© Reuters. FILE PHOTO: A smartphone showing a Klarna logo on top of banknotes is in this illustration taken on January 6, 2020. REUTERS / Dado Ruvic / Archive Photo
By Colm Fulton and Supantha Mukherjee
STOCKHOLM (Reuters) – As Klarna’s billionaire founder Sebastian Siemiatkowski prepares to host one of the largest lists of finthe technology companies in European history, a celebration of capitalism, he credits an investor unlikely for his runaway success: the Swedish welfare state.
In particular, this 39-year-old man points to government policy in the late 1990s to put a computer in every home.
“Computers were inaccessible to low-income families like mine, but when the renovation came into play, my mom bought us a computer the next day,” she told Reuters.
Siemiatkowski started coding on this computer when he was 16 years old. It was more than two decades ahead and its payment company Klarna is worth $ 46 billion and plans to go public. He has not given details, although many bankers predict he will appear in New York early next year.
Sweden’s home computer unit and the first simultaneous investments in Internet connectivity help explain why its capital, Stockholm, has become such a rich ground for startups, births and incubators like Spotify (NYSE 🙂 , Skype and Klarna, although it has some of the highest tax rates in the world.
This is the opinion of Siemiatkowski and several technology executives and venture capitalists interviewed by Reuters.
In the three years that the program lasted, 1998-2001, 850,000 home appliances were purchased that reached almost a quarter of the country’s four million households, which did not have to pay for the machines and therefore included many people who were otherwise will not be allowed.
In 2005, when Klarna was founded, there were 28 broadband subscriptions per 100 people in Sweden, compared to 17 in the United States (where the telephone connection was still much more common) and an overall average of 3.7, according to data from the World Bank.
Spotify allowed users to stream music when Apple’s iTunes (NASDAQ 🙂 was still based on downloads, which gave the Swedish company the edge when streaming became the norm worldwide.
“This could only happen in a country where broadband was the standard long before, while in other markets the connection was too slow,” Siemiatkowski said.
“This allowed our society to move forward a couple of years.”
Some executives and activists claim that the Scandinavian nation demonstrates that a deep social safety net, often seen as contrary to entrepreneurship, can foster innovation. It is a result that the architects of the Swedish welfare state could not have foreseen in the 1950s.
Childcare is, for the most part, free. A number of income insurance funds can protect you if your business fails or you lose your job, guaranteeing up to 80% of your previous salary during 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, co-founder of Vaam, 31, a video messaging service used for stalls and the communication with customers.
INITIAL RATE VS SILICON VALLEY
Although overall investment is greater in the large European economies of Britain and France and their long-standing financial centers, Sweden outweighs its weight in some respects.
It has the third highest start-up rate in the world, behind Turkey and Spain, with 20 startups per 1,000 employees and the highest three-year survival rate for startups anywhere, at 74%, according to a 2018 study by OECD economists.
Stockholm ranks second after Silicon Valley in terms of unicorns (startups worth more than $ 1 billion) per capita, about 0.8 per 100,000 population, according to Sarah Guemouri of venture capital firm Atomico .
Silicon Valley (San Francisco and the Bay Area) has 1.4 unicorns per 100,000, said Guemouri, co-author of a 2020 report on European technology companies.
However, no one can say for sure whether the boom will last in a country where capital gains tax is at 30% and income tax can reach 60%.
In 2016, Spotify said it was considering moving its headquarters from the country, arguing that high taxes make it difficult to attract talent abroad, although it has not.
Yusuf Ozdalga, a partner at venture capital firm QED Investors, said access to finance and administrative or legal tasks related to starting a business could also be difficult for non-Swedes to navigate.
He contrasted this with Amsterdam, the capital of the Netherlands, where the government adopted English as its official language in April to make life easier for international companies.
“INTERESTING DILEMMA” FOR VC
Jeppe Zink, a partner at the London-based US venture capital firm, said a third of the output value of fintech technology companies in Europe, the amount investors receive when they charge, came from Sweden alone.
Government policy had contributed to this trend, he added.
“It’s an interesting dilemma for us venture capitalists, because we’re not used to regulation creating markets, in fact we’re intrinsically nervous about regulation.”
Swedish digital minister Anders Ygeman said social regulation could make it “possible to fail” and “work again” for innovators.
Peter Carlsson, CEO of startup Northvolt, which manufactures lithium-ion batteries for electric vehicles and is worth $ 11.775 billion, said the success ultimately led to success.
“You’re really creating ripple effects when you see someone else’s success and I think maybe that’s the most important thing about creating local ecosystems.”
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