Is Sweden a tech. role model?

[AugustusSeptimius1]

Writing an economics paper re. tech. innovation in the last decade and my attention was drawn to Sweden. In addition to being the famed birthplace of Spotify, since mid-2016, it has borne 35 tech unicorns––companies valued over $1 billion––and now has the 5th largest number of potential unicorns––companies valued between $250 million and $1 billion (https://dealroom.co/blog/sweden-tech-ecosystem). All of this despite having the population of London. Definitely an interesting discussion.

 

[magellan1]

Sweden ranks second in Europe for VC funding per capita and is way ahead of the UK (around 50%). In fact, Estonia is the leading country based on this indicator but we should keep in mind that it is a very small country (<1.5m population). It is difficult to say whether there are many startups in Sweden because of the easier access to funding or whether there is a lot of VC money because there are many good startups.
In my view, the most important factor for the success of Sweden in the technology sector is the country's high level of investment in R&D, which is around 3% of their GDP. Generally, there is a strong correlation between the amount of money countries spend on research and their innovation capability. In addition to that, the country has a good education system and high-quality infrastructure. Finally, success stories like Spotify inspire many young people to launch new startups in hopes of creating the next unicorn.
P.S. I recommend you "The Playlist" on Netflix if you haven't seen it yet.

 

[JustAnotherHuman1]

3 things (perhaps a different angle than you would expect, but they are still relevant and true):
- Although there might had been one or two start-up home runs born in Sweden (Klarna is another), these are rather the exceptions and not the norm. It does not really reflect the overall picture. The grand total of GDP revenues generated from the tech industry is in fact a lot larger in the UK (due to the different in size of these countries, you are right there; might be interesting to compare per capita instead to get a more accurate comparison). In the UK, Revolut, Checkout.com and Monzo come to mind, but again, these are only the top tier of the market and does not include the combined other 80% of the market, or whatever it is.

- Let's not forget about the elephant in the room, Brexit. Amount of investment into the tech sector depends on how much government revenue there is. This is a function of GDP, and since Brexit, GB has literally become the weakest economy in the G7. It's not 2013 anymore. It was shown that the size of the UK's economy was around 90% that of Germany's prior to Brexit. After Brexit? 20% smaller, so 70%. That's material change. Guess the impact of this on tech spending, not great: the lower the GDP, the less there is to put into growth sectors and tech is only one component of the economy. See this week's Budget, where a significant amount was committed to tech hubs around the UK, which is definitely a step in the right direction as the strength of this sector can be built and capitalised upon and expanded even further.

- Lost access to large talent pool, again due to Brexit. Except for a few PhDs and other heavy-hitters who might go to the UK for research etc, where do you think the average adventurous European software developer will go to work post-Brexit? Xenophobic London, with the added hassle of sorting out a work visa? Perhaps not. They'll go to Stockholm and work at Spotify, or Klarna, Paris, Berlin or Frankfurt. I'm exaggerating a bit here, but you get the idea. It's real.

 

[TheWharfConsultant1]

A well-working start-up ecosystems needs brains, talent, money and exit opportunities:

• Brains: a lot of start-up ideas are spun off from basic research, so having one or several good engineering universities help
• Talent: to scale quickly, you will need to be able (comparatively) large numbers in a short time - good universities and schools help, but also other attractive employers you can poach more experienced employees from; you will also need an interesting/enticing location (or enable working from home nowadays) and last but not least a labour market that does not frown at CVs that include a couple of years at a start-up that eventually failed
• Money: you want access to finance, this also includes legal environment, accounting rules, taxes (just read that Belgium taxes options at 18% of the value of the underlying share when they are granted https://www.taxpatria.be/faq/how-are-stock-options-taxed-in-belgium/)
• Exit: your investors want to see their money at some point, so you want to have attractive options, e.g. a well-working and liquid stock market, larger tech companies looking for acquisitions etc.

Another interesting comparison is Boston (tons of research) vs Silicon Valley (more success) - good luck with your paper!

 

[AugustusSeptimius1]

A well-working start-up ecosystems needs brains, talent, money and exit opportunities:

• Brains: a lot of start-up ideas are spun off from basic research, so having one or several good engineering universities help
• Talent: to scale quickly, you will need to be able (comparatively) large numbers in a short time - good universities and schools help, but also other attractive employers you can poach more experienced employees from; you will also need an interesting/enticing location (or enable working from home nowadays) and last but not least a labour market that does not frown at CVs that include a couple of years at a start-up that eventually failed
• Money: you want access to finance, this also includes legal environment, accounting rules, taxes (just read that Belgium taxes options at 18% of the value of the underlying share when they are granted https://www.taxpatria.be/faq/how-are-stock-options-taxed-in-belgium/)
• Exit: your investors want to see their money at some point, so you want to have attractive options, e.g. a well-working and liquid stock market, larger tech companies looking for acquisitions etc.

Another interesting comparison is Boston (tons of research) vs Silicon Valley (more success) - good luck with your paper!

This is really good insight. Thanks!

 

[AugustusSeptimius1]

3 things (perhaps a different angle than you would expect, but they are still relevant and true):
- Although there might had been one or two start-up home runs born in Sweden (Klarna is another), these are rather the exceptions and not the norm. It does not really reflect the overall picture. The grand total of GDP revenues generated from the tech industry is in fact a lot larger in the UK (due to the different in size of these countries, you are right there; might be interesting to compare per capita instead to get a more accurate comparison). In the UK, Revolut, Checkout.com and Monzo come to mind, but again, these are only the top tier of the market and does not include the combined other 80% of the market, or whatever it is.

- Let's not forget about the elephant in the room, Brexit. Amount of investment into the tech sector depends on how much government revenue there is. This is a function of GDP, and since Brexit, GB has literally become the weakest economy in the G7. It's not 2013 anymore. It was shown that the size of the UK's economy was around 90% that of Germany's prior to Brexit. After Brexit? 20% smaller, so 70%. That's material change. Guess the impact of this on tech spending, not great: the lower the GDP, the less there is to put into growth sectors and tech is only one component of the economy. See this week's Budget, where a significant amount was committed to tech hubs around the UK, which is definitely a step in the right direction as the strength of this sector can be built and capitalised upon and expanded even further.

- Lost access to large talent pool, again due to Brexit. Except for a few PhDs and other heavy-hitters who might go to the UK for research etc, where do you think the average adventurous European software developer will go to work post-Brexit? Xenophobic London, with the added hassle of sorting out a work visa? Perhaps not. They'll go to Stockholm and work at Spotify, or Klarna, Paris, Berlin or Frankfurt. I'm exaggerating a bit here, but you get the idea. It's real.

Agreed, brexit has definitely been economically troublesome, to say the least, and one can easily that it has stifled tech. innovation. I do think that there is something relatively unique about Sweden that has contributed to its recent successes though as, obviously, not all of the EU has become an innovation hub thanks to its mere existence in the EU. Re. macro analysis, perhaps its lower Gini, poverty and higher wages offer a kind of safety net and encourage innovation. After all, a key reason for Britain’s Industrial Revolution was high relative wages. Not sure but interesting nonetheless