How Sweden Became Europe’s Silicon Valley, IT News, ET CIO

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Stockholm: As Klarna’s billionaire founder Sebastian Siemiatkowski prepares to organize one of the largest European fintech companies on record, a feast of capitalism, he credits an unlikely backer for his runaway success: the State- Swedish providence.

In particular, the 39-year-old highlights a late 1990s government policy of installing a computer in every household.

“Computers were inaccessible to low-income families like mine, but when the reform kicked in, my mother bought us a computer the next day,” he told Reuters.

Siemiatkowski started coding on this computer at the age of 16. More than two decades later, his payments company Klarna is valued at $ 46 billion and plans to go public. He did not give details, although many bankers predict it will be listed in New York early next year.

Sweden’s home computer drive and the first concurrent investments in internet connectivity explain why its capital Stockholm has become such a rich ground for startups, giving birth and incubating like Spotify, Skype and Klarna, even though it has some of the highest tax rates in the world.

That’s the view of Siemiatkowski and several tech CEOs and venture capitalists polled by Reuters.

During the program’s three years of operation, 1998-2001, 850,000 personal computers were purchased through it, reaching almost a quarter of the country’s four million households, which did not have to pay for machines and therefore included many people who were otherwise unable to afford them.

In 2005, when Klarna was founded, there were 28 broadband subscriptions per 100 inhabitants in Sweden, compared to 17 in the United States – where dial-up was still much more common – and a global average of 3.7, according to World Bank data.

Spotify allowed users to stream music when Apple’s iTunes was still download-based, giving Swedish society the edge when streaming became the norm around the world.

“This could only happen in a country where broadband was the norm much earlier, while in other markets the connection was too slow,” Siemiatkowski said.

“It has kept our company a few years ahead.”

Some leaders and activists say the Scandinavian nation is demonstrating that a deep social safety net, often seen as contrary to entrepreneurship, can foster innovation. This is a result that might not have been envisioned by the architects of the Swedish welfare state in the 1950s.

Childcare is, for the most part, free. A range of income insurance funds can protect you in the event of your business bankruptcy or job loss, guaranteeing up to 80% of your previous salary during the first 300 days of unemployment.

“The social safety net we have in Sweden allows us to be less vulnerable to risk taking,” said Gohar Avagyan, 31, co-founder of Vaam, a video messaging service used for sales pitches and communication. customer communication.

Startup rate vs Silicon Valley
Although overall investments are greater in the major European economies of Great Britain and France and their long-standing financial centers, Sweden is exceeding its weight in some respects.

It has the third-highest startup rate in the world, behind Turkey and Spain, with 20 startups per 1,000 employees and the world’s highest three-year survival rate for startups at 74%, according to one. 2018 study by OECD economists.

Stockholm is just behind Silicon Valley in terms of unicorns – startups valued at over $ 1 billion – per capita, at around 0.8 per 100,000, according to Sarah Guemouri of venture capital firm Atomico.

Silicon Valley – San Francisco and the Bay Area – has 1.4 unicorns per 100,000, said Guemouri, co-author of a 2020 report on European tech companies.

No one can say for sure whether the boom will last, however, in a country where capital gains are taxed at 30 percent and income tax can reach 60 percent.

In 2016, Spotify said it was considering moving its headquarters out of the country, arguing that high taxes made it difficult to attract foreign talent, although it did not.

Yusuf Ozdalga, partner of venture capital firm QED Investors, said accessing finance and the administrative or legal tasks of starting a business could also prove difficult for non-Swedish speakers to navigate.

He compared it to Amsterdam, the capital of the Netherlands, where the government adopted English as the official language in April to make life easier for international businesses.

“Interesting dilemma” for VC
Jeppe Zink, a partner at London-based venture capital firm Northzone, said that a third of all exit value of FinTech companies in Europe – the amount investors receive when they cash out – come from the only Sweden.

Government policy has contributed to this trend, he added.

“This is an interesting dilemma for us venture capitalists because we are not used to regulation creating markets, in fact we are inherently nervous about regulation.”

Swedish Digital Minister Anders Ygeman said social regulation could make it “possible to fail” and then “be up and running again” for innovators.

Peter Carlsson, CEO of startup Northvolt, which makes lithium-ion batteries for electric vehicles and is valued at $ 11.75 billion, said that ultimately success breeds success.

“You really do create ripple effects when you see someone else’s success and I think that is perhaps the most important thing in creating local ecosystems.”


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