Ex-Candy Crusher turned VC is playing a new game

EQT partner Lars Jörnow, who oversaw development of Candy Crush, explains why he is no longer excited about gaming, but instead focuses on companies serving the creator economy and electrification of traditional industries.

Europe’s VC market has been playing catchup with the US in many ways, and one of the most significant changes in recent years has been in the growing number of VC firms being led by former entrepreneurs and operators.

In 2016, when EQT Ventures launched, “there were really no big funds being run by former entrepreneurs and operators in Europe,” said partner Lars Jörnow.

With the help of EQT Ventures and some other VC firms, that trend has accelerated, with quite a few firms now being run by former founders. That’s “especially important in the early stage where you back a team in a market. It’s not so much having a business plan, but being ready for a rollercoaster and being ready to dig in and help if founders want that,” Jörnow told Venture Capital Journal.

Lars Jörnow, partner, EQT Ventures

Last week, the Stockholm-based venture firm, which is part of the the Swedish private equity firm EQT Group, announced the close of its third fund for €1.1 billion ($1.14 billion), nearly twice the size of its previous fund, which closed on €660 million in November 2019.

After opening the data room in February, Fund III’s first close was in late April, with the bulk of LP commitments secured by the end of June, said Jörnow.

“As the overall market changed, we ended up having many more questions from LPs around the macro [economic] climate and how we see the future of higher interest rates, higher inflation,” he noted. Those discussions included some LPs whose portfolios had been hit by the denominator effect and needed to reduce their exposure to private assets. “So, it took a bit longer, but we were mainly done by [late] June.”

In contrast to its first two funds, where investors’ questions all centered on EQT Ventures’ first-time team or first-time strategy, the firm was able this year to stand on a track record that includes investments in more than 100 start-ups, with “a lot of proof points showing we’re on a really good path as a firm,” said Jörnow.

He acknowledged the brand effect of being part of a massive private equity platform and enjoying long-term relationships with clients that are especially helpful when the market is in chaos.

Amid market turmoil, “investors tend to flee to more secure assets. Maybe EQT is like the US dollar in that sense. We’re a massive platform, a big brand. LPs know we’re going to be around for the long term,” he said.

While Europe’s ecosystem of VC funds has grown quite rapidly over the last six years, the ecosystem of entrepreneurs has grown even faster, Jörnow noted.

Where a VC manager in 2016 was happy to look at 2,000 potential investments each year, the VC firm now considers 10,000 per year, “a testament to the explosion of tech founders” in Europe, which covid-19 accelerated, he said.

“Now you can actually start a company in a smaller city in Europe and access more talent because of remote work. You don’t have to be in a cluster like San Francisco,” Jörnow said. “Now you can be a founding team in Stockholm and you can build up an engineering team across Europe – wherever they want to be – and you have an equal shot of making it in a globalized world.”

Starting a company has become the leading career path choice among European business school students, where 10 years ago most wanted to join McKinsey or Goldman Sachs.

To handle the growing volume of start-ups it examines, EQT Ventures began developing its own “proprietary deal machine,” called Motherbrain, when it launched. Today, the AI-driven workflow platform has roughly 25 people working on it full-time.

“This allows us to screen and log data on many more companies,” said Jörnow. “We’re essentially using technology to scale our business as well. We feel that if you don’t do these investments [in technology] today, you’ll be at a real competitive disadvantage in five or 10 years.”

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One sector in which the firm has made multiple investments is sustainable industrials – a bet on what Jörnow calls “the electrification of society” to mitigate climate change. This includes companies such as Heart Aerospace (electric airplanes), Einride (electric freight mobility grids) and Candela (electric boats sans carbon emissions), as well as Verkor, a low-carbon battery factory in France.

With electric vehicles already comprising up to 20 percent of new cars in some countries, electrification may feel mature. “But from a company-building perspective, we think it’s still the very beginning,” he said. “Electric airplanes, electric boats, electric trucks are in their infancy. We believe it’s a great chance to build the future leaders by backing these entrepreneurs.”

Shifting away from gaming startups

Jörnow is perhaps best known for heading the mobile team at King, which went on to develop the global mobile gaming sensation Candy Crush Saga. While nine of the 22 companies that Jörnow has worked with at EQT Ventures have been gaming start-ups, Apple’s discontinuation of its Identifier for Advertisers (IDFA) has made the firm turn away from gaming since last year.

IDFA allowed game publishers to expand their audience by finding additional players through targeting audiences for similar apps. “Now, with changes to the IDFA, it’s more difficult to find clusters of people who are very likely to become great targets for your marketing,” said Jörnow.

European venture capital
EQT Ventures team

Ongoing consolidation of the top gaming platforms by bigger brands, such as Take-Two’s $12.7 billion acquisition of Zynga in May, is also hampering emerging gaming start-ups.

“It’s always been difficult [to make the leap to a massive audience], but now it’s not enough to just have a great game and a great marketing team,” Jörnow said. “Now you also have to figure out a way to scale your audience outside of these [marketing strategies].”

Jörnow has been spending more time focusing on companies designed to serve the burgeoning creator economy, comprised mostly of freelance content producers who are acquiring followings as influencers.

“One of the trends we saw that was accelerated by covid was more and more people every year want to work for themselves,” and not have to answer to a manager or work in a cubicle, he said. “That’s an area where we spend more and more time looking at how we can enable people to do this. And for those who already are [turning their passions into professions], how can we make sure they can spend most of their time doing what they love and not doing admin stuff, or taxes or invoicing?”

Along these lines, EQT Ventures’ second fund invested in Willa Pay, which handles payment invoicing and tax filings for content producers so they can focus on their creative work.