Part 1: Buzz or Business?
There is a Silicon Alley in New York, a Silicon Beach in Los Angeles and a Silicon Roundabout in London. There is no Silicon Archipelago here, but a hashtag and a movement that has grown from the grassroots of Stockholm’s startup community: #sthlmtech.
Today’s Stockholm, the reignited and vibrant tech hot spot, is a paradox: a dazzle of exciting new startups and talents, skilled entrepreneurs and global opportunities, but a lack of local venture capital.
So let’s take a journey through the two sides of the Swedish technology economy, the booming startup scene and the changing local market for venture capital (VC).
In February 2000, Newsweek featured Stockholm on the cover with an image of the then-famous Hightech building with a bold headline: “Stockholm – Hot IPOs and Cool Clubs in Europe’s Internet Capital”. Exactly two weeks later the stock markets peaked and, by pure luck rather than foresight, I sold my Internet startup Fondex, Scandinavia’s first online mutual fund supermarket, to a listed British Internet company, and became a dotcom-millionaire at age 34. Mostly on paper, but that’s beside the point. These were good times.
Then it crashed; much of the Swedish startup and venture capital phenomenon collapsed and went underground for the next decade. Although a Swedish entrepreneur co-founded the most successful Internet startup maybe ever to come out of Europe – Skype – the success had no backing from Sweden. Very few had the appetite to invest in the future anymore.
Probably nowhere else in the world did the dotcom backlash hit harder than in Sweden. We gave it our all, and failed miserably. Keep in mind, that in Sweden, failures are not always regarded as a positive learning experience.
Fast forward to 2014. In central Stockholm there is a buzz of activity at the startup space SUP46, Startup People of Sweden (46 is our country code) that launched in October 2013. Spanning an entire floor of a modern office building, the place is now fast filling up with startups.
“This is not an incubator. We provide a meeting and co-working space with a great environment at a really attractive price, but we don’t take a stake in the companies. And we only work with startups. You have to qualify to become a member”, says Jessica Stark, CEO and one of the founders of SUP46. Great startups inspire other great startups, and formerly egalitarian and drive by “Jantelagen”, Swedes are not afraid to be elite nowadays. Not in the tech sector anyway. We know that there is constant global pressure of competition and that we need to be world-class to stand the chance of winning. Just being successful is not enough.
The established companies are back in the game too. SUP46’s partners include media giants like MTG and Schibsted, looking to reinvent themselves through access to new startups and innovations. Over ten years ago many large established corporations had inhouse incubators and capital for new ventures, which were then promptly shut down. Now the trend is returning. MTG has recently hired Google veteran Rikard Steiber to head up investment company Kinnevik’s digital think tank and venture lab MTGx.
Furthermore, as always in Sweden where all stakeholders in society have a role, various public initiatives support SUP46. These include Vinnova (the Swedish government’s innovation agency), STING (Stockholm Innovation and Growth, a business accelerator related to the city of Stockholm and The Royal Institute of Technology, Ericsson and ABB). And of course Stockholm Business Region, the body promoting Stockholm as a city for business and investments, and boasting to be “the Capital of Scandinavia”, to much of the disapproval of Copenhagen who also claims that very same title. Finally, also supporting the startup scene and keen to stay close to the deal flow, the remaining venture capital firms are also partnering with SUP46.
But the real action at SUP46 is of course the entrepreneurs and startups. Companies like Instabridge (WiFi community), Unomaly (realtime systems monitoring), Mostphotos (image marketplace), Mobilimeet (mobile meetings) and Safello (Bitcoin exchange) are all setting up shop here. There are currently around 30 startups at SUP46 alone. And just how many startups are there in Stockholm in the tech sector? There is no exact figure of course, but many would put the number to somewhere between 150 to 200 promising tech startups with global potential in Stockholm right now.
Some of these will soon be born out of SUP46. STING meets with around 200 startups in a year, and is in touch with even more. VC funds like Creandum and Northzone look at hundreds of companies a year in the Nordics, and invests in five or six. At Standard Ventures we are now putting together a database with exciting tech startups in the Nordics. We are fast approaching 500 companies.
“Less than 1% of the companies, the very best, represents more than 80% of the value. These startups will always get funding. 75% should probably not have venture capital at all, and the remaining 24% are companies with ok potential that are good for Sweden but maybe not for investors with high demands on returns. They have a harder time raising capital”, says Staffan Helgesson, general partner at Creandum.
Like in all tech markets, it’s a game where the winner takes it all. The problem is that in the “good quarter” of Swedish startups looking for capital (without getting it), several should probably have funding, and would get it if there were more VC funds in Sweden. But we’ll return to that issue.
In general, investors seem excited about the opportunities in Stockholm. But one angel investor explained that there is also a new kind of entrepreneur who is more active on social networks than building a lasting company. His observation is that there is “a negative correlation between the amount tweets and startup success”. The rule remains the same – you have to focus to be really world-class.
Is Stockholm buzz or business? Let’s look further into that question. Stay tuned for Part 2.