Stockholm’s start-up stories are well documented. Home-grown giants such as Spotify and Klarna transcend Sweden’s capital, have brought global notoriety to the city and spawned new generations of entrepreneurs. 

The city even has the enviable claim of creating more ‘unicorns’ per capita than any other region outside Silicon Valley, according to venture capital (VC) fund Atomico, being home to seven start-ups valued at more than $1bn.

In absolute funding terms, Stockholm lags behind other major European tech hubs, such as London, Paris and Berlin, yet saw an impressive €8.2bn poured into its start-ups between 2015 and 2020, according to PitchBook data.

But even as serial entrepreneurs have fed capital, inspiration and expertise back into the ecosystem, the city could become a victim of its own success. Prominent investors say that the housing market, visa schemes and start-up remuneration packages need improvement for the capital’s tech scene to grow and keep attracting talent. 

Early computer revolution

The city’s roots as an entrepreneurial hub are often attributed to a policy in the 1990s that democratised access to technology through a tax break for residents to buy personal computers. 

“I didn’t grow up with a lot of money and still had a PC at home,” says Jessica Schultz, a Stockholm-based general partner at Northzone, an early-stage VC fund. This early adoption led many Swedes to become tech savvy and attracted companies seeking to test ideas in a digital-friendly environment. 

With the stage set, several tech success stories – such as Skype, which was co-founded by Swedish entrepreneur Niklas Zennström, ‘buy now pay later’ fintech Klarna and global music streaming platform Spotify – emerged. 

Tove Larsson, the general partner at Norrsken VC, an early-stage impact fund formed as part of a foundation set up by Klarna co-founder Niklas Adalberth, believes these unicorns and their founders had a “big ripple effect” and inspired a future generation of entrepreneurs.

“Being an entrepreneur is being encouraged across Swedish society,” she says, noting that when she graduated in 2007 most ambitious Swedes instead wanted to become bankers or management consultants.

In 2020, the Global Entrepreneurship Monitor found that 62.5% of Swedes aged between 18 and 64 think there are good opportunities to start a business where they live, outstripping the global average of 50.5% and countries such as the US and UK. 

Sophia Bendz — the global marketing director at Spotify up until 2014, and now an active angel investor and partner at European early-stage fund Cherry Ventures — has witnessed this transition.

“When I joined Spotify back in 2007, it wasn’t popular to join a start-up,” she says, adding Stockholm lacked start-up infrastructure at the time and there was not a single female partner at Swedish VC funds. But today is a very different story.

Ms Bendz describes Stockholm as having a “flourishing ecosystem”, where talent, capital, knowledge, conferences and accelerators are “fuelling the next generation of founders on their journeys.” The city’s mayor, Anna König Jerlmyr, has set a goal to have half of Stockholm’s unicorns founded by women within the next decade.

Mission driven

Alongside Stockholm’s high-profile fintechs, which include iZettle, Trustly and Tink, the open banking platform that was acquired by Visa for €1.8bn in June, the ecosystem has seen a surge of impact-focused start-ups.

“Stockholm is one of the best places to start a business as a mission-driven founder,” says Lars Jörnow, a Stockholm-based partner at EQT Ventures, which has invested in Einride, a start-up trying to automate and electrify freight transportation.

Elsewhere, Swedish homegrown giants — such as Northvolt, the lithium-ion battery start-up valued at almost $12bn, and global alternative dairy producer Oatly — add weight to the country’s green credentials.

“The ‘Greta effect’ has accelerated this sustainability focus and had a huge impact on the start-up scene,” explains Ms Larsson, referring to the prominent Swedish teenage climate activist.

In 2020, Sweden accounted for the largest share of a record €1.6bn invested in impact start-ups in the Nordic region, according to a Danske Bank report citing Dealroom data.

Talent attraction

Mr Jörnow, who formerly led a team at King Digital, the Stockholm gaming start-up behind globally successful Candy Crush Saga, believes the open and non-hierarchical Swedish culture has helped build effective teams and attract international talent.

“There is a very sound culture that enables high-skilled tech companies to thrive,” he claims, noting the ubiquity of English in the office and the importance placed on work-life balance and paternity leave. Other draws include good healthcare, education and a strong social safety net that enables founders to take more risks.

Several large exits in Sweden’s gaming industry are another marker of success, with publicly-listed Stillfront and Embracer growing from Stockholm into a global suite of studios. King and Mojang, the developer behind Minecraft, were also acquired for multi-billion dollar price tags by Activision Blizzard and Microsoft, respectively.

Even with success stories and a more international talent pool in Stockholm, Ms Schultz thinks it is easier to hire in other hubs such as Berlin, London or New York. “You have to really convince people to move to Stockholm,” she says.

A common complaint is that employee share ownership structures in Sweden could be streamlined, with many start-ups unable to offer attractive stock option packages to attract and retain top talent.

Housing shortage

As a fairly small city, Stockholm is known for its ease of navigation and dense start-up community. Ms Bendz says that founders and new investors “can get to know the key players fairly easily, and people are generous with taking time to meet and grab coffee”. 

But with compactness comes challenges. Stockholm’s long-term shortage of affordable housing is dissuading entrepreneurs from moving to the city. Ms Larsson says this presents a problem for fast-growing start-ups too, who find it difficult to find accommodation for their new hires.

Sweden’s National Board of Housing estimates that for Stockholm to meet the shortfall, the city needs to build 25,000–30,000 new homes every year over the next decade.

“The housing problem is systemic and probably not something that a politician could solve today,” says Mr Jörnow, adding that making the visa application process even more efficient and assigning more public funds towards venture investing, as seen in France and Germany, are other ways to improve. 

But as Stockholm racks up more global start-up success stories, its ability to compete in the war for globally mobile talent will be defining. “It’s crucial for Stockholm to be able to hire top talent across the globe in order to stay ahead of the game,” Ms Bendz notes.

This article first appeared in the August/September print edition of fDi Intelligence.