Chasing the tale of the unicorn: Executive summary
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Executive summary of our report: http://www.slideshare.net/eteigland/chasing-the-tale-of-the-unicorn-a-study-of-stockholms-misty-meadows Stockholm currently has some of the most successful high-tech startup companies in the world. New findings from a research team at the Stockholm School of Economics suggest that infrastructure, networks, business climate and supportive policies are key factors that explain Sweden’s success. The research report is part of the Innovative Internet project, funded by the Internet Foundation in Sweden, IIS. This report presents the preliminary results of The Innovative Internet project, a three-year project funded by the Internet Foundation in Sweden, IIS. The project’s primary objective is to examine how the internet and digitalization have influenced entrepreneurship and innovation in Sweden.
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Chasing the tale of the unicorn: Executive summary
- 1. 1 Chasing the tale of the unicorn Executive Summary Albin Skog Mats Lewan Michael Karlström Sergey Morgulis-Yakushev Yixin Lu Robin Teigland May 2016
- 2. 2 Stockholm – “The unicorn capital of the world” Sweden, and in particular its capital city of Stockholm, is remarkably competitive in the IT-sector. This is especially true when look- ing at the amount of highly-valued start-ups that Stockholm has produced during the last few years (figures 1 and 2). When counting the number of “unicorns”, i.e., high-tech startup companies that achieve a valuation of at least USD 1 billion within 10 years, Stockholm stands out as the city with the most unicorns per capita in the world and as a region second only to Silicon Valley. This is one reason why Stockholm in the international press has been called “The unicorn capital of the world”. 60% 50% 40% 30% 20% 10% 0% Sweden Norway Denmark Finland Number of exits Exit value Number of IPO Company value at IPO 263 $23,7 Bn. $10,5 Bn. $7,4 Bn. $6,3 Bn.75 58 91 Figure 1. Nordic exits and exit value per country 2000-2014. Source: Blomqvist, Daniel. 2015. Nordic tech is on fire – almost 10% of global BUSD exits over past 10 years. Creandum. March 16. Nordics Rest of EU US Rest of the WorldChina GDP GDP GDP GDPGDP BUSD Exits BUSD Exits BUSD Exits BUSD Exits BUSD Exits 2% 9% 27% 66% 22%8% 12% 13% 36% 5% 0,1x 1,1x 4,5x 0,3x 3,0x Source: Blomqvist, Daniel. 2015. Nordic tech is on fire – almost 10% of global BUSD exits over past 10 years. Creandum. March 16. Figure 2. Nordic exits and exit value per region 2000-2014.
- 3. 3 Among others, our study reveals three important factors behind the success: 1)A long history of multinational, engineering-based firms 2)Longsighted public initiatives and supportive government policies 3)The 1990s IT Boom - Not just a bubble that burst
- 4. 4 A long history of multinational, engineering-based firms Sweden boasts an extensive history of numerous multinational success stories, which can help ex- plain today’s unicorn boom. On the one hand, Swe- den was home to Alfred Nobel who established the Nobel Prizes - perhaps the world’s most prestigious awards inspiring innovation, while on the other hand it hosts a wide variety of multinational compa- nies, such as Ericsson and Atlas Copco, that date as far back as the 1870s. At an early stage, these multinationals realized the limited potential of the Swedish market for their products and focused their efforts on building a global market. The Swedish home base facilitated continuous innovation as it provided the necessary inputs such as highly skilled labor, specialized ma- chinery and a research infrastructure as well as so- phisticated demand and domestic rivalry not only on price but also on quality and service. Knowledge spill-overs due to advanced suppliers and related industries further promoted continuous upgrading and innovation. Additionally, a strong engineering culture encour- aged a focus on problem-solving through collabora- tion – a collaboration supported not only through dense formal networks between firms and their buy- ers, suppliers, firms in related industries and even competitors but also through strong informal net- works established through university and close geo- graphical proximity. This long multinational history has led in part to to- day’s underlying climate that encourages continuous innovation and a driving interest to “make things better”, a guiding principle that a product or service is to be primarily developed for the global market- place, and an international orientation and skillset in Swedish industry, and even in trade unions, en- abling individuals to deal with high levels of risk and uncertainty. Photo: Holger Ellgaard
- 5. 5 Swedish governing bodies on different levels have introduced some longsighted investments to facili- tate the development and accessibility of IT and the Internet. Two of great importance are the Home PC Reform and Stokab. Home PC Reform The Home PC Reform, which became effective in 1998, made it possible for employees to rent a per- sonal computer under favorable conditions, paying for the rent with a pre-tax salary deduction. After an agreed period, often three years, the computer could then be bought at a second-hand market price. Between January 1998 and December 2001, 375,000 households received their first computer through the reform. As a result, approximately one million individuals, or around 11% of the Swedish population at that time, obtained their first comput- er. Many of today’s entrepreneurs were children in these households at that time and were able to gain their first experiences with computers at a young age – preferring to play with them inside during the long cold and dark winters. Stokab The city of Stockholm founded the municipal fiber infrastructure company, Stokab, in 1994. Following a model almost unique in the world, Sto- kab built a network in the city based on dark fiber, i.e., unused optic fibers available for fiber-optic com- munication. The network was then made open for any company to install its own equipment on the network to use the fibers. Stokab then reinvested all profits in further expanding the network. In the following 19 years, Stokab invested SEK 5.4 billion in the network, resulting in benefits for the municipality, the county, businesses and end users at a value of around SEK 16 billion, or around USD 2 billion at today’s exchange rate. Supportive government policies While Swedes do pay among the highest taxes in the world, individuals living in Sweden have access to a generous social welfare system. For example, the system provides free education, highly subsidized healthcare and daycare, paid parental leave, and un- employment compensation. This helps take a con- siderable financial burden off the entrepreneur while potentially encouraging a more risk-taking attitude. Longsighted public initiatives and supportive government policies
- 6. 6 While the IT boom and bubble of the 1990s en- couraged the first wave of IT and Internet startups in Sweden, it is more common to think of the IT boom just in terms of the bubble that burst. Indeed it has been suggested that the 31 most notable IT-re- lated companies listed on the Stockholm stock ex- change at the time lost over SEK 300 billion in value during the crash, or USD 36 billion. However, our study shows that there is a strong con- nection between the IT boom and burst and the current wave of startup success. While the major- ity of the startups of that time did not succeed in the long run, the experiences and resources that the people gained and the networks that were created should not be underestimated in terms of their in- fluence on today’s competitiveness of Sweden’s high technology sector. Today these experiences of having not only succeed- ed but also failed combined with money made by various entrepreneurs during the IT boom are be- ing fed back into a well-functioning entrepreneurial ecosystem. Highly connected informal and formal social networks of entrepreneurs and experienced business people, especially in Stockholm, create a conducive environment in which entrepreneurs can easily access the resources necessary to move their startup from just an idea to a player in a global mar- ketplace. The 1990s IT Boom - Not just a bubble that burst
- 7. 7 Potential •FishBrain •FootWay •Fyndiq •iZettle •KnCMiner* •LeoVegas •MAG Interactive •ShapeUp •TicTail •TrueSoftware •Zound Industries This report is the first in a three-year study of the influence of the Internet on entrepre- neurship and innovation in Sweden. The first area of our investigation is the uni- cornphenomenoninStockholm.Assuch,we have examined 15 startups, comprising 4 uni- corns and 11 potential unicorns, i.e., startups that are considered to have the potential to reach unicorn status. Unicorns •Avito •Klarna •Mojang •Spotify Unicorns & potential unicorns today unicorns * Just after our study concluded, KncMiner filed for bankruptcy due to a variety of factors.
- 8. 8 of the startups, we find a different clustering. Of the four that have a high level of international diversity: Avito, Klarna, Mojang and TrueSoftware, three are already unicorns (figure 4). Judging from this, one could speculate that TrueSoftware in this perspec- tive looks to be in a good position. If we, however, consider the fourth unicorn in our dataset, Spotify, which has an international diversity value of zero, it makes things more complicated. These findings indicate that there is no one “recipe for success” when it comes to the attributes of the individuals holding leading positions in the startups. Our first step was to collect publicly available at- tribute data, e.g., age, gender, board memberships, about the founders, CEOs, and other people hold- ing leading positions in these startups, such as board members, from their founding until January 2016. Looking at the 15 startups as a snapshot of their mean values over their lifespan, we find that they cluster into four groups (figure 3). This clustering is primarily driven by the average age of the individuals and the diversity of the ages of the group of individ- uals holding leading positions each year. However, when examining other variables we find that these four groups no longer hold. For example, when we look at international and gender diversity What makes a unicorn? Avito FishBrainFootway Fyndiq iZettle Klarna KnCMiner LeoVegas MAG Mojang ShapeUp Spotify Tictail TrueSoftware Zound 5.0 7.5 10.0 12.5 15.0 1965 1970 1975 1980 birth year agediversity Avito FishBrainFootwayFyndiqiZettle Klarna KnCMiner LeoVegasMAG Mojang ShapeUpSpotifyTictail TrueSoftware Zound0.0 0.1 0.2 0.3 0.4 0.0 0.1 0.2 0.3 gender diversity internationaldiversity Figure 4. Gender diversity and international diversityFigure 3. Average birth year and age diversity
- 9. 9 0 5 10 15 2008 2010 2012 2014 2016 year SDofage Companies Avito - 1 FishBrain FishBrain Footway Fyndiq - 4 iZettle - 5 iZettle Klarna - 6 Klarna KnCMine LeoVega MAG - 9 Mojang - Mojang ShapeUp Spotify - Tictail - 1 TrueSoftw Zound - 1 Spotify Fyndiq 5 10 15 2008 2010 2012 2014 2016 year numberofcompanies Companies Avito - 1 FishBrain - 2 FishBrain Footway - 3 Footway Fyndiq - 4 iZettle - 5 Klarna - 6 Klarna KnCMiner - 7 KnCMiner LeoVegas - 8 MAG - 9 Mojang - 10 ShapeUp - 11 Spotify - 12 Spotify Tictail - 13 TrueSoftware - 14 Zound - 15 Zound 10 20 30 40 2008 2010 2012 2014 2016 year numberoflinks Companies Avito - 1 Avito FishBrain Footway Footway Fyndiq - 4 iZettle - 5 iZettle Klarna - 6 Klarna KnCMine LeoVega MAG - 9 Mojang - Mojang ShapeUp Spotify - Spotify Tictail - 1 TrueSoftw Zound - 1 Zound 0.1 0.2 0.3 0.4 2008 2010 2012 2014 2016 year ratioofexpatriates Companies Avito - 1 Avito FishBrain - 2 Footway - 3 Fyndiq - 4 iZettle - 5 iZettle Klarna - 6 Klarna KnCMiner - 7 LeoVegas - 8 LeoVegas MAG - 9 Mojang - 10 Mojang ShapeUp - 11 Spotify - 12 Spotify TrueSoftware - 14 TrueSoftware Zound - 15 0.1 0.2 0.3 0.4 2008 2010 2012 2014 2016 year ratioofexpatriates Companies Avito - 1 Avito FishBrain - 2 Footway - 3 Fyndiq - 4 iZettle - 5 iZettle Klarna - 6 Klarna KnCMiner - 7 LeoVegas - 8 LeoVegas MAG - 9 Mojang - 10 Mojang ShapeUp - 11 Spotify - 12 Spotify TrueSoftware - 14 TrueSoftware Zound - 15 0.1 0.2 0.3 2008 2010 2012 2014 2016 year ratioofexpatriates Avito FishBrain - 2 Footway - 3 Fyndiq - 4 iZettle - 5 iZettle Klarna - 6 Klarna KnCMiner - 7 LeoVegas - 8 LeoVegas MAG - 9 Mojang - 10 ShapeUp - 11 Spotify - 12 Spotify TrueSoftware - 14 Zound - 15 0.1 0.2 2008 2010 2012 2014 2016 year ratioofexpatri iZettle Klarna - 6 KnCMiner - 7 LeoVegas - 8 LeoVegas MAG - 9 Mojang - 10 ShapeUp - 11 Spotify - 12 Spotify TrueSoftware - 14 Zound - 15 Figure 6. In how many companies each person in a leading position is involved Figure 7. Total number of companies that startups are linked to Figure 5. Age diversity of the startups We further explored the development of our 15 startups over time. For example, during the past nine years, the diversity of ages of individuals hold- ing leading positions showed a general tendency to increase in the startups as a whole (figure 5). Network embeddedness In addition, we found that the startups are quite well connected both directly and indirectly in Sweden. We examined the networks of the 15 startups by looking at the companies the startups are linked to when an individual holding a leading position at a startup is also holding a leading position at anoth- er company. Figure 6 shows the average number of companies that each individual holding a leading position at a startup is involved in while figure 7 in- dicates the total number of companies to which each startup is linked. In general, we find a tendency for the startups to increase their network activity on both dimensions through the years. Startups
- 10. 10 Connected to each other, to some extent Tofurtherunderstandthestartups’networks, we also collected network data about all the other companies to which the 15 startups are linked. We called this set of second and third level connections the “Cloud”. We find very few direct connections among the startups. This indicates a broad set of Figure 8. Social network visualization of startups connected today through the cloud. individuals involved within the startup eco- system. However, when we expanded our investigation to include the indirect connec- tions created by individuals holding leading positions together at a third company, we do find a more connected network with seven of the 15 startups interlinked (figure 8). A in the garden Handelsbolag A. Aapeli Sweden AB AB Sagax AB avtal24 ALSA Capital AB AMC Entertainment International Inc. (USA) filial APG Advisory ABAPG Debt Advisory AB APG Holding AB APG I1 AB APG Invest AB ASB Sweden AB Accedo Broadband AB Adalberth Invest AB Add Mikkelsen AB Afsi AB Aggregate Stockholm AB Ahlen & Partners AB Aktiebolaget Lovers Alma Mater AB Almaskolan AB Altira AB Amelie Design Sweden AB Anchorage Capital AB Anjassar Invest AB Apica AB Artemon New Media Atelier Borgila AB Athlete Sports Academy Sweden AB Auctions Online Scandinavia AB Avito AB Avito Bara AB Avito CheckOut Holding AB Avito Holding AB Avitohi JV AB AxFast AB Ayabarus Invest AB B & T Juridik AB B-O Distribution AB BR..DBYGGARNA KOMMANDITBOLAG Baker & McKenzie Advokatbyr.. 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Molin AB JdG F..rvaltning AB Johan Persson Holding AB Jonas Bostr..m Holding i Sollentuna AB Junior Living Holding ABJunior Living Librob..ck AB J..mf..rs..kring i Stockholm AB K Opportunity AB K von K K von K AB K-bro konsult AB KRJ Holding AB Kajdro AB Kerku Aktiebolag Kimoda AB Kinnevik Consumer Finance 1 ABKinnevik Consumer Finance Holding AB Kinnevik Consumer Services 1 AB Kinnevik East AB Kinnevik Internet 1 AB Kinnevik Internet 2 AB Kinnevik Internet 3 AB Kinnevik Internet Holding AB Kinnevik Investment Partners AB Kinnevik Media Holding AB Kinnevik New Ventures AB Kinnevik Online ABKinnevik Online Holding AB Klarna AB Klarna Holding AB KnC20 nm Sweden AB KnCHosting AB KnCMiner AB KnCResources AB Kompetensjakt 08 Handelsbolag Konstgr..s DaGy AB Konsthandels Aktiebolaget Nybroviken Kontakt East Holding AB LINDROTH, HANS Lappk..rret Invest AB Lemshaga Driftsbolag Aktiebolag LeoVegas AB Lhotse Capital AB Limelight Development Handelsbolag Lingfield AB LinusU AB Lo Cilo Ci AB Lokomo Systems Aktiebolag Lovart i Stockholm AB Lund Health Economics AB Luxe Properties AB MAG Interactive AB MFH Bygg AB Made by Tolke AB MagnussonCole IT Handelsbolag Manderston Investments AB Mark..ker Holding AB MatHem i Sverige AB Matterhorn Advisors AB McPhee Advisory Asset Management AB Medcore Sweden AB Mengus Stockholm 2005 AB Mengus Stockholm 2011 AB Michael Unneb..ck AB Micvac Aktiebolag Midsummer AB Millcellvik AB Mobile Access Group Sweden AB Modern Times Group MTG AB Movimento Group AB My First Home AB Myesma Consulting AB NEEC Invest AB NLI Fastigheter Holding AB NLI Fastigheter Holding II AB NLI Fastigheter Malm.. 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- 11. 11 A small group of experienced key individuals Furthermore, we examined to what degree approximately 100 influential individuals from the first wave of IT boom companies were active in the current second wave. We found some direct and indirect connections indicating how a few actors can provide the necessary resources such as capital, experi- ence, and know-how within a startup net- work (figures 9 and 10). Figure 9. Direct connections between first and second wave Figure 10. Indirect connections between first and second waves Blue Tail Cell Network Tradera Jane Walerud Klarna AB Jan Carlzon Johan Brenner Fyndiq AB iZettle AB Cell Network Markus Bäcklund MAG Magdalena Bonde Spotify eTrade, Tradera Johan Brenner iZettle, MAG, Tictail eTrade Mattias Miksche LeoVegas HiQ Hans Karlsson Avito, Klarna, Mojang Ken Gerhardsen Fyndiq Icon Medialab Magnus Lindahl iZettle Erik Wikström FishBrain, ShapeUp, MAG, Tictail Jobline Lars-Henrik Friis Molin FishBrain, MAG, Tictail Per Sunnemark Spotify Sendit Hjalmar Winbladh FishBrain, MAG, Tictail Spray Johan Ihrfelt FishBrain, MAG, Tictail Tradera Daniel Kaplan Klarna First wave company Individual Cloud Second wave startup CLOUD
- 12. 12 In Stockholm alone there are more than 22,000 technology companies, and 18% of the city’s workforce is employed in technol- ogy-related roles, with the most popular job being a programmer. Rapidly expanding Since 2008 21,000 of the 43,000 employ- ment positions in the ICT & Digital sector have been created (figure 11). Heavy concentration Companies are heavily concentrated all with- in a distance of around 6 km within central Stockholm (figure 12). This heavy concentration of companies in- terspersed with universities, government and publicsectororganizations,incubators,accel- erators, and co-working spaces along with a large number of restaurants and coffee shops within the same area does much to facilitate informal networking within the city. Stockholm’s startup geography Figure 11. ICT & Digital Startups in Stockholm founded 2008 or later, darker shades indicating higher employment density. Source: Sölvell, Örjan, Fohlin, Carl & Protsiv, Sergiy, Ekosystemet ICT & Digital: kartläggning av styrkeområden i Stockholmsregionen, Länsstyrelsen i Stockholms län, Stockholm, 2015.
- 13. 13 Not too small, yet not too big One aspect highlighted by many is Stock- holm’s trusting, “pay-it-forward” culture, characterized by serial entrepreneurs sharing their expertise and reinvesting in startups as well as by experienced business leaders, en- trepreneurs, students, and others both from Sweden and abroad sharing knowledge infor- mally at a variety of networking events. Thus, while Stockholm is large enough to host the right multi-disciplinary skill set, it is still small enough to accommodate a highly open culture and trusting relationships that allow for deep levels of knowledge sharing and collaboration, even among competitors. A stone’s throw away Of the 15 startups, 11 are located very close to each other - just a 10 minute walk, in the Norrmalm district in Stockholm’s inner city (figure 13). Figure 12. Locations of unicorns and potential unicorns in Stockholm Figure 13. Closeup of the location of unicorns and potential unicorns in Norrmalm (numbering is the same as in the previous figure).
- 14. 14 Center for Strategy and CompetitivenessAuthor contact Albin Skog: albin.skog@hhs.se Mats Lewan: mats@matslewan.se Michael Karlström: michael.a.karlstrom@gmail.com Sergey Morgulis-Yakushev: sergey.morgulis-yakushev@hhs.se Yixin Lu: y2.lu@vu.nl Robin Teigland: robin.teigland@hhs.se Graphic design: Albin Skog Part of an ongoing project Thisreportispartofathree-yearprojectfrom 2015 to 2018 financed by IIS - the Internet Infrastructure Foundation. We plan to ex- tend our investigation beyond the 15 startups to other companies in Stockholm as well as in other cities such as Gothenburg, Linköping, Malmö, and Umeå. The Center for Strategy and Competitiveness (CSC) was founded in 2005 and focuses on five re- search tracks: Strategy and Market Systems, Interna- tional Business, Knowledge in Networks, Clusters, and Competitiveness Policy. CSC works in a trans-disciplinary tradition involv- ing theories from Strategy, Management, Interna- tional Business, Economic Geography, Economic Sociology and Economic History. CSC is a research center at SIR, Stockholm School of Economics Institute for Research. SIR is a nation- al research institute for the economic sciences, with a focus on Business Administration in the broadest sense. More information on CSC can be found at http:// www.hhs.se/en/research/centers/csc/ Read the whole report on iis.se This is the Executive Summary of the longer report which you can download at iis.se. Feel free to contact us Ifyouareinterestedincontributingorjoining our project in some form or fashion, please drop us an email. And if there is anything you think we have misrepresented or failed to cover, please let us know.