surge is explained by an increased participation of international investors; 70% of investment rounds in 2021 included foreign investors, which might signal that start-ups are maturing earlier for larger investments (Friis-Jensen, 2022[1]). Indeed, the sharp increase in recent years can also be attributed to a rise in the size of deals closed; in 2021, more than one in three rounds were closed at EUR 100 million or more (Friis-Jensen, 2022[1]). In fact, when looking at the VC activity by stage of investment, the increase in funding for start-up and late-stage ventures in 2021 is notable, with start-up stages representing 0.13% of GDP (up from 0.03%) and late-stage 0.097% of GDP (up from 0.03%) (Figure 1, Panel C). In 2022, with VC investment volumes declining sharply, start-up and late-stage investments were hit the hardest. In 2023, start-up investments recovered, while late-stage investments remained low. Despite the decline in 2023, the Danish VC ecosystem demonstrated resilience when compared to most countries around the world, driven by a strong performance in the healthcare sector.

Figure 1. Venture and growth capital investments in Denmark

Note: Data from Panel A and B correspond to investments allocated to Danish companies. It includes only venture capital investments by formal fund managers, including private equity funds making private equity investments. Investments by business angels, incubators, infrastructure funds, real estate funds, distress debt funds, primary funds-of-funds or secondary funds-of-funds are excluded.

Source: Panel A and B, Enterprise Statistics OECD.stat

Sector-wise, the healthcare and biotech sectors are the main recipients of VC investment. From 2018 to 2023, healthcare garnered 25.8% of VC allocation by amount invested, followed by enterprise software with 15% and Fintech with 14.7% (Dealroom, 2024[2]).

The role of the government in the national VC market

Over the last three decades, the Danish government has implemented a range of initiatives to support SMEs and innovative start-ups with equity and quasi-equity instruments. Government VC participation started in 1992 with the Danish Growth Fund aimed at providing direct support to start-ups and SMEs with high growth potential. In 2011, the Ministry of Industry, Business and Financial Affairs introduced the Danish Growth Capital program as a fund-of-funds in partnership with the largest pension funds. This was followed by Danish Growth Capital II in 2015 and Danish Growth Capital III in 2023.

In 2014, Denmark's Green Investment Fund was launched to facilitate the green transition, providing loans, guarantees, and equity finance. Subsequent initiatives, such as the European Angels Fund (2016) and the Vækstfonden equity co-investment platform (2018), were developed with the European Investment Bank and the European Investment Fund to support companies in early and growth stages.

The Danish Green Future Fund was established in September 2020 to boost green investments, focusing on equity capital for green start-ups. In early 2023, the Danish Growth Fund merged with Denmark’s Export Credit Agency (EKF) and the Green Investment Fund to form the Danish Export and Investment Fund (EIFO), aiming to create synergies and improve responsiveness.

Beyond these programmes, other policies have also played a role in fostering the flow of equity capital and enhancing the VC ecosystem, including tax schemes to help companies benefit from an allowance on their research and development expenditure as well as grant support. Most recently, in June 2024, the government implemented the Entrepreneurship Package 2024, which includes improved access to capital and tax relief for investors and the reduction of administrative burdens for entrepreneurs. The package also includes support to educational institutions to foster entrepreneurial ecosystems. The package allocates DKK 2.2 billion from 2024 to 2026 and close to DKK 1.2 billion annually from 2027 onwards to implement the initiatives.

Direct investment activities

One of the key initiatives implemented by the Danish government to directly support the VC industry is the Danish Growth Fund (DGF) (operated by Vækstfonden) in 1992. Since its creation, DGF has funded 24,000 companies, channelling more than DKK 48 billion and making it Denmark's main government VC institution. The DGF offers debt finance to innovative and high-growth firms, such as start-up loans, growth loans, venture debt loans, and loan guarantees. Although it invests in all businesses, it has a specific focus on the IT, MedTech, and industrial technology sectors. DGF invests directly in 5–10 new enterprises each year. Investments range from DKK 5 to 25 million. Investments are commercially negotiated at market terms and across all industries. The fund also supports scale-ups by providing convertible loans of up to DKK 3 million (EUR 0.4 million).

Over time, DGF increased its impact on the Danish VC market. It is responsible for approximately 10% of the total value of VC funds invested in Denmark in 2022. In terms of its involvement in the number of deals in 2022, direct investment involving DGF represented 30% of the market. Further, VC funds supported by DGF additionally participated in 27% of deals in the Danish market (Finnish Ministry of Labor and the Economy, 2023[3]).

The Danish government has also focused on the support of green VC investments creating in 2014 Denmark’s Green Investment Fund and in 2020 the Danish Green Future Fund. The former offers equity finance and quasi-equity finance through convertible loans, and the latter is a more comprehensive initiative aimed at boosting green investments, focusing more prominently on the provision of equity capital to start-ups to foster green innovations.

The Danish Green Investment Fund promotes renewable energy, energy savings, and resource efficiency through direct loans, guarantees, quasi-equity financing and venture capital. It uses specific criteria to ensure that financed companies contribute to the green transition by offering environmentally superior solutions and adhering to international guidelines1. In 2021 and 2022, the Fund focused on streamlining the financing process and developing assessment methods for evaluating companies' contributions to the green transition (Danmarks Grønne Investeringsfond, 2023[4]).

The Danish Green Future Fund, established in September 2020, has the objective of contributing to the national transition by supporting the development and dissemination of technologies, conversion of energy systems to renewable energy, storage and efficient use of energy, and the promotion of global exports of green technology, particularly in the fields of wind and energy efficiency. The fund’s strategic investment areas include energy supply, food and agriculture, construction and infrastructure, materials and resources, and transport and mobility (Danmarks Grønne Investeringsfond, 2023[4]). These areas have been selected based on their carbon emissions reduction potential. On the inception of the Fund in 2020, the government allocated EUR 3.3 billion, aiming to mobilise private financing worth EUR 11 billion.

Other direct equity programs have aimed to tackle insufficient investment levels at specific stages. For instance, the Vækstfonden equity co-investment platform, introduced in 2018 by the European Investment Bank and the Danish Growth Fund, was launched to support late-stage investments. This initiative addresses the suboptimal allocation of investments in later growth phases, where equity funds struggle to meet the needs of this segment, both in terms of the number of investments and the investment amounts, due to their modest size. As a result, many Danish companies at this stage are forced to seek financing from abroad. Through the platform, the EIB and the Danish Growth Fund make equity and quasi-equity co-investments on a pari-passu basis2 in companies selected by the Danish Growth Fund.

On the other hand, the European Angels Fund (EAF) aims to enhance the capacity of Business Angels (BA) to invest through equity co-investments. Each Business Angel receives a predetermined amount of equity finance for future investments under co-investment framework agreements (CFAs), with the EAF matching their investments on a pari-passu basis. The CFA amounts range from EUR 250,000 to EUR 5 million (EIF, 2016[5]). Co-investments focus on new investments, but follow-on investments can also be included. Assessments show that average BA investee employment grew by 50% two years after the first investment, similar to the growth of VC-backed companies (EIF, 2020[6]).

As mentioned before, there have also been major institutional consolidations. In early 2023, the Danish Growth Fund was merged with two other state-owned funds, the Denmark’s Export Credit Agency (EKF) and Denmark’s Green Investment Fund, becoming subsidiaries under the Danish Export and Investment Fund (EIFO). The new entity offers guarantees and loans to established SMEs and entrepreneurs, invests in young companies with growth potential and engages in fund-of-funds activities by investing in venture and small to mid-cap funds. Most of its activities are indirect, but it also provides direct equity support.

In the direct provision of equity finance, EIFO targets young and innovative companies. EIFO invests in between 5 to 10 new companies across different industries per year, typically in the range of DKK 5 to 200 million per investment (EUR 0.67 million to EUR 26.8 million). The Fund invests in companies that have achieved a position in a defined market with an already developed product or that are in the final phase of product development and are about to introduce the product to the market (EIFO, 2023[7]). The Fund focuses on having a long-term view in its investments (i.e. provision of patient capital).

Apart from the provision of capital, the Fund also provides access to industry networks and facilitates knowledge sharing through meetings among companies in the portfolio. The Fund also provides assistance from the investment managers on the implementation of best practices. In addition, the Fund engages in the skills development within the company by actively participating on boards and providing professional feedback on the composition of the best teams (EIFO, 2023[7]).

Indirect investment activities

In recent years, Denmark has shown a stronger proclivity for indirect rather than direct investment policies. First, with the three iterations of the Danish Growth Capital followed by the recently created EIFO, which participates mainly indirectly in the VC ecosystem.

The Danish Growth Capital I (DGC I) was launched in 2011 by the Danish Ministry of Industry, Business and Financial Affairs in collaboration with the country’s largest pension funds. In 2015, the programme's second iteration, the Danish Growth Capital II (DGC II) was launched. The Fund invested in a wide range of funds, including venture funds and small and mid-cap funds. Approximately one-third of the fund’s capital is aimed at the venture area (start-ups), while the other two-thirds is intended for established SMEs (buyout) (Danskvaekstkapital, 2023[8]).

The pension funds represent a greater share of commitments to the Danish Growth Capital II than in its predecessor. The direct investments of the pension funds are raised from 25% in Danish Growth Capital I to at least 33% in Danish Growth Capital II, and the share of the so-called venture investments is raised from 20% to 33%, respectively (Danskvaekstkapital, 2023[9]).

The Fund has specific criteria for investing in Funds. The recipient funds need to be unlisted. They must be commercially viable and built on established fund managers’ specialist knowledge. The investee funds need to deliver competitive returns bringing a minimum return of 10 to 15% net IRR. The required minimum fund size is DKK 400-500 million (EUR 54-70 million). The funds are also required to invest in small and mid-caps (companies of up to 1000 employees and with a turnover of up to DKK 1.25 million (EUR 0.167 million)). On the grounds of return, this minimum requirement may be waived in certain situations, for instance, regarding sector-specific investments. Furthermore, the Funds can offer, in addition to equity, quasi-equity finance, including mezzanine finance and subordinated loan capital (Danskvaekstkapital, 2023[9]). The DGC invests with other independent private investors – having a maximum of 50% ownership in the investee funds.

In February 2023, the Danish Export and Investment Fund (EIFO) introduced the Danish Growth Capital III. The fund received a total commitment of DKK 2.4 billion (EUR 322 million) (Plesner, 2023[10]). EIFO indirect investments are conducted through the Danish Growth Capital considering the criteria mentioned above (EIFO, 2024[11]).

References

[4] Danmarks Grønne Investeringsfond (2023), Arsrapport 2022, https://eifo.dk/media/mlif02hi/dgif-aarsrapport-2022.pdf.

[8] Danskvaekstkapital (2023), About Danskvaekstkapital, https://www.danskvaekstkapital.dk/dvk2/en/om-dansk-vaekstkapital/.

[9] Danskvaekstkapital (2023), Investment policy, https://www.danskvaekstkapital.dk/dvk2/en/investeringspolitik/.

[2] Dealroom (2024), Denmark: the European outlier for VC growth in 2023, https://dealroom.co/blog/denmark-the-european-outlier-for-vc-growth-in-2023.

[6] EIF (2020), The business angel portfolio under the European Angels Fund: An Empirical Analysis, https://www.econstor.eu/bitstream/10419/213873/1/1689254033.pdf.

[5] EIF (2016), EIF and The Danish Growth Fund to launch DKK 200m Business Angels Fund in Denmark, https://www.eif.org/what_we_do/equity/news/2016/eif_danish_growth_fund_business_angels_fund.htm.

[11] EIFO (2024), Fund investment in EIFO, https://www.eifo.dk/en/our-solutions/for-funds/.

[7] EIFO (2023), Equity financing - Seek capital directly from EIFO, https://www.eifo.dk/loesninger/egenkapitalfinansiering/.

[3] Finnish Ministry of Labor and the Economy (2023), Finland Teollisuussijoitus Oy’s (Tesi) evaluation, https://tesi.fi/wp-content/uploads/2023/08/liite_6_Tesi_arviointi_11082023.pdf.

[1] Friis-Jensen, E. (2022), Investments are booming: Is Denmark the next big Nordic, https://techsavvy.media/en/investments-are-booming-is-denmark-the-next-big-nordic-startup-star/ (accessed on 27 September 2023).

[10] Plesner (2023), The Danish Growth Fund raises DKK 2.4 billion in Dansk Vækstkapital III, https://www.plesner.com/da-dk/insights/highlights/2023/02/vaekstfonden-rejser-dkk-2-4-milliarder-i-dansk-vaekstkapital-iii.

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The full paper is available in English: OECD (2025), Benchmarking government support for Venture Capital: A comparative analysis, OECD SME and Entrepreneurship Papers, OECD Publishing, Paris, https://doi.org/10.1787/81e53985-en

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Notes

← 1.  An assessment based on the EU taxonomy is conducted to verify that companies meet green economic activity standards, requiring significant contributions to at least one of the six environmental goals outlined in the EU Taxonomy for sustainable investments.

← 2.  Although information about who makes the co-investment decisions is not publicly available, it is possible that the Vækstfonden is responsible for selecting companies for investment, considering Vækstfonden expertise in identifying investment opportunities since 1992.