Ask a Swedish tech entrepreneur about a pivotal moment in their lives, and they will likely talk about the first time they gained a personal computer at home.
In the nineties, the Swedish government ran a scheme which offered tax breaks to people who bought computers, with their employer helping to cover the cost.
Sebastian Siemiatkowski, the chief executive of Europe’s most valuable financial technology start-up Klarna, which reached a $10bn (£7.6bn) valuation last month, has said this was a crucial moment in his life.
The scheme also kickstarted a love of technology in Alan Mamedi, the chief executive of Swedish caller ID start-up Truecaller which is reportedly approaching a $1bn valuation.
“I come from an immigrant family, I was born in a refugee camp in Sweden,” he says. “My mother worked in a warehouse for almost 20 years with a low salary … but they offered all their employees a Fujitsu computer.”
It is government decisions like that many praise for being behind Sweden’s current boom in technology start-ups, with the Nordic nation threatening to eclipse the UK when it comes to being the technology capital of Europe.
Swedish music streaming service Spotify has grown to a market cap of $48bn following its float in New York in 2018. And in 2014, Swedish video game business King, the maker of the hit Candy Crush apps, went public. The same year, Microsoft spent $2.5bn on Swedish video games company Mojang which built the smash hit Minecraft.
Sadly for British politicians looking on with envy, Sweden’s start-up success cannot be easily replicated. Experts point to wide-ranging tax reforms dating back to the Eighties as a key ingredient for the latest surge in tech talent.
Swedish entrepreneur Daniel Ek is the chief executive of Stockholm-based Spotify
Credit: Getty Images
Magnus Henrekson, the head of Sweden’s Research Institute of Industrial Economics, points to the country’s lack of any form of wealth tax as a key motivation for entrepreneurs to make and keep their money.
“This means that people are accumulating wealth and if they make an exit and a lot of money, they have to search for other investment opportunities,” he says.
So wealthy employees who made millions of pounds from Spotify’s float or Mojang’s sale are encouraged to reinvest that money into a new generation of start-ups.
Many Swedes are outspoken about the benefits of their socialist government, but Henrekson says there’s still a strong motivation to start businesses in the country.
“Sweden has a very individualistic culture,” Henrekson says. “People want to get rich. So you have this enormous push among a generation of young men to start companies and grow companies.”
Sweden has seen a significant shift in its attitude towards entrepreneurship since the country saw its first internet start-ups in the Nineties.
“In 2009 when we started Truecaller, the word ‘entrepreneur’ barely existed in the Swedish climate,” Mamedi says. “It wasn’t really the popular choice to take.”
Now, the country’s technology sector is flourishing. Data compiled by PitchBook shows Swedish start-ups raised a total of £2.3bn in funding in 2019. It’s a giant leap from the £900m raised the year before, but still far behind the £10.5bn raised by UK start-ups in 2019.
Nevertheless, the continued rise in Sweden’s start-up sector is partially down to the country’s safety net which means that start-up founders can bounce back if their project fails to take off.
“Even if they fail, we have a rather stable social security system and education system from kindergarten up till PhD level [that’s] free for people,” says Sweden’s business minister Ibrahim Baylan. “If they fail, they don’t need to sell their house or go bankrupt.”
And if a company is doing well, the Swedish government makes it easy for the business to hire staff from overseas. Truecaller has managed to recruit employees from other countries and secure a visa for them in less than 30 days, for example.
“To put it bluntly, our population is getting older,” Baylan says. “The internal demographics in Sweden and most parts of Europe, they are just horrible.”
“If we are to be competitive, we need highly skilled talent,” he continues. “We cannot find them in our own small country.”
It’s a stark contrast to the UK, where the chief executives of the country’s largest start-ups complain that it’s increasingly difficult for them to hire talented staff from abroad.
Sweden has also invested heavily into its internet infrastructure, meaning students tinkering with computers in the Nineties were able to access higher internet speeds than many parts of the UK currently have today.
These factors have led to Sweden’s technology boom which investor Ted Persson from venture capital business EQT Ventures says exists in fields like music streaming, video games, digital healthcare and even financial technology.
“Obviously London is the European capital of fintech but there is something happening here,” he says.
Digital doctor start-ups like Kry, which has raised more than $251m in funding, as well as companies like EQT-backed Min Doktor, represent a hot new field of technology where Sweden is again home to some of the leading businesses.
“When the government sector is failing in its production of social services, there will be entrepreneurs there picking up the business opportunities immediately,” Henrekson says.
Sweden has undoubtedly experienced a surge in technology start-ups, but the challenge now is to figure out how to continue to deliver.
Gaining a visa to work in Sweden may be easy, but a shortage of apartments to rent in Stockholm is a serious problem for technology workers moving to the capital.
“One thing that does not really work in Stockholm is the housing market,” Persson says. “It’s basically impossible.”
There are also concerns that too many growing Swedish businesses sell to American technology giants because they have exhausted the available funding in Europe.
Henrekson says Mojang’s decision to sell to Microsoft was “probably the worst business deal in Swedish history.”
“It would have been worth much more. I believe in that case they really sold prematurely,” he says before naming Swedish payments company iZettle’s $2.2bn sale to PayPal in 2018 as another deal that may have been too early.
He’s not alone at being concerned by this trend. Daniel Ek, the chief executive of Spotify, pledged last month to invest €1bn (£901m) of his wealth into European companies. He said in a virtual conference speech that he had become “really frustrated” at the number of businesses selling too early.
Skype and Atomico co-founder Niklas Zennström
Credit: Atomico
His mission has attracted support from Niklas Zennström, the billionaire Swedish entrepreneur who co-founded Skype and now runs investment fund Atomico which was the first European fund to back Klarna in 2012.
“Sweden has consistently punched above its weight in terms of the level of funding, company creation and great talent,” Zennström says. “It is a great example of how we can create home-grown tech giants through the flywheel of systematic recycling of talent and capital propelling even greater successes.”
Can Sweden be the birthplace of a major technology giant, tipping the balance of power in the global technology world? Zennström, one of Europe’s most respected entrepreneurs, certainly seems to think so.
“There is nothing systematic that stops Sweden or Europe from producing really big tech companies,” he says, “it’s just a matter of time and successful founders like Ek who are encouraging the next generation to think even bigger.”
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