Sweden’s capital, Stockholm, is the country’s largest city with just over 2 million people.

Startup Hubs Around the World: Stockholm

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Wondering how Stockholm made it onto the list? Read on to investigate how 1) the location, 2) the tax incentives, 3) the legal incentives, 4) investors, 5) local resources, and 6) specialization of the city have propelled it into the top ten startup hubs in the world, along with 7) startups to watch.

LOCATION

Perched on the edge of the Baltic Sea along the southeast coast of Sweden, Stockholm has captured the attention of the startup market and drawn entrepreneurs to the historic city. Established in 1252, Stockholm has a lengthy history of innovation and invention, all of which has propelled the city to its current condition as a startup leader. How does the location of the city affect their standing in the startup rankings?

Geographical Benefits

A collection of fourteen islands along the southern edge of Sweden, Stockholm is the epicenter of Swedish life as the financial, cultural and economic center of the country. With the country’s largest population and a thriving economy, it is easy to see why people are drawn to the city. By capitalizing on the geographical benefits of the area, the city has been able to maximize their surroundings to increase the appeal of the capital.

Connected by an intricate system of roads, bridges and tunnels, the city has spent millions building new modes of transportation, and is set to begin construction on the world’s most expensive commuter travel train in 2017. Called ‘The Green Train’, the environmentally conscious system of public transportation is designed to improve the efficiency of the current train system and increase the capacity of the city’s tracks. Their extensive investment into planning, designing and building these avenues of transport benefit the entrepreneur who often needs to rely on public transportation, especially when living in a region far from home.

The city was designed (both by nature and by city planners) with 30% of the city as water, 30% of the city is green space and the remaining 40% is living space for the approximately 2 million people who call Stockholm home. This guarantees opportunities for the entrepreneur to be able to enjoy the beauty of the city, but also creates a housing crisis.

With housing at a premium, rents (especially those properties located in the downtown area) are particularly high causing residents to seek residences outside the city limits. For the entrepreneur, inexpensive housing is a must; budgets are stretched and incomes are often limited, so finding inexpensive housing and office space is a difficult task. The development of a community for entrepreneurs to share workspace as well as personal quarters is essential for a city that wishes to continue to draw talented workers to their city.

Advantages of choosing the city

Perhaps one of the most impressive accomplishments of Stockholm is their long range planning and foresight. With the intention of creating a connected community, the city destroyed streets and began installing a fiber optic network in the 1990s. Detailed in their ten year plan, the intention of the city was to be able to provide a network of communication to every household in the city, including the public housing section. Completed in 2011, the city boasts one of the most comprehensive energy/communication systems in the world. They recently unveiled their vision for the city by the year 2030, a city that will be “the center of internationally competitive innovation region”. Selecting Stockholm as the headquarters for a startup allows a company to be a part of the innovation and design that Sweden is known for, and puts them in the middle of an exciting plan for Sweden’s future.

There are several advantages to selecting Stockholm as the startup location for a company, along with the long-term planning of the city’s leaders. One such advantage is their commitment to higher education. Stockholm is home to over a dozen institutes for higher learning, including the largest technical institute in Sweden and various other schools including fine arts universities and more. The presence of these assorted colleges helps to create a thriving, creative community that is necessary to sustain a growing entrepreneur culture. In addition, it serves to provide companies with highly trained and skilled workers.

TAX INCENTIVES

From an outsider’s perspective, Stockholm seems an unlikely location to establish a startup for many reasons, including the lack of tax incentives. Sweden has the second highest personal income tax rates in the world (28% in 2013), and a corporate tax rate of almost 25% as well. Despite the high taxes, Stockholm has had astonishing success – over the last ten years, they have had at least one billion dollar company come out of the country per year.

Entrepreneurs (or their employees) who hold stock options in a company (a common startup practice) are taxed under the income rate when the startup is sold, or the stock options are exercised. This creates a disadvantage for the employee: the ‘benefit’ is less of an attraction when there is a heavy tax bill attached to it. By removing the stock options as a benefit, entrepreneurs are often unable to compete with larger, established companies who can lure talented workers with higher salaries.

While the high tax rates have not stopped Stockholm from bringing the world some of the most recent tech phenomenon companies (Spotify and Mojang – the creator of Minecraft, for example), it does lead one to wonder how many companies would spring up if the tax rate was less prohibitive. Additionally, a noticeable trend in Stockholm is the relocation of companies out of Sweden once they have passed the initial stages of startup. Perhaps a lower taxable rate would encourage/allow these companies to stay in Stockholm?

LEGAL INCENTIVES

In recent years, Stockholm has begun to change some of the unfriendly business practices and policies that have been in place, and replace them with more innovative guidelines. The process to establish a company, file the necessary paperwork and be up and running has been streamlined into one convenient location and takes about three weeks. While this is not the fastest timeline, it is one of the most efficient and simple to use.

The startup community is beginning to become an important part of the culture in Stockholm, giving entrepreneurs a voice in policies and procedures that can directly affect the future innovation of the city. To continue to develop as a startup hub, Sweden’s government must begin to develop a plan of attracting, and keeping, entrepreneurs and their companies. Offering legal incentives for entrepreneurs would be an additional tool to use when enticing a company to set up its headquarters in Stockholm.

At present, there is a growing community of business officials who are pushing for the development of an entrepreneur zone in the city that would continue to encourage startups. A collaborative effort to increase incentives may be successful in promoting ideas such as fast-tracked entrepreneur visas, multi-zoned areas that allow for startups to work out of their home without penalty or the development of other startup friendly policies.

INVESTORS

Attracting investors to Stockholm is an issue that must be addressed. Investors in the startup markets are not quite as heavily taxed as individuals – the government just introduced a new tax policy specifically for investors. Under the new plan, investors in small companies (where startups typically fall) are eligible for a credit of up to 50% of the cost of purchasing shares. The deduction has a limit of $100,000 annually and a low lifetime cap of under $1,000,000. For the average startup which relies on venture capital, these investor tax credits, while nice, are not sufficient to be of real value.

A sizeable drawback to the startup market in Stockholm is the noticeable lack of angel funding available, and the reluctance of Swedish companies to invest in entrepreneurship. While the perception of startups is changing for the better, the Swedish culture has historically frowned on standing out from the crowd, making wealthy business owners less likely to flaunt their success by investing heavily. This creates a gap in funding and a clear missing link in the startup attractiveness, causing companies have to seek funding outside of Stockholm.

The first collaborative effort of the Stockholm startup market has begun to attract attention, as well as the success of Spotify, drawing international investors to Sweden. International entrepreneurship conferences are bringing in both investors and innovators. It is hoped that the attention from outside investors will motivate national investors to begin to invest their money into the local startup market.

LOCAL RESOURCES

Within Stockholm, the quiet elements of the city that have attracted entrepreneurs for over a decade are beginning to be noticed. In addition, the city is establishing new resources that will solidify their position as one of the world’s leading startup hubs.

One resource that is pivotal in Stockholm is the new SUP46 (StartUP People of Sweden) community. This entrepreneur resource has created a startup community within the city specifically to encourage and motivate innovation. With their headquarters in the middle of downtown, they have space for co-working, events and inspiration that is open to all. Modeled after the famous Google campus, they are providing entrepreneurs a place to capitalize on the Swedish ideology of sharing resources and ideas.

IMAGURU recently named the three top coworking spaces in Stockholm – identifying locations that provide encouragement, support and collaboration for entrepreneurs. These locations offer standard office services (copying, printing, etc), time banking opportunities, meeting areas and technology tools to help the startup become successful.

Another resource that is helping to drive the Stockholm startup market is the government’s priority on innovation, spending almost 4% of their Gross Domestic Profit (GDP) on research and development. With government support, the entrepreneur culture will be embraced and celebrated. Establishing a focus on innovative design and development demonstrates the commitment that the government is making to help Stockholm succeed.

SPECIALIZATION

The startup market in Stockholm, while not new, is still a relatively recent development. The fields of entrepreneurship are wide open for exploration by startups, but there are a few areas where Stockholm has indicated an interest.

Stockholm has been gradually shifting from an industrial society to a service-based society. This change in the country’s identity can also be seen in the type of startups that have sprung up in the city – a high percentage of them are service based.

This shift towards service based specialties can be seen in the city’s focus on life sciences, gaming and healthcare. By developing digital solutions for healthcare applications, the startup market in Stockholm has the potential to revolutionize the healthcare industry around the world. Using cutting edge technology, along with innovative thinking and problem solving, developers are finding new ways to improve healthcare systems for both medical professionals and patients.

Gaming is another primary field of innovation in Stockholm that has the potential to be a world-changer. The global success of Minecraft set the stage for the innovative possibilities that can come from Stockholm, and entrepreneurs are determined to repeat their success. With technical institutes located in the city, as well as a growing number of gaming studios, qualified programmers are becoming easy to find.

The pursuit of scientific endeavors has made its way into the startup market, with the development of tools to assist in the study of life sciences. Finding new ways to study the processes of life by combining technology and innovation has the potential to impact not only the science community, but the healthcare industry, the pharmaceutical industry and others.

Finding the city’s specialization in the early stages of its growth may be a bit challenging, but the principles that guide the development of a startup hub are the same: when entrepreneurs can work in a community that is thriving and creative, amazing things happen. By establishing a solid community for startups, Stockholm is laying the foundation for their future plans of becoming an innovative leader.

STARTUPS TO WATCH

Lifesum: Recently launched in Europe, Lifesum is a mobile personal health app that allows the user to track their daily activities. Designed to help users get in shape, the program tracks calories, provides workout instruction and syncs with other fitness apps such as RunKeeper.

Truecaller: Bringing to mind a throwback to the days of printed phone books, Truecaller provides a comprehensive listing of active mobile phone numbers. With a verified phone number database, it protects you from random telemarketing and provides you with direct access to a company.

BehavioSec: Tired of having to enter the same password on your secure devices? The founders of BehavioSec were. They developed a program that allows the computer to recognized patterns of behavior – the way one types, the way one pauses after certain letters; it is all a giveaway to your identity. According to their founders, security firms, government agencies and financial institutions have all tried to develop a method of securing their networks. Every behavior in connection with the computer can be tracked: mouse clicks, the way you type, the programs used. Each of these behaviors is collected and can identify a user simply by comparing their current behavior to that in the database.

Volumental: Capitalizing on the latest advances in printing, Volumental is counting on a 3D revolution. Established to provide individuals with access to 3D printers and 3D models, Volumental collects body data from the user and customizes products and services based on the data collected. Presently, the data is collected from the user in the privacy of their home, and is used to provide customized foot products such as medical insoles. This revolutionary technology has potential for a truly customized online shopping experience, as well as huge potential in the health sciences fields.

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