Stockholm is on fire when it comes to start-ups, with $1.4bn of venture capital raised by 247 companies in 2016 alone – more than half of the total investments in the Nordic region last year.
It is Monday night in Stockholm and the weather is quite literally Baltic. On a whistle-stop visit to the city to check out the Nasdaq Nordic stock exchange as a potential funding route for fast-growth Irish companies, my visit takes me from the jarring cold of Stockholm’s streets to the warm glow of a room full of 300 or 400 entrepreneurs.
The STHLM Tech Meetup, the brainchild of American Tyler Crowley, is in full flow and the whole place has the feel of a boom town as Joseph Michael from Invest Stockholm rattles off some impressive figures: “$1.4bn was invested in Stockholm in 2016, around 54pc of the total amount invested in the Nordics. 247 Stockholm-based companies raised investment in 2016, which is 35pc of the investments made in the Nordics.”
To emphasise his point, Michael points out that Stockholm has a population of less than 1m people. “Stockholm is 4pc of the Nordic population. There has been an investment for every working day in Stockholm in 2016.”
While London and Berlin get a lot of the attention in the European start-up buzz these days, Stockholm has viable credibility that many cities could only wish for, having churned out its own fair share of unicorns that include brands from Skype and Spotify, to Dice Studios and King (makers of the wickedly addictive Candy Crush), not to mention start-up darling du jour, fintech player Klarna.
Judging by the numbers that Michael is throwing out, the key to the city’s success lies in the diversity of ideas and technologies.
Stockholm doesn’t put all its eggs in one basket. For example, of the 2016 investments, some 33 were in fintech, 12 in IoT, 16 in gaming, 29 in enterprise/cloud, 28 in e-commerce, 20 in health and wellness, 23 in entertainment and media, and 14 in social and communications.
Running the gauntlet
While the STHLM Tech Meetup event may feel like something that belongs in San Francisco, the Stockholm take on pitching is brutally honest. Actually, refreshingly honest, in a tough-love kind of way.
‘Clearly Stockholm is raising a lot of money, but the million-dollar question is: Where are the exits?’
– JASON BALL
Start-ups brave enough to pitch (some have left in tears) have to run the gauntlet of searing questions from Crowley as well as a ballsy Mississippian called Jason Ball, senior director of Qualcomm Ventures for Europe, Capital A managing partner Tanya Marvin-Horowitz and Ville Heikkinen of Butterfly Partners.
Ball doesn’t mince his words. “Clearly Stockholm is raising a lot of money, but the million-dollar question is: ‘Where are the exits?’” he asks the crowd.
“I’ve invested in two Stockholm companies, I’ve sold one and the other has raised money. But where are your exits?”
The pitching part begins and a start-up called Base2 – focusing on the ‘last metre’ for digital services such as Deliveroo and e-commerce players such as H&M to better work with apartment complexes and property firms – takes to the stage.
Despite a polished and earnest presentation on ‘home services intelligence’, Ball rips into Base2 with brutal and honest criticism on why he wouldn’t invest in the company.
A member of the audience who happens to be from Amazon joins Ball in slicing up the pitcher, pointing out that Amazon is already tackling the ‘last metre’ problem with its drones.
“But where should the pitch go from this?” Crowley referees tactfully.
“They need to show the data on how it works – if there’s no data, we won’t look at it,” the Amazonian said with stark frankness.
The start-up founder making the pitch looks a little crestfallen by the brutal assessment, but the feedback was honest and valuable.
Welcome to Stockholm. And I am hooked.
More start-ups form a nervous queue to be eviscerated by Ball and the other venture capitalists but I have to leave for a dinner appointment. I hope to return one day.
Stockholm start-up spirit
The interesting thing about Stockholm’s start-up scene is just how recent it is, since 2010 or 2011 – pretty much on a similar tangent with cities like London, Berlin and Dublin.
While Sweden has an industrial base that goes back to the 19th century, and major industrial and engineering giants from Ericsson to ABB and Scania, it was only in the last seven years that the digital start-up culture gained its current frenetic pace.
‘When we founded Sqore, there were only a handful of other start-ups; seed rounds were non-existent. We felt that Sweden was five or 10 years behind the US or London but now there is this catch-up effect’
– NIKLAS JUNGEGARD
The success of entrepreneurs such as Niklas Zennström – co-founder of Skype and Kazaa and head of venture capital firm Atomico – played a pivotal role in inspiring this new generation of entrepreneurs.
When Niklas Jungegard, CEO and co-founder of HR technology company Sqore, started his company in 2010, there was hardly any seed capital available.
Based in the desirable district of Södermalm – Stockholm’s Williamsburg – Sqore is a community assessment technology company that helps recruit and access the modern workforce between 18 and 30 through social media and skills-based competitions.
The company counts businesses from The Economist to London Business School, Autodesk, IBM, Volvo and Oxford University Press as clients. Just this week, it took on the University of Denver as a new client.
Jungegard said that entrepreneurship in Sweden, for much of the country’s history, was led by largely family-owned industrial companies with origins back in the 19th century.
“While there were some exceptions like Ikea, there was very little change until around 2000, when entrepreneurs like Zennström began laying the foundations, and that legacy has been carried on by Spotify and others.
“But when we founded Sqore, there were only a handful of other start-ups; seed rounds were almost non-existent. We felt that Sweden was five or 10 years behind the US or London but now there is this catch-up effect.”
Sqore completed a €3m investment round in 2015 followed up by a further €3m in 2016, and is growing fast. It employs 60 people, 20 of whom it hired in the last six months.
“We have more than 800,000 people going through the system and we rank and compare the metadata in real time to match people with the right skills with the right jobs. You could say we have gamified the recruitment process; changing it from the old ‘we’ll keep your CV on file’ approach to actual tests that keep applicants up to date with skills as well as giving them a chance to win prizes, like an iPhone.”
Jungegard said that the recruitment landscape is changing. “EY scrapped the requirement for degrees but it is going to take 10 or 15 years for that change to happen and businesses cannot ignore the talent. That’s where Sqore’s analytical platform is key.
“Online talent platforms will add $2.7trn to the world economy in the next five years by providing better and more accurate matching of skills.”
Meeting the start-ups
I leave trendy Södermalm and head to Stockholm’s city centre where I meet Jessica Stark, founder of SUP46, a major start-up hub and co-working space.
“We felt it was super important to have a vibrant meeting place for tech companies. Before we started in 2013, you couldn’t find one hot spot for entrepreneurs in Stockholm.”
‘Running your own company has become more sexy in the last decade, but entrepreneurship has always been highly respected in Swedish society, but more associated with family-run companies. Now there is a start-up boom’
– JESSICA STARK
Getting a working space at SUP46 is by selection only and start-ups between seed and Series A funding are typical of the cohort. Once there, the start-ups are supported in terms of recruitment, training workshops, PR and access to a network of investors and serial entrepreneurs. Zennström, for example, as well as founders of players like Truecaller and iZettle are known to drop by.
“We have about 250 people here, including over 60 start-ups as members. Total aggregate funding among our members and alumni has reached $135m.”
Stark said that entrepreneurship is appreciated in Sweden because of the country’s lucrative and established industrial base, but only in the last 10 years has it sparked the popular imagination.
“10 years ago, it was not so common, but now all my friends want to do their own thing. Media coverage is a factor. Running your own company has become more sexy in the last decade, but entrepreneurship has always been highly respected in Swedish society, but more associated with family-run companies. Now there is a start-up boom.”
At SUP46, I meet alumni Rosie Linder and Paulina Olsson from Peppy Pals, makers of a gaming app that teaches kids and ‘childish adults’ all about emotional intelligence.
“Most games today are still split down the middle in terms of gender, and we set out to create gender neutral games that teach kids important life skills, such as empathy,” Linder explained.
Peppy Pals has been downloaded in more than 150 countries worldwide.
“There are not many female founders in the games industry,” said Olsson. “But the community in Stockholm has been very encouraging and supportive. We were based at SUP46 and Nasdaq provided us with office space because of its focus on female entrepreneurs.”
I also meet Fredrik Kempe, co-founder of Airinum, who has brought the breathing mask into the 21st century by combining fashion with function. He plans to turn the mask into an internet of things (IoT) device with sensors.
After a successful Kickstarter funding round and some seed investment, the start-up has created a premium breathing mask with replaceable filters that is selling well in China and Korea.
“We all drink filtered water to stay healthy but no one discusses the air we breathe,” Kempe points out.
“We have focused on getting this product out and we are already running out of stock in Korea. We are looking at IoT and how we can help people not only measure the air they breathe, but also the air they exhale, for e-health applications. There is a massive correlation between air quality and asthma.”
After meeting the start-ups, I get reacquainted with Michael from Invest Stockholm and his colleagues Torbjörn Bengtsson and Marie Sundström.
We discuss the figures that Michael revealed at the STHLM Tech Meetup the previous night.
“There have always been lots of good businesses but they were mostly doing their own thing under the radar. The media didn’t cover them and the companies just did their own thing. That began to change with the success of Skype and Spotify as well as King and the others. Investment players like Index and Northzone been here for years sourcing deals but didn’t broadcast the fact.”
‘In the US, the hero is usually a doctor or a lawyer. In Sweden, it is the engineer’
– TORBJÖRN BENGTSSON
But the numbers revealed by Bengtsson are impressive. “The Nordics are 3pc of the European population but attract between 11pc and 13pc of venture investment. Some 50pc of billion-dollar exits came from the Nordics and over half of these came from Sweden.”
Another factor worth considering is that 18pc of the working population of Sweden works in tech, ahead of the European average of 10pc.
“We have global companies built on design; it is part of the fabric here and it is a golden combination with technology. Spotify, for example, owes its success to the user interface.”
He also added that a key factor in Stockholm’s start-up boom has been the visionary investment in fibre by the city around the turn of the century, removing infrastructural bottlenecks for entrepreneurs.
If Stockholm has any frictions, it is down to property; with more people coming to work and live in the city resulting in a zero net outflow of talent, according to LinkedIn.
“There’s simply more people coming in than leaving,” said Michael.
Sundström said that the intense funding levels are garnering the city a reputation as something of a unicorn factory.
This week, for example, VR company XMReality raised €20m in funding and Resolution Games, the start-up headed by Tommy Palm of King fame, is regarded as one of the world’s best-funded VR gaming companies.
Bengtsson said that the key to Stockholm’s success is in its diversity of tech start-ups. “What we want to see is more things added to the ecosystem. It is maturing and it is moving to its next phase in areas like music, tech, fintech, gaming and health. But we need to know our own strengths and identify the gaps and fill them.”
The city has one of the highest concentration of game developers in the world with a number of triple A gaming studios such as Dice. Minecraft creator Markus Persson is also a native of the city.
According to Bengtsson, Stockholm has the second-highest number of unicorns per capita outside of Silicon Valley.
“In the US, the hero is usually a doctor or a lawyer. In Sweden, it is the engineer. This goes back to the Nobel heritage and in the 18th century, a big push for natural sciences. For example, 15pc of materials on the Periodic Table of Elements were found by Swedish engineers.”
As I leave the city, I muse on the spirit of entrepreneurship in Stockholm and it is positively electric. There are strong fundamentals in the characteristics and drive of the start-ups, and plenty of recent successes like King and Spotify to inspire founders, but also challenges in terms of skills and property.
As I clock up the vibrant numbers in terms of venture capital funding, my mind goes back to Ball’s question: “Where are the exits?” But it is a valid question worth asking in London, Dublin or Berlin also.