What makes Swedish startups so successful?

The Nordic region has the second highest number of unicorns (billion dollar valued tech companies) per capita after Silicon Valley. The region consistently tops the ranks of happiness indicators. So what’s the secret when it comes to startups, funding and ecosystem building?

You’ve all heard of Spotify, Skype Minecraft, King and Klarna. All were made in Sweden. So why is that Sweden is such a good place to start – and grow – businesses into world-class leaders?

There’s been research that shows countries with large government and high taxation policies tend to be less entrepreneurial, but in Sweden’s case the opposite appears to be true. The economic infrastructure is more developed and policies openly encourage individuals to start businesses – companies give employees up to six months paid leave to pursue a business idea (as long as it doesn’t compete directly). Entrepreneurs can start businesses with lower risk, knowing there’s a strong safety net if things don’t work out.

Sweden has supported the roll-out of super-fast fiber-optic broadband, funding this into the most rural areas, mirroring the subsidies in the 1990s to provide computers to nearly every Swedish home. Sebastian Siemiatkowski, founder and CEO of $2.5 billion ecommerce startup Klarna, credits this “visionary” policy as the reason he was able to begin coding age 10.

The country has also progressively moved its taxation policies towards a lower burden on companies (corporation tax has fallen from 52% in 1990 to 22% today). And there have been incentives for smaller businesses to share ownership with founders and employees through startup stock option incentives.

So what about funding? The ecosystem has developed incredibly around the venture capital and private equity firms – originally backed by the larger Swedish families, such as the Wallenbergs (backer of the Investor Group and EQT funds), Kinnevik, which is controlled by the Stenbeck, Klingspor and von Horn families, or Investment AB Latour, controlled by the Douglas family.

These firms are the true definition of “patient” capital, seeking long-term returns. They have been traditionally supportive of Swedish (and Nordic) founded businesses, and when these become successful, we see the trickle-down impact of exits further strengthening the startup ecosystem. Exits when companies such as Skype or Minecraft are sold to global corporations create kroner-billionaires who are keen to replicate their startup success in new business ventures or invest in such startups.

These successful exits also create an ecosystem of “experts” who’ve already tasted success, and can apply their experiences and knowledge of building and exiting startups to these new ventures. So the ecosystem continues to develop fuelled by both funding and expertise.

So there you have it – perhaps a stroke of luck that the government created the foundation blocks to establish an environment where small businesses could flourish – and where entrepreneurs weren’t afraid to take risks, but also a virtuous circle where success breeds success. Ensuring the ecosystem continues to evolve and drive innovation will continue to drive the success that Sweden has seen to date – and that’s beginning to spread across the Nordic region thanks to a broadening of the startup vision into frontier markets.