Is Sweden the best place to start your start-up?



Stockholm, Sweden's capital and home to its start-up scene. Image: Shutterstock

 A string of big exits by Swedish start-ups over the past decade has helped spawn a lively tech community in the nation's capital Stockholm. But, unlike the pull of Europe's bigger cities, there may seem very little, if anything, to draw foreign start-ups this far north.

With a market of just nine million people, almost no angel investors, two main venture capital firms, fierce competition for talent, high personal income tax, and no direct government support for start-ups, Sweden would not seem the ideal place to launch a new tech company.

A question I get from a lot from VCs that come to this country is 'What's in your water?'-- Johan Brennan, Creandum

Yet the nation consistently produces significant successes and last year attracted $200m from US venture capital firms seeking an early slice of marketable Swedish innovation. 

"A question I get from a lot from VCs that come to this country is 'What's in your water?', says Johan Brennan, general partner at Swedish venture capital firm Creandum.

"Every single year for seven to 10 years back there's been one billion dollar company created out of the Nordics, more or less."

The Swedish companies he cites include MySQL, which Sun Microsystems acquired in 2008 for $1bn, business intelligence firm QlikTech, now listed on the Nasdaq, gaming company Mojang, and more recent stars, such as Spotify and payments company Klarna.

The shame of entrepreneurship

The earlier mega-exits had a profound effect on entrepreneurship in Sweden and helped break the stigma Swedish society associated with start-ups. 

In the 1990s being an entrepreneur "was nothing that was highly thought of", according to Hjalmar Windbladh, CEO of social gifting service Wrapp and a pioneer of Sweden's start-up scene.   

Winbladh sold mobile software company SendIt AB to Microsoft for $130m in 1999. From there, he went on to launch VoIP company Rebtel and is also an advisor to Creandum.

Even gambling was considered a more acceptable way to make your money than entrepreneurship, says Jacob De Geer, CEO and co-founder of rising star iZettle , the Square-like company bring mobile payments to Europe's SMEs.

"If you made money from gambling or lottery that was OK," says De Geer. "For most other things, making money and having money at that time wasn't really appropriate."

"With entrepreneurs making exits, all of sudden people saw there were other ways to be making money and it was OK from a society point of view," says De Geer.

Perhaps more importantly for the new breed of start-ups, the early successes inspired a generation of software engineers to look outside a traditional consulting job with McKinsey or as an engineer with Ericsson.

"All of sudden it was nerds and they made s**tloads of money and it was well, if they can so can I," says De Geer.

The scale advantage

The small scale of the Swedish market is a constraint, but Swedish start-ups can use it to their advantage.

"If you're sitting in San Francisco or the Bay Area or somewhere, you find the biggest markets, but in Sweden you find one of the best test markets," says Winbladh.

The Swedish government may not offer any direct incentives to start-ups, the nation's infrastructure - telecommunications, education and institutions - has helped deliver high broadband and mobile penetration and a tech-savvy population.

"I would say Scandinavians are much faster to adopt new technologies compared to any other market in Europe. That's why I think it's a very strong plus for testing stuff in Sweden and then rolling it out to the US," says Windbladh. 

Knowing that it is necessary to reach larger markets than Sweden may also drive entrepreneurs there to think bigger from the outset.

"If you have a start-up in Germany or the UK, you have a big home market so you can go around in the home market before you go international. The Nordic guys have got more international quickly which makes it maybe an advantage," says Creadnum's Brennan.

De Geer agrees. "If we don't start the organisation with a global or pan-European ambition then our companies can only become so big."

But before any start-up can even consider going global, it needs to source talent in this regard Stockholm has its pros and cons. The competition is fierce, but there's a steady stream of talent.  

Carl Waldekranz, CEO and co-founder of start-up TicTail, which helps small businesses set up online stores, travelled to San Francisco with the idea that to "do it properly" he needed to go there. He returned to Sweden after one month upon realising what he was competing with for talent. 

"In Sweden we could start a company and we could find world class engineers and designers, and we could do something without having to compete with the Squares, Facebooks, Google and Apple. We could find world class talent without too fierce competition," says Waldekranz.

Sweden's community

One of the strongest aspects of Stockholm's start-up scene however is the amount of knowledge sharing amongst community members, which again is supported by the city's relatively small size. 

"What is going on in Stockholm is we have a really great informal network. We all hang out and go for beers after work. We're friends with the people at Wrapp, we're friends with the people at Spotify," says Waldekranz. 

That means start-up's in Waldekranz can tap iZettle's De Geer who also reaches up when he has a question or help others.

"I have lots of young entrepreneurs working on their first start ups wondering how to raise money, how to approach venture capitalists. It's pretty open, it's very easy to get access," says De Geer. 

"Same goes for me, I spend time with Hjalmar, but I can also go and talk to [Spotify CEO] Daniel Ek, or the guys from Klarna. They are a few years ahead of iZettle and they have been through some of the challenges that we are now facing."