Transforming Business in Sweden
Transforming Business in Sweden
Mar. 15, 2001 04:27 PM
Sweden, Europe's undisputed leader in the Internet, is with Finland the world leader in mobile telephony. It's estimated that 50% of all Swedes have a mobile phone and are connected to the Internet.
However, Swedes have not been especially good at transforming Sweden's world-class IT competence into new and profitable businesses. Until now. A change is currently underway and the Internet boom, mirrored in the Swedish stock market, has caused many traditional investors to start looking closely into Internet - and especially wireless - technologies.
Swedish venture capital (VC) companies were traditionally very cautious. They were unwilling to take large risks, preferring to invest in securities portfolios containing blue-chip companies, and yielding a return of 15-20% over two years, which was considered reasonable.
Now, though, the market for venture capital in Internet business has exploded, with nearly half of all Sweden's VC companies founded in just the last two years. Swedes are acting like Americans. They might lose everything, but they can also get a return of several hundred percent. The new economy, in short, follows a different business logic: there are no sure bets, and everything moves much faster.
There are two types of VC companies in Sweden. Between them they've provided 10 billion Swedish kronor (about $1.2 billion) to some 500 Swedish IT projects. First there's a group of newly formed firms that have focused on IT and the Internet from the very start; then there's a group of somewhat older, established investment and VC companies that have become increasingly interested in the sector only recently.
Among the first group are four new actors:
The typical VC company is managed by a small team of people, often of an entrepreneurial nature. But there are also several funds that operate internationally, with funds amounting to billions of kronor. Tens of billions of kronor, overall, is poised in various funds, waiting to be invested (see Table 1).
The average Swedish VC company is capitalized by the owners' own money or by that of private individuals or institutional investors. Companies invest in one to 20 projects, with investments in any one project a modest 2-70 million Swedish kronor ($235,000-$8.5 million).
Concerning the goal of the companies, the newly started ones like to describe it as being "best in the world" or "best in Europe" or (rather more modestly) "at least largest in Scandinavia." The willingness to take risks varies enormously. Almost half take on projects very early, providing seed capital, and they consider this very much their mission. An equally large group invests in companies that are already in the process of being built up and that already have a business concept demonstrating they can succeed.
In the old industrial society, venture capital could be allowed to work for five to 10 years, but in the information society it must move in and out faster. It's common to exit within three to five years, through either sale or public listing on the stock market.
The "old Internet" - the Age of Home Pages - is being transformed more to e-commerce and e-learning. Interactivity is increasing, the Net is continuously available, and you no longer need to boot up and get connected: you can now be always-on and you can therefore get information and act on it anytime.
The tempo of the new economy is extremely high. Some say hysterically so. VC companies walk a tightrope: they balance between focusing their portfolios on one field and spreading the risk. The trick is to invest early in those solutions that will stand out from competitors', to invest in the so-called disruptive ideas that successfully break out from older technology. Even so, a company may have only a couple of years at the most to be a leader in the global marketplace.
A combination of technical and marketing know-how by VC companies is absolutely necessary. Only a superb perception of this hyperactive market will ensure success. Hopefully this article will have helped!
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