How Sweden Became the Silicon Valley of Europe

As Klarna’s billionaire founder Sebastian Siemiatkowski prepares to stage one of many biggest-ever European fintech firm listings, a feast of capitalism, he credit an unlikely backer for his runaway success: the Swedish welfare state.

In specific, the 39-year-old pinpoints a late-Nineties authorities coverage to place a pc in each dwelling.

“Computers were inaccessible for low-income families such as mine, but when the reform came into play, my mother bought us a computer the very next day,” he informed Reuters.

Siemiatkowski started coding on that pc when he was 16. Fast-forward greater than twenty years, and his funds agency Klarna is valued at $46 billion (roughly Rs. 3,42,110 crores) and plans to go public. It hasn’t given particulars, although many bankers predict it would checklist in New York early subsequent 12 months.

Sweden’s dwelling pc drive, and concurrent early funding in Internet connectivity, assist clarify why its capital Stockholm has change into such wealthy soil for startups, birthing and incubating the likes of Spotify, Skype, and Klarna, regardless that it has among the highest tax charges on the planet.

That’s the view of Siemiatkowski and several other tech CEOs and enterprise capitalists interviewed by Reuters.

In the three years the scheme ran, 1998-2001, 850,000 dwelling computer systems have been bought via it, reaching nearly 1 / 4 of the nation’s then-four million households, who did not need to pay for the machines and thus included many individuals who have been in any other case unable to afford them.

In 2005, when Klarna was based, there have been 28 broadband subscriptions per 100 individuals in Sweden, in contrast with 17 within the United States – the place dial-up was nonetheless much more frequent – and a worldwide common of three.7, in response to information from the World Bank.

Spotify allowed customers to stream music when Apple’s iTunes was nonetheless download-based, which gave the Swedish firm the upper-hand when streaming turned the norm around the globe.

“That could only happen in a country where broadband was the standard much earlier, while in other markets the connection was too slow,” Siemiatkowski stated.

“That allowed our society to be a couple of years ahead.”

Some executives and campaigners say the Scandinavian nation demonstrates {that a} deep social security internet, typically seen as counter to entrepreneurial spirit, can foster innovation. It’s an final result that may not have been envisaged by the architects of Sweden’s welfare state within the Fifties.

Childcare is, for essentially the most half, free. A spread of earnings insurance coverage funds can shield you if your corporation fails otherwise you lose your job, guaranteeing as much as 80 p.c of your earlier wage for the primary 300 days of unemployment.

“The social safety net we have in Sweden allows us to be less vulnerable to taking risks,” stated Gohar Avagyan, the 31-year-old co-founder of Vaam, a video messaging service used for gross sales pitches and buyer communication.

Startup charge vs Silicon Valley

Although general investments are bigger within the greater European economies of Britain and France and their longstanding finance hubs, Sweden punches above its weight in some regards.

It has the third highest startup charge on the planet, behind Turkey and Spain, with 20 startups per 1000 workers and the best three 12 months survival charge for startups wherever, at 74 p.c, in response to a 2018 research by OECD economists.

Stockholm is second solely to Silicon Valley by way of unicorns – startups valued at above $1 billion (roughly Rs. 7,430 crores) – per capita, at round 0.8 per 100,000 inhabitants, in response to Sarah Guemouri at enterprise capital agency Atomico.

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

No one can say for certain if the growth will final, although, in a rustic the place capital positive factors are taxed at 30 p.c and earnings tax could be as excessive as 60 p.c.

In 2016, Spotify stated it was contemplating shifting its headquarters in a foreign country, arguing excessive taxes made it troublesome to draw abroad expertise, although it hasn’t completed so.

Yusuf Ozdalga, accomplice at enterprise capital agency QED Investors, stated entry to funding and administrative or authorized duties linked with founding an organization may additionally show powerful to navigate for non-Swedish audio system.

He contrasted that to Amsterdam, capital of the Netherlands, the place the federal government adopted English as an official language in April to make life simpler for worldwide firms.

‘Interesting dilemma’ for VC

Jeppe Zink, accomplice at London-based enterprise capital agency Northzone, stated a 3rd of all of the exit worth from fintech firms in Europe – the quantity obtained by traders after they money out – got here from Sweden alone.

Government coverage had contributed to this development, he added.

“Its an interesting dilemma for us venture capitalists as we’re not used to regulation creating markets, in fact we are inherently nervous about regulation.”

Sweden’s digital minister Anders Ygeman stated that social regulation may make it “possible to fail” after which “be up and running again” for innovators.

Peter Carlsson, CEO of startup Northvolt, which makes Lithium-ion batteries for electrical autos and is valued at $11.75 billion (roughly Rs. 87,370 crores), stated that in the end success bred success.

“You’re really creating ripple effects when you’re seeing the success of somebody else and I think that’s perhaps the most important thing in order to create local ecosystems.”

© Thomson Reuters 2021