Over the last decade, Sweden has established itself as an innovation center, becoming well known across traditional tech circles as a hub of entrepreneurial activity. On a per capita basis, the country generates more billion-dollar VC-backed companies than anywhere else in the world excluding Silicon Valley. Spotify, Skype, iZettle, Klarna, Oatly, Minecraft, King, to name a few, can all be classified as Swedish “unicorns.”
Sweden’s entrepreneurial DNA runs deep. Jan Stenbeck disrupted the telecommunications and media space in the 1980s by founding Modern Times Group, Millicom and Tele2, which fostered several European tech founders, including Niklas Zennstrom, who would go on to launch Skype (disclosure: Stenbeck is the father of one of our partners.) These companies helped lay the initial foundation for what is now the most exciting tech hub in Europe.
Our firm, Max Ventures, spends a significant amount of time in the country, meeting founders, investors, business leaders and other influential people in Sweden’s entrepreneurial ecosystem. We made our first investments in Stockholm-based startups early last year, and since then we are asked by our U.S. and European venture capital counterparts: how has Sweden, a country of 10.2 million people, been able to create so many amazing companies?
There are several objective reasons why Sweden fosters successful entrepreneurship: strong technical training in universities, school systems that encourage independent thinking and creativity, and substantial investments in infrastructure like super-fast broadband. In addition to those catalysts, we’ve noticed a unique set of circumstances in Sweden that affect the way Swedish entrepreneurs view the world and seize opportunities.
- Innovate from a place of desire and empowerment: Social safety nets that exist in Sweden don’t just benefit the poor, they also empower anyone who wants to take risks and build a business from the ground up. This effort often implies sacrificing short-term economic gain and applies not only to entrepreneurship but also to other creative fields, such as art and music—professions that often require years of success before attaining a livable income. Frequently in the U.S., creators (especially ones that don’t have access to early-stage venture capital or family wealth) are saddled with expenses that make it difficult to chart their own path. Expenses such as child care, education, healthcare, insurance, student loan debt, and the cost of caring for the elderly are all potential inhibitors for creators. In Sweden, these expenses are fully covered or heavily subsidized by the government, removing major barriers that would otherwise inhibit risk-taking and the pursuit of entrepreneurship.
- Small home market: Sweden is a small country with a population of only 10.2 million. Because the home market is not sizable, ambitious entrepreneurs who create companies in Sweden are forced to think globally from the onset. When you launch a company with a global mindset, the expectations for expanding internationally become codified. This mindset increases the probability that the company will pursue global expansion. Few entrepreneurs think globally from day one, especially founders in large markets such as New York or Silicon Valley. Most entrepreneurs in the U.S. aren’t sure if they will ever need to expand beyond the American market, at least for the first five to seven years. We believe this global first mindset is a key reason that so many global tech platforms originate from Sweden.
- Service/Resource constrained: Because of Sweden’s small population, the country is often overlooked, and underserved, by large outside companies (Amazon Prime, for example, has yet to expand to there). This dynamic instills a creative and resourceful mindset and encourages Swedish entrepreneurs to consider a different set of pain points compared to their American counterparts—a huge advantage when building a company from the ground up. For example, in the 80s and 90s, Sweden often received shipments of albums (still physical in the form of CDs) months after a new album was released. It was merely a matter of driving to Best Buy to purchase the most recent Tupac or Pearl Jam album. Swedes had to wait often for months to buy new music.
These constraints made people who were passionate about music like Daniel Ek feel inspired. When Daniel founded Spotify at age 23, he used software to make music accessible and abundant to everyone. Since Daniel experienced the pain of not having the option to purchase music on demand, he set out to build a product that created ubiquitous and on-demand access to music content. Growing up without that access, access which many Americans would take for granted, gave him the insight to build a $30 billion plus global company. Compare that to consumers in the U.S. who had direct access to albums practically on demand by driving to a record store or big electronics shop to buy their music. The problem in the U.S. was having to buy an entire album to hear only one hit song. We welcomed software that unbundled the album, such as iTunes. Once again, experiencing different pain points generated new and divergent approaches to solving similar problems.
Sweden has established itself as an innovation leader in Europe, one that has produced multiple global “unicorn” tech companies. Consequently, each successful tech company will produce a new crop of capable entrepreneurs, a phenomenon we’ve seen unfold before, most famously in Silicon Valley with the PayPal Mafia.
The ecosystem renews, strengthens, and expands as we see early employees who helped build Spotify, Klarna, and iZettle (global tech companies all founded in Stockholm) leave to start their own venture-backed startups. More resources become available locally, and more capital flows into the country to support early-stage entrepreneurship, further accelerating growth. The future in Sweden looks bright and even with its long-storied history as an exemplary innovation hub, its most exciting years still lay ahead.
Ryan Darnell is the Managing Partner of Max Ventures—one of the most active early-stage funds in NYC. Ryan founded the firm with Sophie Stenbeck and primarily invests in early-stage companies based in NYC and Sweden. Over the last five years, Ryan has made approximately 50 early-stage investments and founded four venture-backed companies.
Matt Weinberg is a full-time Columbia Business School student and will join Max Ventures as a Principal upon graduation. Before Columbia, Matt was a former White House appointee in the U.S. Small Business Administration where he served as Senior Advisor to the country’s head of Investment and Innovation. He helped drive federal programs that directed $6 billion in capital to investment funds and early-stage technology companies.