Having grown up in Toronto, I got used to the idea of eight-week summers.
My previous forays in Sweden allowed me to relive Canadian weather. This time, which I went a couple of months ago, I did not have to blow the dusk off my parka.
Stockholm is an absolutely magnificent city, but when you have glorious late spring weather, it is incomparably beautiful.
Stockholm is perched strategically, almost as a bridge, between a series of fresh water lakes and rivers on one side and outlets to the Baltic Sea on the other. But, Stockholm is not only a terrestrial bridge, but an economic (and even cultural) one as well, between the Nordics and international markets.
I had the pleasure of attending the Creandum annual meeting in Stockholm and leveraged the opportunity to meet many investors and companies and the Swedish government agency promoting international investment in Sweden.
In many ways, the Nordics are the best kept secret of venture capital in Europe.
The Nordic venture market represents approximately 10% of the total annual venture investment volume in Europe and only 2% of venture capital internationally. Yet, based on the data that Creandum shared with me (containing approximately 500 European exits), over 50% of the European unicorns and 10% of the global unicorns over the last number of years have come from the Nordics or were started by Nordic entrepreneurs.
Sweden itself represents half of the value created in the Nordics. Some of these Nordic-based or Nordic entrepreneur-founded, billion dollar and multi-billion dollar companies include Expekt, JustEat, King, Mojang, MySQL, QlikView, Rovio, Skype (started in Baltics but moved to Sweden), Spotify, Supercell, Zendesk, etc.
There is a perception that the Nordic venture capital market is a derivative of the games development market. While King, Mojang, Rovio and SuperCell have all been companies founded in the Nordics, the reality is much broader than that.
For example, Sweden has historically been a hub of innovation, inventing such diverse things as automatic identification systems, ultrasound, the pacemaker and even the modern zipper. Today, several other cutting edge technologies are being developed in the country.
First, there is a strong ecosystem in hardware and communications development. “Ericsson refugees” have started several companies, including one of the leading Bitcoin chip developers (KnC). “THINGS”, a hardware accelerator recently opened in Stockholm, backed by ABB, ASSA ABLOY, Husqvarna, NCC and SEB, is incubating, among other things, some cutting edge Internet of Things companies.
Second, the strong culture around music and the arts have made the Nordics one of the world’s leaders in music production. The combination of communications technology infrastructure together with innovation in music promotion not only created Spotify, but also emerging players such as Epidemic.
Third, there are some very interesting software companies coming out of the Nordics. QlikView Software is a world leader in the business intelligence and data visualization space and Klarna, which provides payment services for online storefronts, is one of the most interesting eCommerce infrastructure companies anywhere.
Fourth, a strong oil and gas sector and fish industry in Norway have produced some of the most innovative technologies in both sectors. Declining oil prices have had a short term impact on financing, but the domain expertise combined with the skills sets in communications and software have produced very promising and some very successful companies.
But, above all, the Nordics are producing great entrepreneurs. Danes, Finns, Icelanders, Norwegians and have had a cultural history from the days of Leif Erikson and Canute of being outward bound. More than most other countries in Europe, this embedded internationalism is producing companies that are created to be global from day one. Similar to Israeli entrepreneurs, Nordic founders are moving to the Valley to build their companies and there is a growing Nordic diaspora around San Francisco and Palo Alto.
Unfortunately, the picture is not totally rosy.
First, the venture eco-system was decimated by the 2001 crash. For example, from approximately 100 venture funds in Sweden in the early 2000s, there are six institutional grade funds currently active. This has limited the availability of local sources of growth capital; unlike in Israel where US venture funds and corporate VCs took up the slack, there are no top tier US VCs with offices in the Nordics and local corporate venturing is limited compared to other technology hubs. The glass half full of course is that this shortage of capital makes Nordic venture very much a buyer’s market, a reason that the London-based Accel Europe, Index and some others are very active in the region and are doing particularly well there.
Second, the tax regime is not particularly startup friendly. For example, employee options in Sweden are treated as ordinary income. While other governments around the world have recognized the importance of the small business sector to a flourishing economy, Sweden’s is actually penalizing employees who are creating innovation.
Third, there is a screaming absence of data about the private technology market. The Nordics are plagued by what many other countries in Europe suffer; the “Venture Capital Associations” are controlled by buyout firms with little, if no, interest in promoting technology startup formation, let alone providing the data needed to attract foreign growth capital to the market. For example, finding data in English about new technology company formation in the Nordics, how much money is being invested by stage or sector or even how much money is managed and available for investment in the region is a Herculean task. Creandum, at its expense, started become a data provider for the region.
But, despite those limitations [imagine what would happen if these challenges were solved…], the Nordics are on the rise and we think are a super-attractive investment market. My only advice: Go there in the summer…