STOCKHOLM: A Rising Tech Centre Star

14 March 2016

Astrid Trolle Adams


Astrid Trolle Adams, solicitor at European law firm ebl miller rosenfalck, analyses the appeal of Stockholm as a leader in the European tech start up sector.

If London and Berlin are the monarchs of Europe’s tech scene, Stockholm should surely be regarded as the talented challenger to the throne. Many ventures in Stockholm’s tech scene are chasing the magical ‘unicorn valuation’ where a private company is shored-up by enough venture capital investment to become part of the ‘billion-dollar start-up club’. Indeed, recent figures suggest that Sweden is in fact the king, producing more billion-dollar tech companies per capita than any other country in Europe.

Successes in Stockholm
How can we explain the realisation of those Swedish tech success stories and why have they become so lucrative for US and UK venture capital firms seeking to invest?
Obviously there are a number of factors which have aided the appeal of Stockholm to start-ups. Naturally any country’s ability to attract investment relies on its environment for business, people and innovation - and Sweden is no exception. Sweden’s competitiveness relies not only on core business environmental indicators but also on other factors such as reliability, trust and quality of life. Swedes are used to communicating in English, and any entrepreneur with aspiration to go overseas should work in English from the very beginning.

Swedish politicians have legislated since the very early tech days to ensure extensive broadband is as widely available as possible, including subsidies for the private sector to install rural internet connections. State-owned companies have been forced to provide local network services with the outcome being high internet penetration. E-commerce boomed early on in Sweden and is in no small part due to its world-leading telecom sector. The fact that Swedes enjoy free university education and healthcare has contributed to the start-up friendly environment assembling innovative people who are willing to take risks and try new things in the same setting. Entrepreneurs have often teamed up with technologists from Stockholm’s Royal Institute of Technology offering academic support and aiding development.

International companies are attracted to Sweden as a global leader for innovation with a highly skilled labour force, a genuine openness to international ownership and a stable economy. Colloquially the Swedish labour force has been described as ‘trendy Germans who speak great English’.

However, despite the benefits there remain a number of hurdles. Domestic venture capital funding still remains subdued with Stockholm’s tech centre relying heavily on more inconsistent foreign investment. It is also a challenge to keep highly educated engineering and tech talent within Sweden as they may be tempted by the tech scenes both in the UK and the US – such talent has proved to be very mobile. Despite this the majority of already successful players have remained in Stockholm in one form or another as ‘angel investors’ or board members of local companies.

The tax environment
Sweden used to have very few business angels and cautious venture capitalists a combination which meant start-ups had to focus on international funding sources. However several tax measures to attract both national and international businesses and investors have been launched in the last decade.

Now the tax deductions for investors in small companies for those individuals who obtain shares in a small company are becoming eligible for a deduction of up to 50 percent of the cost of acquiring the shares. The maximum limit of the deduction is SEK650,000 (€69,950) per individual per annum on a maximum investment of SEK1.3m (€139,900). The investor deduction applies only to companies with fewer than 50 employees or active partners and a net turnover or a balance sheet total not exceeding SEK80m (€8.61m). The shares must also be kept by the investor for at least five years.

Cherry bloom in Stockholm, Photo: Lola Akinmade Åkerström/

In the Budget Bill for 2016 the favourable tax deduction shall be limited to only apply to independent investors, i.e. individuals with no relation to the company. This proposal has not surprisingly been criticised by SVCA (the Swedish Private Equity & Venture Capital Association) who would like to see that the deduction continues to include “related” investors and should also include individuals investing through limited companies or funds who invest at an early stage. This is often the case in Sweden due to specific tax regulations (for example the so called 3:12-rules). It appears the Swedish government is through the coming limitation interpreting the European commission’s new guidelines on State aid to promote risk finance investments in a rather restrictive way.

The Swedish tax rules can be compared to the British environment where the government has sought to provide tax incentives for angel investment in small companies through the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). The EIS provides for relief at 30% of the cost of the shares against and individual angel’s income tax liability for the tax year in which the investment up to a maximum of £1m and under the SEIS a tax relief at 50% is available of the cost of the shares on a maximum annual investment of £100,000. Almost 95% of the angel investors in the UK have invested through one of these schemes.

Capital gains/Dividends/Interest
A foreign resident’s sale of shares in a Swedish limited company is not subject to taxation in Sweden. Dividends on non-quoted shares of Swedish limited companies distributed to foreign shareholders are generally subject to a withholding tax of 30% which is then reduced under applicable double taxation treaties. Interest expenses paid by Swedish companies are generally deductible as long as they relate to loans used in the company’s business, including the acquisition of shares.

The general rule is that a Swedish company cannot deduct interest expenses relating to a debt to an associated company, although there are of course exceptions.

IT hubs in Stockholm
Apart from Kista Science Park which is the best known tech district in Stockholm often referred to as ‘Chipsta’ with 700 tech companies, Stockholm-based entrepreneurs have new and more central meeting places where they can share ideas and meet on a daily basis. The most famous one is possibly SUP46 a hub set up in 2013 to bring Stockholm’s start-up community together. In January 2015 a new space called Epicentrum opened up to create an innovation centre for growing companies. It is meant to be the place to be for both Swedish and foreign companies looking to take the next step.

Kista Science Park, Photo: Cecilia Larsson Lantz/ 

Examples of VC investments in Swedish tech start-ups
Well known VC firms from around the world have invested in Stockholm companies. They travel to Stockholm to discover and meet with tech start-ups. Below are some examples of where VC investors have invested in a new Stockholm based Tech Company:

Bridgepoint have invested approximately €23 million in Trustly - a Swedish tech company in the finance sector, an online payment solution that relies on online banking. It is available to 51 million customers.

Active Venture Partners, Monkfish Equity and local Industrifonden have all invested in Barnebys - a platform signing up auction houses around the world, acting as the meta-search engine which can deliver traffic and branding. Users now have instant access to virtually every auction item in the marketplace at any time. The unique pay-per-click business has now been launched in the USA and top-tier auction houses have already signed on to become cooperative partners with Barnebys.

Kleiner Perkins Caufield & Byers and Sequoia Capital together with Niklas Zennström’s Atomico are some of the investors in Truecaller. Truecaller has had global success with its app which one can find phone numbers and block spam calls. The caller ID app has now 150 million users.

Klarna’s payment system is used on retail sites by one click and the customer can choose to pay using a credit or debit card or choose to pay next month. Sequoia Capital became Klarna’s largest single owner and one of its partners is a member of the board. General Atlantic, Digital Sky, Oresund and Atomico are other investors in Klarna.

Tictail launched in 2012 and has over 35,000 stores created on its platform. Tictail guides users through the setting up process and running their online store. CEO Carl Waldekranz has described the accessibility and affordability as key to the democratisation of e-commerce. Josh Kushner’s VC firm Thrive Capital is one of the biggest investors.

iZettle turns an iPhone or iPad into a credit card terminal using a mini chip-card reader and app, is available in various countries where chip-cards are the standard. Index Ventures’ alongside Swedish Creandum and Zouk Capital led a £6.7 million investment in iZettle some years ago to allow it to expand. During the autumn iZettle has raised another €68 million on a $500 million valuation led by Intel Capital with participation from some previous backers and some new such as Dawn Capital.

Sweden has in total “produced” six unicorns, including Skype, Spotify, games company Mojang – which makes Minecraft – and the Anglo-Swedish group King, creator of smartphone game Candy Crush.

Although Stockholm is still some way behind London in terms of investment in new companies, and despite restrictive tax deduction rules, the City is doing well much thanks to US venture capital firms who invested nearly $200m in Swedish tech companies during 2014 and $308m in 2010, which is more than rival hubs in France and Germany. Both entrepreneurs and venture capitalists are looking for the next billion-dollar Swedish internet company, and through Stockholm’s ideal blend of characteristics it would seem they may not have to wait too much longer.


Disclaimer: The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.


Featured Photo: Kevin Kee Pil Cho/




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