The legend of Swedish unicorns

iteo
iteo
Nov 30, 2017 · 8 min read

The reality of billion dollar startups from Sweden

At this point you probably imagine a truly extraordinary picture of a magical, horned horse festing over a (Ikea) table full of surströmming, traditional fermented Baltic herring. The horse is very tall, blue-eyed, blonde and calmly listens to Dancing Queen, while watching his family-friendly Volvo standing against the landscape of a beautiful, majestic fjords.

That is so wrong. First of all, unicorns, as the term in business world inclines, are privately-held startup companies valued at over $1 billion. The term was created in 2013 by Aileen Lee, a venture capitalist investor. She named that business phenomenon after the mythical animal to represent its statistical rarity. Going with the theme, we can also define two other occurrences, even more uncommon and unique — decacorns, companies worth over $10 billion and hectocorns, meaning companies valued over $100 billion.
And lastly, magical horses of Sweden don’t eat surströmming every day, but only on every traditional third thursday of August. Stereotypes, people!

Fancy stables of Nordics

Unicorns are indeed beautiful and magical, although they need a very specific habitat to bloom and breed. Most of those majestic creatures live somewhere in the United States or China. Actually, the world’s most valuable unicorn comes from USA — and yes, I’m talking about Uber, a true giant amongst start-ups, worth around 68 billion dollars. The second and third place on the list belongs to China with Didi Chuxing worth $50 and famous Xiaomi worth $46. Generally, for most of the top rates at the list there is a war between the United States and China, with the humble contribution of India (11th place). It isn’t until the 18th place on the list when finally Sweden appears with their Spotify. So there goes the question — why do we praise Swedish unicorns so much?

First of all, it’s important to understand the environment. The United States, China and India are enormous countries. The easiest way to explain my point is to present statistics — China has the biggest population in the whole world (around one billion and three hundred million people). India is the second (one billion and two hundred million people) and USA the third (three hundred million people). Now compare this to Sweden, a little european country with the number 91 on the list and total population of nine million people. That really puts things into perspective, don’t you think?

Now, what makes Sweden such a unique place? Let’s begin with the fact that all Nordics are quite special in this case. They have a great entrepreneurial environment, which — again — is easily noticeable in statistics. According to Crenadum’s Nordic Tech Exit Report from 2016, Denmark opens the rank of The Best Countries To Start a Company. Sweden is placed at the fifth position, Norway at seventh and Finland at tenth. Nordics are also incredible when it comes to the Global Innovation Index, where Sweden and Finland are placed at third and fourth place, then also Denmark at eighth one.

Crenadum report explains that the small market of Nordics forces startups to expand early in order to keep growing. Those countries are especially good when it comes to digital development, with the highlight on the game industry. And although accounting for 2% of global GDP (gross domestic product), since 2005 Nordic companies represented about 7% of global billion-dollar tech exits. Now, that’s a success.

Sweden has always been a country known to be all about innovation. To begin with, they have a great education system, focused on engineering training programs. Swedish economy relies heavily on exports, what forces investors to think globally. Also it’s worth noting that over 90% of household have Internet access, and citizens are in love with technology in general. The most common job in Stockholm is a programmer and 18% of the Swedish capital citizens are employed in the tech sector. Even though they still care a lot about ecology and like engaging technology to serve environmental purposes. All of these factors make Swedish the nation of smart, creative, open-minded people, confident about their ideas and ready to adjust to other environments. Isn’t it what startups are all about?

The Great Five?

Although we are here to praise Swedish start-ups, it is important to put the facts straight: three out of five unicorns that Sweden was so proud of lost their magical status. It’s not because of their financial lose, but due to their change of ownership. You see, the unicorn can truly be a unicorn only if hold privately. When sold to an entrepreneurship, it still remains a successful product, but canno longer be called a unicorn.

We used to mark five great Swedish projects that brought their owners over one billion USD in profits. These were as listed: Skype (2003), King (2003), Klarna (2005), Spotify (2008) and Mojang (2009). In 2011, Microsoft bought Skype for $8,5 billion. Mojang, the creator of Minecraft, was also sold to Microsoft — in this case for $2.5 billion, in 2014. Lastly, King Digital (know for creating Candy Crush) was bought by Activision Blizzard for $5.9 billion. All of those still exist and bloom today, but are no longer considered startups, and hence, unicorns.

Currently, Sweden has only two unicorns, Klarna and Spotify. Klarna is now one of Europe’s largest banks and provides payment solutions for 60 million consumers across 70,000 merchants in 18 countries. Spotify became a widely recognizable music storage, providing access to more than 30 million songs. As of June 2017, it had more than 140 million monthly active users and more than 60 million paying subscribers as of July 2017.

What is worth noting, Klarna’s beginnings weren’t really promising. In fact, it was just the opposite. Three founders of Klarna, Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson, participated in the Stockholm School of Economics annual entrepreneurship award. But their idea of simplifying the process of online payments did not arouse much excitement. In fact, their project was one of the lowest rated among all of the presented.

However, they still believed in their concept and based a whole company on it. They founded Klarna in the middle of 2005 and started operations in Sweden. An angel investor and sales manager, Jane Walerud, invested in their company and put them in contact with a team of programmers, which allowed them to turn their idea into the real product. It was in the middle of 2005. Ten years later, the Minister of Enterprise and Innovation Mikael Damberg dubbed Klarna one of Sweden’s five unicorns. Today, Klarna is worth $2.5.

For Spotify, it was founded by Daniel Ek, former CTO of Stardoll, and Martin Lorentzon, co-founder of TradeDoubler. As the rumor has it, they worked together for a few months inside Ek’s small apartment, where the servers were heating up to the point where even in winter they had to walk around half naked. Officially Spotify was launched in 2008 and barely one year later, Mark Zuckerberg famously makes his status “Spotify is so good”, so it is hard to imagine a better recommendation. In 2011, almost three years after its official launch, Spotify earns one billion in profit. Its growth was impressively rapid and it is still going strong. Currently, Spotify is worth over $8 billion. Very soon, the famous music storage will gain the title of a decacorn.

Dig in the Startup Queen

Specialists agree that it was the multinationals who first became successful and contributed a lot of tax money to finance infrastructure and entrepreneurship ventures. Although stories about Daniel Ek and Martin Lorentzon running in their underwear around a tiny apartment as the beginning of a huge company sound awesome, we have to remember that those garage entrepreneurships successes wouldn’t have happened if it wasn’t for previously maintained infrastructures. And those were achieved by the giants like Volvo or Ericsson.

Nevertheless, as mentioned before, it is a whole tech culture that made Sweden so unique. It is said that Daniel Ek came up with the idea of Spotify during his first year at Stockholm’s Royal Institute of Technology. So it wasn’t just a spontaneous spark of idea in his head, but he already had a solid foundation to begin with.

What is interesting, although being called “the new Silicon Valley”, due to spawning billion-dollar tech companies, Sweden is nothing like the legendary high-tech dominated area in the USA. Enough to say that Sweden treats the concept of work-life balance very seriously, which includes taking a multi-week vacation over the summer. What’s more, Sweden has one of the highest female and maternal employment rates in Europe, and it is perfectly normal and highly recommended for men to take paternity leaves, too. Government cares to make parents professionally active, for example, by subsidizing daycare costs which makes them really low. University tuition is free, healthcare is free. Can life and work conditions get any better than this?

Well, there are some troubles in paradise. Nobody can deny that costs of living are high. Sweden has the second highest income tax rate in the world, and the highest in Europe, with a 56.6% deducted from annual income. Housing can get ridiculously expensive, not to even mention that landlords have to obtain special permits which sets costs of simply renting a flat even higher. All of that may work for citizens, but for outside talents who wish to taste the sweet nectar of Swedish tech environment, may be unbearable.

To smell a (horned) rat

Sweden’s start up environment has a very advantageous characteristic — willingness to adjustment. That’s one of the things that allows them to be so successful, regardless of their relatively small budget. They are great at predicting the upcoming trends and needs, as they are so progressive and open-minded. They already succeed at simplifying process of payment (Klarna), creating music storage (Spotify), facilitating communication (Skype) and designing digital entertainment (Mojang and King). As for now, the world is heading towards everything connected to healthy lifestyle — in its very wide range. Simultaneously we care more about ourselves (diets, exercise, general state of health) and about our environment (ecology). This opens a wide range of possibilities. And some already know how to take advantage of it.

In our last article, we talked about applications that are all about healthcare, and you may remember one based on concept of finding balance in your life -Lifesum. It allows you to track your healthy (and unhealthy) habits. Based on collected data it suggest you how to improve your lifestyle. Lifesum became very successful gaining the title of “The best of Google Play 2017” on Android Excellence Awardee 2017. Currently it is worth 65 thousand dollars, and as you have probably guessed — it was born and raised in Sweden. It is also listed among the possible Swedish unicorn foals.

Experts predict that the future belongs to the projects associated with health care, social responsibility and food & beverage, where the last one has the biggest unexploited potential. Online gambling is always going strong, not to even mention gaming and digital entertainment as a whole. Anyhow, whatever will be trending, we are sure Sweden will own it. Their unicorns are fertile, fruitful and ready to gallop.

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