Unicorns - Stockholm School of Economics

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
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 looking at the amount of highly-valued start-ups
that Stockholm has produced during the last
few years (figures 1 and 2).
Figure 2. Nordic exits and exit value per region 2000-2014.
Nordics
GDP
4,5x
Rest of EU
BUSD
Exits
GDP
9%
27%
US
BUSD
Exits
GDP
0,3x
3,0x
8%
2%
China
GDP
BUSD
Exits
12%
66%
22%
Rest of the World
GDP
36%
1,1x
BUSD
Exits
BUSD
Exits
0,1x
13%
5%
Source: Blomqvist, Daniel. 2015. Nordic tech is on fire – almost 10% of global BUSD exits over past 10 years.
Creandum. March 16.
Figure 1. Nordic exits and exit value per country 2000-2014.
60%
50%
Number of exits
263
Exit value
$23,7 Bn.
Number of IPO
Company value at IPO
40%
30%
$10,5 Bn.
20%
75
58
$7,4 Bn.
91
$6,3 Bn.
10%
0%
Sweden
Norway
Denmark
Finland
Source: Blomqvist, Daniel. 2015. Nordic tech is on fire – almost 10% of global BUSD exits over past 10 years.
Creandum. March 16.
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”.
3
1)
three important
Among others, our study reveals
factors behind
the success:
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
A long history of
multinational,
engineering-based
firms
Sweden boasts an extensive history of numerous
multinational success stories, which can help explain today’s unicorn boom. On the one hand, Sweden 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 companies, such as Ericsson and Atlas Copco, that date as
far back as the 1870s.
works established through university and close geographical proximity.
This long multinational history has led in part to today’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 marketplace, and an international orientation and skillset
in Swedish industry, and even in trade unions, enAt an early stage, these multinationals realized the abling individuals to deal with high levels of risk and
limited potential of the Swedish market for their uncertainty.
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 machinery and a research infrastructure as well as sophisticated 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 encouraged a focus on problem-solving through collaboration – a collaboration supported not only through
dense formal networks between firms and their buyers, suppliers, firms in related industries and even
competitors but also through strong informal net-
Photo: Holger Ellgaard
5
Longsighted public
initiatives
and supportive
government policies
Swedish governing bodies on different levels have Stokab
introduced some longsighted investments to facilitate the development and accessibility of IT and the The city of Stockholm founded the municipal fiber
Internet. Two of great importance are the Home PC infrastructure company, Stokab, in 1994.
Reform and Stokab.
Following a model almost unique in the world, Stokab built a network in the city based on dark fiber,
Home PC Reform
i.e., unused optic fibers available for fiber-optic comThe Home PC Reform, which became effective in munication. The network was then made open for
1998, made it possible for employees to rent a per- any company to install its own equipment on the
sonal computer under favorable conditions, paying network to use the fibers. Stokab then reinvested all
for the rent with a pre-tax salary deduction. After an profits in further expanding the network.
agreed period, often three years, the computer could In the following 19 years, Stokab invested SEK 5.4
then be bought at a second-hand market price.
billion in the network, resulting in benefits for the
Between January 1998 and December 2001, municipality, the county, businesses and end users at
375,000 households received their first computer a value of around SEK 16 billion, or around USD 2
through the reform. As a result, approximately one billion at today’s exchange rate.
million individuals, or around 11% of the Swedish
population at that time, obtained their first computer. 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.
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 unemployment compensation. This helps take a considerable financial burden off the entrepreneur while
potentially encouraging a more risk-taking attitude.
6
The 1990s IT Boom - Not
just a bubble that burst
While the IT boom and bubble of the 1990s encouraged 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-related companies listed on the Stockholm stock exchange 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 connection between the IT boom and burst and the
current wave of startup success. While the majority 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 influence on today’s competitiveness of Sweden’s high
technology sector.
Today these experiences of having not only succeeded but also failed combined with money made by
various entrepreneurs during the IT boom are being 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 marketplace.
7
Unicorns & potential
unicorns today
Potential
unicorns
Unicorns
•FishBrain
•Klarna
•FootWay
•Mojang
•Fyndiq
•Spotify
•Avito
•iZettle
•KnCMiner*
•LeoVegas
•MAG Interactive
•ShapeUp
•TicTail
•TrueSoftware
•Zound Industries
* Just after our study concluded, KncMiner filed for bankruptcy due to a variety of
factors.
This report is the first in a three-year study
of the influence of the Internet on entrepreneurship and innovation in Sweden.
The first area of our investigation is the unicorn phenomenon in Stockholm. As such, we
have examined 15 startups, comprising 4 unicorns and 11 potential unicorns, i.e., startups
that are considered to have the potential to
reach unicorn status.
8
What makes
a unicorn?
Our first step was to collect publicly available attribute data, e.g., age, gender, board memberships,
about the founders, CEOs, and other people holding leading positions in these startups, such as board
members, from their founding until January 2016.
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 perspective looks to be in a good position. If we, however,
Looking at the 15 startups as a snapshot of their
consider the fourth unicorn in our dataset, Spotify,
mean values over their lifespan, we find that they
which has an international diversity value of zero, it
cluster into four groups (figure 3). This clustering is
makes things more complicated.
primarily driven by the average age of the individuals
and the diversity of the ages of the group of individ- These findings indicate that there is no one “recipe
uals holding leading positions each year.
for success” when it comes to the attributes of the
individuals holding leading positions in the startups.
However, when examining other variables we find
that these four groups no longer hold. For example,
when we look at international and gender diversity
Figure 3. Average birth year and age diversity
Figure 4. Gender diversity and international diversity
15.0
iZettle
Mojang
0.4
Klarna
Fyndiq
12.5
Klarna
international diversity
age diversity
0.3
TrueSoftware
10.0
MAG
Zound
Avito
TrueSoftware
0.2
Footway
FishBrain
7.5
Spotify
Mojang
LeoVegas
0.1
ShapeUp
Avito
Tictail
5.0
KnCMiner
1965
1970
birth year
1975
0.0KnCMiner
iZettle
Tictail
MAGSpotify
Fyndiq
1980
0.0
Footway
FishBrain
LeoVegas
0.1
ShapeUp
0.2
gender diversity
0.3
Zound
TrueSoftware
ratio of expatriates
0.4
TrueSoftware
0.3
Klarna
Mojang
ratio of expatri
0.4
Avito
ratio of expatriates
ratio of expatriates
0.2
Avito
Startups
Companies
Avito - 1
LeoVegas
FishBrain - 2
Spotify
Footway - 3
iZettle
Fyndiq - 4
MAG - 9
Klarna - 6
Mojang - 10
Footway
iZettle - 3
KnCMiner - 7
ShapeUp - 11
Fyndiq - 4
LeoVegas - 8
Spotify - 12
iZettle - 5
MAG - 9
TrueSoftware - 14
Klarna - 6
Mojang - 10
Zound - 15
KnCMiner - 7
ShapeUp - 11
LeoVegas - 8
Spotify - 12
- 9 startups
Figure
5.iZettle
Age- 5diversity ofMAG
the
LeoVegas
Klarna - 6
Spotify KnCMiner - 7
iZettle
2008 15
LeoVegas
Network embeddedness
Spotify
2008
TrueSoftware - 14
Mojang - 10
Zound - 15
ShapeUp - 11
Fyndiq
LeoVegas - 8
2010
MAG - 9
Spotify - 12
2012
2014
TrueSoftware - 14
year
Mojang - 10
Zound - 15
9
iZettle
2016
ShapeUp - 11
2010
In addition, we found that the startups are quite well
Spotify
connected both directly and indirectly
in Sweden.
2008
2012
0.1
We examined
the networks of
the 152010startups
year by
looking at the companies the startups are linked to
when an individual holding a leading position at a
2008
2010
2012
2014
year
startup is also holding a leading position
at another 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 indicates the total number of companies to which each
startup is linked.
year
Klarna
Spotify - 12
2012
2014
TrueSoftware - 14
2016
Companies
Avito - 1
Zound - 15
FishBrain
Footway
10
2014
Fyndiq - 4
2016
iZettle - 5
Klarna - 6
SD of age
0.1
LeoVegas - 8
iZettle - 5
LeoVegas
FishBrain - 2
0.2
iZettle
KnCMiner - 7
Fyndiq - 4
Avito - 1
We further explored the development
of our 15
Klarna
0.3
startups over time. For example, during the past
nine years, the diversity of ages of 0.2individuals holdAvito
Klarna
ing leading0.3positions
showed a general tendency
to
0.1
increase in the startups as a whole (figure 5).
0.2
Klarna - 6
Footway - 3
Companies
Mojang
0.1
FishBrain - 2
KnCMine
LeoVega
2016
MAG - 9
Mojang -
ShapeUp
5
Spotify -
Tictail - 1
Spotify
TrueSoftw
Zound - 1
Mojang
In general, we find a tendency for the startups to
increase their network activity on both dimensions
through the years.
0
FishBrain
2008
2010
2012
2014
2016
year
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
Footway
Zound
Footway
40
Companies
15
Companies
Avito - 1
Avito - 1
FishBrain - 2
FishBrain
Zound
KnCMiner
Footway
Avito
Fyndiq - 4
30
iZettle - 5
Fyndiq - 4
iZettle - 5
Klarna - 6
Klarna - 6
KnCMiner - 7
KnCMine
LeoVegas - 8
LeoVega
MAG - 9
MAG - 9
Mojang20- 10
ShapeUp - 11
Mojang -
number of links
number of companies
Footway - 3
10
Klarna
Spotify - 12
ShapeUp
Spotify -
Klarna
Tictail - 13
Tictail - 1
TrueSoftware - 14
5
TrueSoftw
Zound - 15
10
Spotify
Zound - 1
iZettle
Spotify
FishBrain
2008
2010
2012
year
Mojang
2014
2016
2008
2010
2012
year
2014
2016
10
Connected to each
other, to some extent
Figure 8. Social network visualization of startups connected today through the cloud.
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Stylesheet AB
Djursholms Glassfabrik AB
To further understand the startups’ 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”.
individuals involved within the startup ecosystem. However, when we expanded our
investigation to include the indirect connections created by individuals holding leading
positions together at a third company, we do
We find very few direct connections among find a more connected network with seven of
the startups. This indicates a broad set of the 15 startups interlinked (figure 8).
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, experience, and know-how within a startup network (figures 9 and 10).
Figure 9. Direct connections between first and second wave
Blue Tail
Jane Walerud
Klarna AB
Cell Network
Jan Carlzon
Fyndiq AB
Tradera
Johan Brenner
iZettle AB
Figure 10. Indirect connections between first and second waves
First wave
company
Individual
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
Magnus Lindahl
Erik Wikström
Jobline
CLOUD
Icon Medialab
Cloud
Second wave startup
iZettle
FishBrain, ShapeUp,
MAG, Tictail
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
12
Stockholm’s
startup geography
In Stockholm alone there are more than
22,000 technology companies, and 18% of
the city’s workforce is employed in technology-related roles, with the most popular job
being a programmer.
Figure 11. ICT & Digital Startups in Stockholm founded 2008 or
later, darker shades indicating higher employment density.
Rapidly expanding
Since 2008 21,000 of the 43,000 employment positions in the ICT & Digital sector
have been created (figure 11).
Heavy concentration
Companies are heavily concentrated all within a distance of around 6 km within central
Stockholm (figure 12).
This heavy concentration of companies interspersed with universities, government and
public sector organizations, incubators, accelerators, 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.
Source: Sölvell, Örjan, Fohlin, Carl & Protsiv, Sergiy, Ekosystemet ICT & Digital: kartläggning av styrkeområden i
Stockholmsregionen, Länsstyrelsen i Stockholms län, Stockholm, 2015.
13
Not too small,
yet not too big
Figure 12. Locations of unicorns and potential unicorns in
Stockholm
One aspect highlighted by many is Stockholm’s trusting, “pay-it-forward” culture,
characterized by serial entrepreneurs sharing
their expertise and reinvesting in startups as
well as by experienced business leaders, entrepreneurs, students, and others both from
Sweden and abroad sharing knowledge informally 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 13. Closeup of the location of unicorns and potential
unicorns in Norrmalm (numbering is the same as in the
previous figure).
14
Read the whole
report on iis.se
This is the Executive Summary of the longer
report which you can download at iis.se.
Part of an ongoing project
Feel free to contact us
This report is part of a three-year project from
2015 to 2018 financed by IIS - the Internet
Infrastructure Foundation. We plan to extend our investigation beyond the 15 startups
to other companies in Stockholm as well as in
other cities such as Gothenburg, Linköping,
Malmö, and Umeå.
If you are interested in contributing or joining
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.
Author 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
Center for Strategy
and Competitiveness
The Center for Strategy and Competitiveness
(CSC) was founded in 2005 and focuses on five research tracks: Strategy and Market Systems, International Business, Knowledge in Networks, Clusters,
and Competitiveness Policy.
CSC works in a trans-disciplinary tradition involving theories from Strategy, Management, International 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 national 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/