Twenty years ago, Sweden’s politicians faced a dilemma: how could a small country of under ten million in the Europe’s northern become the continent’s leading digital player?
The country’s leadership decided they’d win not on the macro, corporate level, but in the homes of every Swedish family. Internet speeds were vastly upgraded. Heavy subsidies would make purchasing a computer within everybody’s reach.
As a result, a huge number of Sweden’s 90s kids grew up online, playing games, interacting and learning how to use technology. A few years later it was Swedes who began toying with the web. Sites like The Pirate Bay and uTorrent grew out of the suburbs of Stockholm, Sweden’s historic capital, introducing the world to geeks, hackers and experts from a hitherto tech blackspot.
Today Stockholm’s tech community is very much grown-up – and it’s continuing to do so. It boasts the world’s second-highest number of ‘unicorns’ – billion-dollar tech startups – behind Silicon Valley.
Last year $788 million of venture and growth capital was invested in Swedish companies, a year-on-year growth of 388%. Stockholm takes in 15% of all foreign investment in the European tech sector.
Exits, those most elusive of European goals, are also roaring in Sweden. Between 2000 and 2014 the country enjoyed 263 exits at a total value of $23.7 billion – over double that of Scandinavian neighbors Norway (75 at $10.5 billion), Denmark (58 at $7.4 billion) and Finland (91 at $6.3 billion).
Heavyweight sales have included Microsoft’s $8.5 billion purchase of Skype in 2011, and its $2.5 billion acquisition of Minecraft maker Mojang in September last year. In total Stockholm boasts five unicorns: Skype, Mojang, Candy Crush Saga creator King Digital, music streamer Spotify and e-commerce platform Klarna.
A recent World Economic Forum described Sweden as the planet’s most digital economy, with Stockholm taking the lion’s share of the plaudits. But how has this city of under 800,000 on the Baltic Sea become one of Europe’s hottest startup spots, alongside metropolises like London and Berlin?
The answer lies somewhere between Waterloo, wardrobes and the World Wide Web.
“In this day and age,” wrote a recent Vogue editorial, “‘Cool’ and ‘Stockholm’ are essentially synonymous.” The island district of Södermalm was voted one of the magazine’s trendiest neighborhoods, alongside New York’s Bushwick, Hackney in London and Berlin’s Kreuzberg.
Alongside older, well-known global brands like IKEA and H&M are young, hip firms like Acne Studios, Eytys and Tretorn, all part of a wider clamour for Scandinavian minimalism. Swedish DJs like Alesso, Steve Angello and Sebastian Ingrosso have dictated the direction of dance music for the past decade. Even its soccer players are often described as cool.
Stockholm’s work-life balance has also become global lore. Last week the BBC released a report describing the city as the best ‘for working families’. Fewer than 1% of its employees work more than 50 hours a week, and that new parents are given 480 days of leave between them, and heavily-subsidized childcare.
“Stockholm’s fun, and it’s really cool having the mix of old with these new, modern cities,” says Niklas Jungegård, CEO and co-founder of Sqore, a gamefied recruitment solution. “It’s not as stressful as Tokyo, London or New York – you still get five weeks of vacation. You can go skiing, you can go swimming.
“Clean air, clean water, the streets are safe,” he adds. “That appeals to anyone.”
Nightlife is equally cherished in the capital. There is a strong music scene and weekends are long. Even the name of one of the city’s major startup hubs, SUP46 (combining ‘sup’ meaning to drink excessively, and Sweden’s dialing code) means ‘getting drunk in Sweden’.
Truecaller is a five-year-old telecommunications startup, whose office sits among fashion stores, clubs and bustling traffic in Norrmalm, the city’s commercial heart. The company has more than 200 million users worldwide, many of whom are in India. Last year the firm securing $60 million funding from Kleiner Perkins Caulfield & Byers, and Sequoia Capital, showing that Silicon Valley’s biggest VCs are looking hard at Stockholm. Many experts predict Truecaller to become Stockholm’s sixth unicorn.
CEO Alan Mamedi puts much of Truecaller’s success down to a get-up-and-go attitude he says is uniquely Swedish, and which goes hand-in-hand with the digital world: “Tech is in our blood. We live in a country where the digital field is second nature to us and it’s a scene many of us want to be part of.
“Despite this strong work ethic and business acumen, Sweden is still a relaxed place,” he adds. “We don’t talk about what we hope to do, we go out and do it. There is some substance to the ‘relaxed Swede’ stereotype!”
Truecaller, like so many Swedish startups, scaled quickly to a global level – something Swedish brands have been doing for decades. Ericsson and Volvo looked outwardly very early in their existences.
ABBA wrote their first hit, Waterloo, in English and there’s barely a corner of Europe where people don’t have at least one household item from IKEA, or clothes from H&M. Stockholmers have been identified as the world’s best English-as-a-second-language speakers in several polls. In tech, personalities such as Nikas Zennström, who, alongside Dane Janus Friis, created Skype and Kazaa, have helped foster that global identity.
“Zennström showed early on that it was possible to build global businesses from Sweden,” says Jesper Wigardt of Klarna, which, since its 2005 inception, has operations in 18 countries and revenues of $320 million.
Henrik Torstensson is CEO of Lifesum, a fitness app which, in its previous guise as ShapeUp Club, was Sweden’s second-ever app designed for iPhone. Torstensson, who has been working in Stockholm’s tech industry for 16 years, believes that the scene is great for early-stage funding. And beyond that American VCs have begun to dominate the field.
“While Stockholm is a great place to build companies, if you go for local capital, you have great firms but you have everyone in London keeping a close eye on Stockholm, and this is even at the very early stage – A rounds and the like – and when you get into B rounds you see bigger brands like Sequoia, Kleiner Perkins,” he says.
“At the B round Stockholm attracts money from all over the world,” adds Torstensson. “I think it’s on a par with Berlin and slightly worse than London. But San Francisco is a big leap in capital rather than anywhere else.”
To bridge that divide, suggests Torstensson, Sweden’s government could do more with its tax regime, which he says “as a capitalist is fantastic. Capital gains low, no inheritance tax. If you’re an entrepreneur it’s ok, and then if you’re a highly talented developer or marketer who’s employed, then it’s maybe ok but it’s not great, because the tax system is very centric on those who are established, or have capital.”
Stock option taxation, too, is something that vexes Stockholm’s entrepreneurial crowd, and, according to Daniel Blomquist, a partner at VC Creandum, makes it difficult to attract the cream of the world’s tech crop.
“The overall tax levels are high which both is good and bad, bad because they in general disincentive people to work more but good in terms of that as a founder you are taxed much more favorably, meaning that the only way to get really well off is to be an owner rather than employee,” he says.
Visa regulations, adds Blomquist, have yet to be optimized to streamline foreigners’ entry into the national workforce. And, he adds, the city is still struggling to combat its biggest practical issue: housing.
The city is creaking under a population set to rise by 11% in the next eight years, making it Europe’s fastest-growing city. To obtain one of the city’s fabled rent-controlled contracts, there is a nine-year waiting list. The cost of living is also high – though not quite as much as London or Paris.
Dozens of the city’s entrepreneurs have therefore launched a campaign, the Swedish Startup Manifesto, which they claim will help build the country’s reputation as a startup hub. “Sweden has to make a shift from being a country with successful startups, despite the barriers that politicians and legislation put in their way – to becoming the most startup friendly country,” its authors write.
“Where innovative and fast growing companies are seen as the key to new jobs, maintaining the welfare and as the next generation of big companies. For this to happen, we need a combination of initiatives and changes within specific, for society exceptionally important, areas.”
Truecaller’s Mamedi is a signatory to the manifesto. He says, “Something we’re monitoring very closely is the current need for creative housing solutions in Stockholm, simpler and more efficient recruitment process for people from outside the EU, upcoming proposals for introducing change to the taxation on stock options, and the proposed increase of capital that will be available for startups in their early stages.”
The Law of Jante, or Jantelagan, is a set of ten sociological rules devised in 1933 by novelist Aksel Sandemose, that set aside the individual in favor of the wider community. Most Swedish kids know at least one or two of them by heart and the philosophies Sandemose espoused have infused deep into the national psyche.
Social democracy is strong in Sweden – despite the well-reported rise of rightwing politics in the wake of the continent’s current refugee crisis: university education is free and healthcare is universal. Beyond that there is a help-thy-neighbor vein running through Swedish society that has allowed many young entrepreneurs to gain valuable advice, fast.
“Education definitely plays a role in the expansion of Stockholm’s start-up scene,” says Mamedi. “Our education system breeds talent, a sense of individuality and entrepreneurship that is unique to Sweden. Plus, our young people aren’t inhibited here the way they may be in other cities. Undergraduate education is free, so the pressure to immediately find a job to pay off student loans doesn’t exist.
“Without the burden of debt hanging over them the moment they enter the world of work,” he adds, “there is freedom to explore new avenues, stay ambitious and remain open to new ideas. We’re reaping the benefits of this.”
It’s a combination of this ingrained liberalism, and the proof that companies can make it big in Stockholm, which, according to Torstensson, has begun attracting more talent from outside.
“The big companies are what really gets people from Costa Rica, or Portugal, or wherever, pack their bags and say ‘I’m going to Stockholm,’” he says. “It’s the third generation of startups in Stockholm that have done that, and the Big Three – Klarna, King and Spotify – that are aggressively pursuing employment from all over.”
Sweden has been one of the European Union’s most vocal nations in welcoming refugees from Syria, Eritrea and other conflict zones – despite a recent warning from its ministers that the small state was reaching capacity.
A rightwing has bubbled towards the surface of society in the form of the ultra-nationalist Swedish Democrats party. But overall, Sweden’s – and Stockholm’s – reputation is one for compassion and joint successes. And that may be one of its biggest advantages, as it tries to build more billion-dollar companies.
“Once it comes together there’s this great galvanizing effect, where more knowledge and connections in the U.S., Germany etc get going, and a new generation gets going too,” says Torstensson.
“Instead of starting from scratch you can stand on the shoulder of giants.”