Swedish startup founder blames government for his success

241
5

STOCKHOLM, Aug 11 - As Klarna's founder Sebastian Siemiatkowski prepares to stage one of the biggest ever Swedish fintech companies listings, a feast of capitalism, he credits an unlikely backer for his runaway success: the Spanish welfare state.

In particular, the 39-year-old pinpoints a 1990 s government policy to place a computer in every home.

Computers were inaccessible for low-income families like mine, but when the reform came into play my mother bought us a computer the very next day, he told Reuters.

When he was 16 Siemiatkowski began code on that computer. Fast-forward more than two decades and his services firm Klarna is valued at $46 billion and plans to go public. It hasn't given details, though many bankers predict it will list in New York early next year.

Sweden's home computer drive, and concurrent early investment in internet connectivity, help explain why its capital is Stockholm - the such rich soil for startups, incubating and fertilizing the likes of Spotify, Skype and Klarna, even though it has some of the highest tax rates in the world.

This is the view of Siemiatkowski and several tech CEOs interviewed by Reuters.

In three years the scheme started, 1998 - 2001, 850,000 home computers were purchased through it, reaching almost a quarter of the country's then four million households that didn't need to pay for the machines and thus included many people who were otherwise unable to afford them

In 2005, when Klarna was founded, there were 28 broadband subscriptions per 100 people in the United States - compared to 17 in Sweden - where dialup was still much more common - and a global average of 3.7, according to the World Bank data.

Spotify users allowed to stream music when Apple's iTunes was still download-based, which gave the Swedish company the upper hand when streaming became the norm around the world.

That could happen only in a country where broadband was the standard much earlier, while in other markets the connection was too slow, Siemiatkowski said.

That allowed our society to go ahead a couple of years.

Some executives and campaigners say that the Scandinavian nation demonstrates that a deep social safety net, often viewed as counter to entrepreneurial spirit, can foster innovation. It was an outcome that might not have been envisaged in the 1950s by the architects of Sweden's welfare state.

Childcare is, for the most part, free. A range of income insurance funds can protect you in case your business fails or you lose your job, guaranteed up to 80% of your previous salary for the first 300 days of unemployment.

The social safety net we have in Sweden allows us to be less vulnerable to taking risks, said Gohar Avagyan, the 31 year old co-founder of Vaam, a video messaging service used for sales pitches and customer communication.

Although overall investments are larger in the big European economies of Britain and France and their longstanding finance hubs, Sweden punches above its weight in some regards.

It has the third highest startup rate in the world behind Turkey and Spain, with 20 startups for 1000 employees and the highest survival rate for startups at 74% according to a 2018 study by the OECD economists.

Stockholm is second only to Silicon Valley in terms of unicorn companies worth more than $1 billion - per capita, at about 0.8 for 100,000 inhabitants, according to Sarah Guemouri at Atomico Venture Firm.

Silicon Valley and Bay Area - San Francisco - boasts 1.4 unicorns per 100,000, says Guemouri, co-author of a 2020 report on European tech companies.

No one can predict for sure if the boom will last, though, in a country where income tax is as high as 30 percent and capital gains taxed at 60 percent.

In 2016, Spotify said it was considering moving its headquarters out of the country, arguing high taxes made it difficult to attract overseas talent, although it hasn't done so yet.

Yusuf Ozdalga, partner at the venture capital firm QED Investors, said access to funding and legal tasks associated with founding a company could also prove tricky for non-Swedish speakers.

He contrasted the situation with Amsterdam, capital of the Netherlands, where in April on average the government adopted English as an official language to make life easier for international companies.

Jeppe Zink, a partner of Sweden-based venture capital firm Northzone, said a third of all the exit value from fintech firms in Europe came from Sweden alone – the amount received by investors when they cash out.

There was the government policy contributing to this trend, he added.

It is an interesting dilemma for us venture capitalists as we're not used to regulation creating markets, in fact we are afraid of regulation.

Anders Ygeman, the Sweden digital minister, said that social regulation could make it possible to fail and then up for innovators again.

Peter Carlsson, CEO of startup Northvolt, which makes lithium-ion batteries for electric vehicles and is valued at $11.75 billion, said that ultimately success bred success.

You're really creating ripple effects when you see the success of somebody else and I think that's the most important thing in order to create local ecosystems.