Circumstances in Corporate finance – voices from ”real life”

Based on the case studies in this memorandum, we note that there are large discrepancies in companies’ access to financing and financial expertise¹. There are also local and regional differences in terms of the complexity and transparency of the system. This shows the importance of adapting policy initiatives according to prevalent local and regional conditions.

A universal design entails a risk of reducing effectivity. If they are introduced and allowed to act in parallel, the other system-enhancing measures discussed in this study may furthermore contribute to reinforcing one of the objectives of the regional co-investment funds, namely to improve “regional capital supply structures”.


At the launch of the government initiative for regional co-investment funds in 2009, there was some uncertainty in regard to what precisely these funds were expected to achieve, and how this would be assessed. Eventually, two main objectives were formulated: growth in portfolio companies on the one hand, and improved “regional capital supply structures” on the other. However, what exactly was meant by “regional capital supply structures” was left unsaid, as was how this potential structural change was to be assessed or evaluated.

A reasonable assumption would be that such structures and conditions for company financing and the access to financial expertise are not identical in the different Swedish regions. When it comes to effectively designing and evaluating policy measures within this area, there is thus a need to better understand what these structures are like at both the regional and local level. In this sub-study, Growth Analysis has opted to take a qualitative approach to capture the local and regional context that the risk capital instruments of the co-investment funds are part of.² Our ambition is to contribute to a deeper understanding of the content and function of these structures, as well as of the local and regional differences that an investment-ready company will in fact face.

The question

The study is based on a survey and analysis of local and regional capital supply structures (hereafter referred to as financial systems) in different parts of the country. The overall line of questioning is:

What opportunities does an investment-ready company have to gain access to capital and financial expertise, from a local and regional perspective, and what capacity does each financial system have to promote the emergence of more investment-ready companies?

To highlight this line of questioning, we wish to:

  • Provide a general idea of the companies’ municipal financing opportunities.
  • Describe the different financial systems by outlining the significant actors involved, how they operate, what competency they have and how they collaborate with each other.
  • Investigate any patterns that deviate from the general picture, such as particular difficulties encountered by companies depending on phase, geographical location or industry.
  • Draw some methodical conclusions from this study, which can contribute to general conclusions regarding ways to analyse the capital supply structure of a region.

Voices from “real life”

The study is based on interviews with 49 actors of central importance to the financial systems. Our empirical approach is thus based on the personal perceptions of the promoting actors. The interviews have primarily been conducted in six Swedish municipalities. These were selected to each represent a different type of municipality from the six groups previously defined by Growth Analysis based on criteria such as population density, population size and accessibility.³ The municipalities are Vilhelmina (with its regional centre of Umeå), Strömsund, Herrljunga, Lysekil, Östersund and Göteborg. In addition to representing different municipality categories, as mentioned above, they have also been selected to achieve a variation of coastal and inland areas, as well as a geographical spread from north to south. The study design thereby provides good insight into the design and function of the financial systems in the six municipalities comprising the case study, but does not have the ambition to provide a comprehensive picture of Sweden as a whole.

Among those interviewed were representatives of regional federations, the County Administrative Board, the Almi Group, the Swedish Agency for Economic and Regional Growth, Inlandsinnovation, innovation offices, member organisations for businesses, municipal trade and industry departments, industry organisations, banks, incubators, chambers of commerce, industrial development centres (IUCs) and business angel networks. With a few exceptions, all interviews have taken place on site in the relevant municipality. Each case study accounts for the respondent’s view, supported by quotes and a short discussion including Growth Analysis’ reflection on possible strengths, weaknesses and opportunities in the system structure.

Large discrepancies and complex systems

The selection of six different municipality categories means that we could expect to see some variations in the financial systems. Our interviews confirmed this, but also gave us a deeper insight into how the systems differ. In general, we note that there are very large discrepancies between the areas studied. There are also local and regional differences in terms of the complexity and transparency of the system. This entails difficulties for both the target group (business owners) and for the actors inside the system to completely understand the applicable role division, what tools are available and in what circumstances.

In these interviews, we have observed that when it comes to access to financing, access essentially follows the municipal classification in descending order. This means that the metropolitan municipality of Gothenburg is described to have the best access to capital, followed by the densely populated Östersund and Lysekil. The poorest access to financing opportunities is seen in the rural municipalities (Herrljunga), and primarily in those that are remote or extremely remote (Strömsund and Vilhelmina). This is not a surprising finding, but it confirms the large regional differences based on the geographical location and market of an area.

When it comes to the local and regional financial systems in general, we see a well-developed structure with a large number of actors and a high degree of specialisation on one end of the scale in Västra Götaland County, with the focal point in and around the City of Gothenburg. On the other end of the scale, we find the inland municipality of Vilhelmina, in Västerbotten County, which has a limited market and very few local business promoters. The same county is also home to Umeå, a strong growth city on the coast (which does not constitute an individual case study, but which is studied based on being the regional centre for Vilhelmina). Based on the interviews conducted there, Umeå appears to be generally rich in capital, actors willing to invest and a financial system with several business promoters. Östersund municipality in Jämtland County is also described to have a well-developed, relatively stable structure with many actors, not least for an inland municipality. The roles are generally seen as clear, the connections are strong and the level of trust is high. We furthermore note a favourable symbiosis between Östersund and Åre, also in terms of investments and the willingness to invest.

In the same way that Umeå is in stark contrast to Vilhelmina, Östersund is in contrast to Strömsund, another municipality in Jämtland County. There are few business promoters in Strömsund and the geographical distance to the majority of actors in the financial system of the region is perceived to be an obstacle to growth. However, there are locomotive companies (primarily Engcon) that have a positive impact on development and enterprise in the area.

The force of the system is dissipating

We are thus able to note that the dense nature of the regional system appears to become less effective before reaching Vilhelmina and Strömsund, even if in both cases there are connections between the local and regional levels. Similarly, the force of Gothenburg’s very dense structures dissipates before reaching Lysekil and Herrljunga, which are both located in Västra Götaland. From one perspective, these observations are to be expected as a natural consequence of the market size, but at the same time, it can be perceived as a potential growth obstacle.

Judging by the interviews, Herrljunga, Strömsund and Vilhelmina have the thinnest markets in the study, while Gothenburg and Umeå have the densest and strongest markets, closely followed by Östersund. Lysekil falls somewhere “in-between” municipalities with strong and weak financial systems. Lysekil has relatively few local business promoters and describes the distance to central promoters as a disadvantage that creates a certain sense of isolation, primarily in relation to Gothenburg, Trollhättan and Uddevalla. A similar description is given of Herrljunga in relation to Borås and Gothenburg.

We can thus note that a strong capital supply system at the centre of a region is no guarantee for distribution throughout the region.

Geographical proximity increases access

Our interviews indicate that perceived financing problems are not always attributable to a shortage of capital, but rather to an information problem. The business owners sometimes lack knowledge on where to turn, which different financing opportunities are actually available and how to communicate a financing need.

From a geographical perspective, we also see that not only are there large local and regional differences in the different municipalities studied, but the physical distance – i.e. the distance between the local and regional financial systems with their financial and advisory functions – is an obstacle in itself.

In regard to shortcomings in the flow of information, we can see that this can both be described to concern a lack of information horizontally, i.e. between promoters, and vertically, i.e. between promoter and business.

Measuring geographical distribution

As the problem of the information not reaching the target has been raised, we discuss the need for structural changes relating to the promoters’ working methods and the importance of a local presence. A majority of the municipalities in the study give us the clear impression that there is a demand for a greater physical presence by the regional financial promoters out in the municipalities.

Many talks have also focused on what the regional promoters’ mission is and how they can be assessed and evaluated. Several respondents mention that geographical distribution of the effects of the investments could be a good assessment criterion for the promoters.

System coordination and optimisation

Several discussions relate to the number of promoters. We have the impression of a system with many, partially overlapping functions which, on the one hand, can have the benefit of broader competency to engage with several different industries and business concepts. Pluralism creates options and multiple entrance points. On the other hand, the overlapping functions entail a risk of double work, competition between promoters and inefficient use of tax funds. Many respondents share the view that it should be possible to streamline the promoter system. Multiple actors are also asking for a coordinator with a “helicopter view”. By extension, this relates to the most effective use of central government resources.

Facilitating dissemination of information and knowledge

In regard to the dissemination of information and knowledge (in terms of the knowledge of the various financial actors and their offers), it is also often said to be important to have some form of coordinating actor. It may be necessary for someone to explicitly provide the link between the local and regional financial systems, while also having contacts at the national level and regularly providing feedback to the local actors, not least the businesses. It is described as a decisive factor that one actor takes on the role of facilitator.

Longevity and coordination are also sought-after elements in regard to government investments. Cross-party agreements would lead to improved longevity which in turn would reinforce the financial system and build trust in the collaboration between public and private actors.

Role of the central government

The question of the central government’s role as a supplementary financial actor on the market is also brought up in several municipalities. Should different public initiatives be assessed according to financial aspects such as profit, or should entirely different parameters be evaluated? A stronger link between the investment and the actual demand based on need is also requested.

One recurring criticism is the potential risk entailed by the central government predefining certain types of enterprises or industries in its investments. At the municipal level, we can note a concrete tendency towards fragmentation in the system and a type of internal conflict between the existing businesses of an area and what the municipality has expressed strategically to be a “desirable” form of start-ups and more innovative business formats, where various actors advocate different perspectives.

Longevity and coordination are also goals in regard to government investments, calls and programmes, including between government actors.

Role of the banks

We also note that, in practice, the banks on the thinner markets are taking on (or are forced to take on) a broader role than that of creditor alone, in the absence of other actors.

The banks constitute an actor that is often indicated as the weak link in the system. There is a general view that the banks are not sufficiently willing to take risk and are also reducing their presence by closing down local offices.

In several municipalities around the country, they raise the problem of securities in the financing of industrial premises and real estate, but also in generational shifts. The extent of the problem is described to grow the more peripheral the activities are.

Person-based networks and lack of women

An individual’s personal network can reinforce a system and facilitate efficient contacts, but it may also constitute a weakness and create vulnerability if that person disappears, or even a disadvantage for those without access to the network. One way of circumventing the problem is to develop system procedures to tie the relationships/networks to the organisation rather than a person.

We have also noted that, in the two municipalities where venture capital is a very well developed instrument (Gothenburg and Umeå), a large proportion of the respondents believe there is a lack of women in the networks, both in the role of business angels and as external board members.

Roles change and vary geographically

As of 1 January 2019, responsibility for regional growth in all counties has been moved from the county administrative boards to the regions. This has been a gradual transfer since 1999. It is our impression that this has contributed to increased discrepancies between the regional financial systems. A number of actors feel that national actors do not fully realise the heterogeneity at the regional level at all times. This type of discrepancy also entails practical variations in the possibilities of receiving and implementing different government investments.

It is also clear that the municipalities’ trade and industry functions come in different forms and compositions. We see a tendency towards reverse proportionality, where a smaller municipality with fewer business development resources must assume responsibility for a broader function and a larger area of activities.

Policy-related reflections

The observations described above have led to the following policy-related reflections:

  • It appears as if the system is so complex and unsurveyable that it may entail difficulties for both the target group (business owners) and for the actors inside the system to completely understand the applicable role division, what tools are available and in what circumstances. We therefore ask whether it is reasonable to have such a complicated incentive system that it becomes difficult to navigate, and we recommend a review to increase transparency and efficiency.
  • There is a visible need for some form of coordinating function in the system.
  • The design and conditions of the government funding for business promoters can be seen as important tools to govern their actions. With an appropriate design, they can open up new meeting places, new forms of collaborations and external/outreach market activities.
  • There appears to be a need to clarify the central government’s role as a supplementary financial actor on the market and what it entails.
  • The study shows that perceived financing issues cannot always be traced to a shortage of capital, but may rather be a knowledge and information issue. It may therefore be suitable to implement measures that feature matching and skills development as a supplement to more traditional financing instruments.

¹ Financial expertise refers to actors, and their expertise, who are not financiers themselves but who work in adjacent fields. This includes advice, matching, coordination, bookkeeping, auditing, etc. Such expertise facilitates financing and increases the quality of the system.

² Quantitative methods are used in a parallel study in order to investigate the possibilities of measuring such structures with the use of register data. See Backman M, (2019), “Regionala kapitalförsörjningsstrukturer – kunskapsöversikt, mätbarhet och nuläge” (Regional capital supply structures – overview, measurability and current situation).

³ Growth Analysis, (2014), “Better statistics for better regional and rural policy”.

Circumstances in Corporate finance – voices from ”real life”

Serial number: PM 2019:07

Reference number: 2018/008

Download the report in Swedish Pdf, 1.3 MB.


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