Equity Finance 2024 Comparisons

In early-stage and venture capital financing, common structures include equity rounds with ordinary and preference shares, and convertible instruments. Convertible loans and mezzanine financing are less frequent but may be used when a company seeks flexibility in structuring its capital, particularly in cross-border or hybrid funding arrangements. The choice of structure often depends on the level of risk, investor preference and anticipated exit strategy.

Growth and private equity financing typically involves more complex instruments, often combining equity and debt, such as preference share structures, convertible bonds and other hybrid instruments, and shareholder loans. Leveraged buyouts (LBOs), management buyouts (MBOs) and mezzanine financing are common. These transactions differ from seed and early-stage financing as the companies are more mature, and the focus shifts from growth to value extraction, operational efficiency and improved profitability. The choice of financing structure differs depending mainly on company profile and investor risk appetite.

An equity listing is typically preceded by a six to 12-month preparatory phase during which the company’s corporate structure, the group’s governance structures and procedures, as well as financial reporting routines and practices, are firmed up to meet listing requirements. The IPO price discovery process takes place through pre-deal investor dialogue and marketing, including equity analyst interaction. The Swedish equity capital markets have outperformed their European peers in almost every respect and have been successful in attracting significant interest from both domestic and foreign issuers and investors. Companies from various sectors list on equity markets, but technology and healthcare often dominate due to investor interest in high-growth sectors. A decision to list is typically driven by a company’s need for capital to scale operations or provide liquidity to investors, and is influenced by feasibility of other strategic opportunities, market conditions, company readiness and investor appetite.

Equity restructurings commonly involve pre-emptive and non-pre-emptive capital increases, debt-to-equity swaps and down rounds, especially in distressed scenarios. Debt-to-equity swaps are often used when companies face liquidity issues, allowing creditors to become shareholders. Down rounds, though challenging, enable companies to secure additional funding at a lower valuation. Dilution of existing shareholders is a frequent issue, and legal considerations such as the Board’s fiduciary duties to minority shareholders must be carefully navigated.

For listed companies, there are generally no shareholder agreements, although shareholders may co-operate under more or less formalised conditions. Instead, statutory law, the Swedish Corporate Governance Code and the company’s articles of association determine what rights shareholders have. Important decisions, such equity capital raisings, and changes to shareholder rights and the business purpose, usually require shareholder consent (larger shareholders may effectively control the outcome of the vote). A listed company has customary disclosure obligations in line with other EU jurisdictions, including to publish financial reports (normally on a quarterly basis) and disclose inside information to the market.

Investors may provide both equity and debt to the same company, and shareholder loans, convertible debt and similar instruments are not uncommon in, for example, private equity structures. Generally speaking, the key consideration is commercial; debt ranks ahead of equity in insolvency (see 5.1 Impact of Insolvency Processes on Shareholder Rights), and the risk profile and potential upside are different. Tax considerations also need to be taken into account. Shareholder debt is not mandatorily treated as equity in insolvency, but in practice contractual subordination arrangements could entail similar results.

Equity finance encompasses a range of instruments from simple equity raises to more sophisticated hybrid forms like mezzanine finance. Mezzanine financing is particularly relevant in late-stage growth companies looking to avoid significant dilution while accessing capital. The market for private equity, venture capital and IPOs is very well developed, with robust deal activity, especially in growth sectors such as technology, renewable energy and healthcare. The market for hybrid financing is also well developed, although not as deep and established as the equity market.

Equity financing is typically provided by institutional investors, venture capitalists, private equity firms and sometimes family offices. On 1 December 2023, a new and extensive foreign direct investment legislation came into force in Sweden. If the target is within the scope of Sweden’s FDI regime, there is a requirement to obtain a pre-approval for investments where the investor will own shares representing 10% or more of the votes. And this also applies for Swedish investors. Relevant sectors include, for example, energy, telecommunications, logistics and utilities but in certain aspects also various forms of IT services, finance, insurance and healthcare.

Companies seeking equity finance vary by size, industry and growth stage. Startups frequently seek venture capital, while more established companies often look to private equity. The decision to raise equity versus debt depends on the company’s capital needs, growth stage and leverage capacity. Currently, sectors such as fintech, life science and healthcare, and renewables see the most equity financing activity due to high investor demand.

The equity finance market in Sweden is well established and highly active, driven by a strong ecosystem of institutional investors, including venture capital private equity firms and pension funds, as well as significant retail participation. Sweden’s economy is also characterised by a robust startup scene, particularly in sectors like technology, fintech and green energy, which, together with the very strong institutional investors, has contributed to the consistent deal flow.

In 2024, Sweden saw a significant amount of equity financing deals, with sizes ranging from early-stage venture capital rounds up to EUR10 million, to larger private equity and public offerings exceeding EUR100 million. The Swedish public market, particularly Nasdaq Stockholm, has seen strong activity, with several high-profile IPOs in the tech, financial services, life sciences, renewables and industrials sectors.

In addition to the exceptional equity capital markets ecosystem, the number of deals is driven by factors such as Sweden’s innovative business environment and strong investor appetite. In 2025, we expect continued growth, including more tech unicorns emerging from Sweden’s startup scene. We would also expect private equity and institutional investors to continue to put increased focused on the long-term profitability and non-cyclicality of the business. However, market conditions and macroeconomic factors, such as interest rate trends and geopolitical developments, may impact deal flow.

Privately allocated equity remains a dominant source of capital, driven by private equity and venture capital firms looking to invest in high-growth opportunities. However, public-raised equity through IPOs has seen renewed interest, especially in the later half of 2023, as market conditions improved. Companies opt for private placements when seeking quicker, less burdensome capital raises, while public pre-emptive offerings are chosen for larger capital raises.

Deal sourcing is typically facilitated by a well-connected adviser network comprising investment bankers, law firms and financial advisers. This ecosystem supports both companies and investors, allowing them to navigate complex regulatory frameworks and identify lucrative opportunities.

Exits for equity investors often occur through IPOs, trade sales or secondary buyouts. IPOs offer liquidity and valuation premiums, while trade sales may provide strategic synergies. Secondary buyouts are common in private equity where one firm sells its stake to another. The choice of exit depends on market conditions, company performance and investor objectives.

The balance between equity and debt financing is influenced by a company’s growth stage, capital structure and market conditions. Equity is preferred by high-growth companies looking to avoid high leverage, while more mature companies may opt for debt to benefit from tax advantages and avoid dilution. Recently, following indications that reference interest rates are coming down, debt refinancings seem to have been increasing in prevalence, though equity remains crucial for riskier ventures.

Equity finance transactions can take several months, with IPOs taking six to 12 months on average due to regulatory hurdles and market preparation. Private equity and venture capital deals may close within three to six months, though due diligence and negotiations can prolong timelines. Regulatory approvals, market volatility, investor sentiment and company performance are key challenges that affect the time required to complete capital raises.

See 2.2 Equity Finance Providers and Potential Restrictions on Them.

Sweden does not impose restrictions on the repatriation of profits or capital. Dividends and other payments to foreign investors can be freely transferred, but such payments are subject to withholding tax, generally at a rate of 30%, unless reduced by a double taxation treaty. Sweden’s membership of the EU also ensures free movement of capital within the Union. Mitigation strategies, such as using treaty benefits, can help reduce tax liabilities on repatriated funds.

Sweden adheres to EU-wide anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, which require comprehensive due diligence, including identification of beneficial owners, and ensuring that capital used in equity financing is clean. Transactions with countries or entities subject to EU sanctions, as well as sanctions imposed by certain other jurisdictions and organisations, are prohibited, and Swedish companies must comply with these regulations when raising equity. Failure to meet AML/know-your-customer standards can result in severe penalties, making compliance a critical consideration in equity financings.

In Sweden, it is standard to use Swedish law as the governing law for equity financing transactions, in both domestic and international deals, although English law may be preferred in certain situations. The Swedish court system is efficient and respected, offering a reliable mechanism for resolving disputes, but arbitration under the rules of the Stockholm Chamber of Commerce is normally used in equity capital markets agreements due to their complexity.

Recent regulatory developments in Sweden include enhanced scrutiny on AML compliance, increasing interest in sustainable finance and limitations on foreign direct investments into certain sectors (such as defence, telecommunications and critical infrastructure). As noted in 2.2 Equity Finance Providers and Potential Restrictions on Them, Sweden has recently implemented an extensive FDI Act. Sweden has also introduced various green financing initiatives aligned with its strong environmental policies, making the jurisdiction attractive for investors looking to participate in ESG (environmental, social and governance) investments. Additionally, Sweden’s regulatory authorities and governing bodies are focusing on ensuring transparency in corporate governance, particularly in publicly listed companies, to further enhance investor protection.

Dividends paid to foreign investors are subject to a 30% withholding tax in Sweden, but this rate is often reduced under double tax treaties, with many countries enjoying lower rates. Capital gains tax for non-resident investors depends on whether the investor has a substantial holding in a Swedish company, generally defined as holding more than 10% of the capital. In such cases, a capital gains tax of up to 30% may apply, though treaties often provide for relief or exemptions.

Besides withholding and capital gains taxes, Sweden does not levy any stamp duties or similar taxes on the transfer of shares in most cases. Investors should be aware that Sweden offers public grants and tax relief for investments in innovative sectors such as clean energy and technology startups. These incentives are designed to attract foreign investment and boost the growth of key industries. However, the conditions for these grants typically include maintaining operations in Sweden for a specified period and meeting employment targets.

Sweden has an extensive network of double tax treaties covering most major economies. These treaties are designed to prevent double taxation by providing tax relief on cross-border dividend payments, interest, royalties and capital gains. Treaty benefits generally lower withholding tax rates and ensure that investors do not face punitive tax consequences. Swedish tax authorities are co-operative in applying these treaties, making Sweden an attractive jurisdiction for international equity investors.

In Sweden, once insolvency proceedings begin, shareholders’ rights are subordinated to creditors’ claims. Shareholders typically lose control over decision-making, with court-appointed administrators taking charge of the process. Equity holders rarely have much influence over the outcome, except in in-court corporate restructuring proceedings scenarios where they may exercise influence by being involved in the negotiation of and voting on (as a separate class) the restructuring plan. In a liquidation, shareholders rank last in the distribution hierarchy, after secured and unsecured creditors.

In Swedish insolvency proceedings, equity investors are the last to be paid in the event of a liquidation. Secured creditors are paid first, followed by unsecured creditors. Only if there are remaining assets after these creditors have been satisfied will shareholders receive distributions. Uncalled capital commitments can sometimes be called upon in an insolvency if stipulated in the shareholders’ agreement or company’s articles of association.

The insolvency process in Sweden varies depending on the complexity of the case. A typical insolvency procedure may take between six months and two years. However, recoveries for shareholders are uncommon in Swedish insolvency cases, as the proceeds from the liquidation of assets are usually exhausted by creditors’ claims. In rare cases where assets exceed creditor liabilities, shareholders might receive some recovery, though the likelihood is low.

Swedish companies facing financial distress can undergo in-court restructuring under the Swedish Restructuring Act, which implements the EU restructuring and insolvency directive. This procedure allows certain viable companies to restructure their debts and continue operations in an orderly manner while benefiting from certain stays on the exercise and enforcement of creditor rights. Affected equity holders in the company typically form a separate class in the negotiation of and voting on the restructuring plan, but a cram-down may under certain circumstances be effected against their will. While restructuring proceedings may help the company avoid liquidation, the equity holders may see their stakes diluted if the approved restructuring plan requires, for example, that new equity is issued or that debt is converted to equity.

Equity investors in Sweden face several risks if a company becomes insolvent. One significant risk is recharacterisation of shareholder loans as equity, which would place them lower in the distribution hierarchy. Additionally, insolvency administrators may pursue claims against shareholders for improperly conducted business or breaches of fiduciary duty. However, Sweden’s insolvency framework is generally transparent, and such claims are more likely where there is evidence of shareholder misconduct.