Focus: How Sweden became the Silicon Valley of Europe
11/08/2021 06:00
By Colm Fulton and Supantha Mukherjee
STOCKHOLM, Aug 11 (Reuters) - As Klarna's billionaire
founder Sebastian Siemiatkowski prepares to stage one of the
biggest-ever European fintech company listings, a feast of
capitalism, he credits an unlikely backer for his runaway
success: the Swedish welfare state.
In particular, the 39-year-old pinpoints a late-1990s
government policy to put a computer in every home.
"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 told Reuters.
Siemiatkowski began coding on that computer when he was 16.
Fast-forward more than two decades, and his payments firm Klarna
is valued at $46 billion and plans to go public. It hasn't given
details, though many bankers predict it will list in New York
early next year.
Sweden's home computer drive, and concurrent early
investment in internet connectivity, help explain why its
capital Stockholm has become such rich soil for startups,
birthing and incubating the likes of 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 interviewed by Reuters.
In the three years the scheme ran, 1998-2001, 850,000 home
computers were purchased through it, reaching almost a quarter
of the country's then-four million households, who didn't have
to pay for the machines and thus included many people who were
otherwise unable to afford them.
In 2005, when Klarna was founded, there were 28 broadband
subscriptions per 100 people in Sweden, compared with 17 in the
United States - where dial-up was still far more common - and a
global average of 3.7, according to data from the World Bank.
Spotify allowed users to stream music when Apple's AAPL.O
iTunes was still download-based, which gave the Swedish company
the upper-hand when streaming became the norm around the world.
"That could only happen in a country where broadband was the
standard much earlier, while in other markets the connection was
too slow," Siemiatkowski said.
"That allowed our society to be a couple of years ahead."
Some executives and campaigners say the Scandinavian nation
demonstrates that a deep social safety net, often viewed as
counter to entrepreneurial spirit, can foster innovation. It's
an outcome that might not have been envisaged by the architects
of Sweden's welfare state in the 1950s.
Childcare is, for the most part, free. A range of income
insurance funds can protect you if your business fails or you
lose your job, guaranteeing up to 80% of your previous salary
for the first 300 days of unemployment.
"The social safety net we have in Sweden allows us to be
less vulnerable to taking risks," said Gohar Avagyan, the
31-year-old co-founder of Vaam, a video messaging service used
for sales pitches and customer communication.
STARTUP RATE VS SILICON VALLEY
Although overall investments are larger in the bigger
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 rate in the world, behind
Turkey and Spain, with 20 startups per 1000 employees and the
highest three year survival rate for startups anywhere, at 74%,
according to a 2018 study by OECD economists.
Stockholm is second only to Silicon Valley in terms of
unicorns - startups valued at above $1 billion - per capita, at
around 0.8 per 100,000 inhabitants, according to Sarah Guemouri
at venture capital firm Atomico.
Silicon Valley - San Francisco and the Bay Area - boasts 1.4
unicorns per 100,000, said Guemouri, co-author of a 2020 report
on European tech companies.
No one can say for sure if the boom will last, though, in a
country where capital gains are taxed at 30 percent and income
tax can be as high as 60 percent.
In 2016, Spotify said it was considering moving its
headquarters out of the country, arguing high taxes made it
difficult to attract overseas talent, though it hasn't done so.
Yusuf Ozdalga, partner at venture capital firm QED
Investors, said access to funding and administrative or legal
tasks connected with founding a company could also prove tough
to navigate for non-Swedish speakers.
He contrasted that to Amsterdam, capital of the Netherlands,
where the government adopted English as an official language in
April to make life easier for international companies.
'INTERESTING DILEMMA' FOR VC
Jeppe Zink, partner at London-based venture capital firm
Northzone, said a third of all the exit value from fintech
companies in Europe - the amount received by investors when they
cash out - came from Sweden alone.
Government policy had contributed to this trend, 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 said that 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 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."
(Reporting by Supantha Mukherjee and Colm Fulton in Stockholm;
Editing by Pravin Char)
((Colm.Fulton@thomsonreuters.com;))