Magnus Henrekson, the head of Sweden’s Research Institute of Industrial Economics, points to the country’s lack of any form of wealth tax as a key motivation for entrepreneurs to make and keep their money.
“This means that people are accumulating wealth and if they make an exit and a lot of money, they have to search for other investment opportunities,” he says.
So wealthy employees who made millions of pounds from Spotify’s float or Mojang’s sale are encouraged to reinvest that money into a new generation of start-ups.
Many Swedes are outspoken about the benefits of their socialist government, but Henrekson says there’s still a strong motivation to start businesses in the country.
“Sweden has a very individualistic culture,” Henrekson says. “People want to get rich. So you have this enormous push among a generation of young men to start companies and grow companies.”
Sweden has seen a significant shift in its attitude towards entrepreneurship since the country saw its first internet start-ups in the Nineties.
“In 2009 when we started Truecaller, the word ‘entrepreneur’ barely existed in the Swedish climate,” Mamedi says. “It wasn’t really the popular choice to take.”
Now, the country’s technology sector is flourishing. Data compiled by PitchBook shows Swedish start-ups raised a total of £2.3bn in funding in 2019. It’s a giant leap from the £900m raised the year before, but still far behind the £10.5bn raised by UK start-ups in 2019.
Nevertheless, the continued rise in Sweden’s start-up sector is partially down to the country’s safety net which means that start-up founders can bounce back if their project fails to take off.
“Even if they fail, we have a rather stable social security system and education system from kindergarten up till PhD level [that’s] free for people,” says Sweden’s business minister Ibrahim Baylan. “If they fail, they don’t need to sell their house or go bankrupt.”
And if a company is doing well, the Swedish government makes it easy for the business to hire staff from overseas. Truecaller has managed to recruit employees from other countries and secure a visa for them in less than 30 days, for example.
“To put it bluntly, our population is getting older,” Baylan says. “The internal demographics in Sweden and most parts of Europe, they are just horrible.”
“If we are to be competitive, we need highly skilled talent,” he continues. “We cannot find them in our own small country.”
It’s a stark contrast to the UK, where the chief executives of the country’s largest start-ups complain that it’s increasingly difficult for them to hire talented staff from abroad.
Sweden has also invested heavily into its internet infrastructure, meaning students tinkering with computers in the Nineties were able to access higher internet speeds than many parts of the UK currently have today.
These factors have led to Sweden’s technology boom which investor Ted Persson from venture capital business EQT Ventures says exists in fields like music streaming, video games, digital healthcare and even financial technology.
“Obviously London is the European capital of fintech but there is something happening here,” he says.
Digital doctor start-ups like Kry, which has raised more than $251m in funding, as well as companies like EQT-backed Min Doktor, represent a hot new field of technology where Sweden is again home to some of the leading businesses.
“When the government sector is failing in its production of social services, there will be entrepreneurs there picking up the business opportunities immediately,” Henrekson says.
Sweden has undoubtedly experienced a surge in technology start-ups, but the challenge now is to figure out how to continue to deliver.
Gaining a visa to work in Sweden may be easy, but a shortage of apartments to rent in Stockholm is a serious problem for technology workers moving to the capital.
“One thing that does not really work in Stockholm is the housing market,” Persson says. “It’s basically impossible.”
There are also concerns that too many growing Swedish businesses sell to American technology giants because they have exhausted the available funding in Europe.
Henrekson says Mojang’s decision to sell to Microsoft was “probably the worst business deal in Swedish history.”
“It would have been worth much more. I believe in that case they really sold prematurely,” he says before naming Swedish payments company iZettle’s $2.2bn sale to PayPal in 2018 as another deal that may have been too early.
He’s not alone at being concerned by this trend. Daniel Ek, the chief executive of Spotify, pledged last month to invest €1bn (£901m) of his wealth into European companies. He said in a virtual conference speech that he had become “really frustrated” at the number of businesses selling too early.