Tech Stars Brighten Northern Skies

With a number of Nordic technology startups snagging eye-popping venture investments recently, one could be forgiven for feeling a sense of déjà vu. After all, in the late 1990s, Scandinavia became a breeding ground for rising European technology stars, especially in the mobile arena. But after the dot-com bubble burst, many of those entrepreneurs—and the companies they founded—fell to earth with a thud.

In recent weeks that giddy feeling has started to return to the region dubbed “Silicon Fjord.” Rebtel, a Swedish company that offers free mobile phone calls using Voice over Internet Protocol (VoIP), became the latest outfit to hit the jackpot, securing $20 million from Geneva-based Index Ventures and Benchmark Capital of Menlo Park, Calif.

Indeed, venture capital has been pouring back into the region with relish. Swedish companies alone snagged €852 million ($1.07 billion) in startup and growth capital last year, according to the European Venture Capital Association. That nearly matches the peak set in 2001 and is more than twice the amount raised in the trough year of 2003.

SECOND MARRIAGE. What’s more, this time around the startups are a lot better run. The dot-com experience reinforced the importance of having a solid business plan based on profitable, long-term growth, not just a hot fad. The crash also gave rise to a generation of entrepreneurs who lived through failure, an experience many venture capitalists consider highly educational and desirable.

“At the end of the ’90s you could do a PowerPoint presentation and get backing,” says Hjalmar Winbladh, co-founder of Rebtel, and a self-described “serial” entrepreneur who previously founded a mobile software company called SendIt that was bought by Microsoft (MSFT) for $150 million. Windbladh says it’s more difficult to get seed funding now, but argues that greater rigor is better for the long-term health of the entrepreneurial culture.

The rebirth of entrepreneurial spirit in Scandinavia is owed in part to a recent batch of inspirational success stories. The Goliath, of course, is Skype (EBAY), the VoIP software company founded by a Swede and a Dane and acquired by eBay for $2.6 billion this year. But there’s also Oslo-based Opera Software, which is a leading supplier of browsers for mobile phones and set-top boxes, and Trolltech, also in Oslo, which has carved out a niche in Linux-based software for handsets.

TAKING THEIR TIME. The main lesson learned by these Nordic startups is that there’s rarely such a thing as overnight success. Opera CEO Jon von Tetzchner and co-founder Geir Ivarsy developed one of the world’s first Web browsers in 1994 in the labs of Norway’s national phone monopoly, Telenor. But when the big telco didn’t want to take the project further, the duo struck out on their own, zeroing in on the gap in the market for browsers on mobile phones and other non-PC devices.

Telenor “gave us a flying start,” Tetzchner says, but years of hard work lay on the road to eventual success. Though Opera remains an also-ran in PC browsers, its software is now used in more than 17 million mobile phones. The publicly-traded company generated revenue of $23 million last year.

Eirik Chambe-Eng, co-founder of Trolltech, had an equally tough path. When he and co-founder Haavard Nord approached the Norwegian agency in charge of fostering startups in the mid-1990s, they were told “Guys, the job market is good, go get good jobs,” Chambe-Eng recalls. They rejected the advice, but “it was an uphill battle all the way.”

COATTAILS OF SUCCESS. It took a year before Trolltech started generating any revenue, and the pair had to rely on their wives’ incomes until the company was up and running. But it paid off: Trolltech booked sales of $17.7 million in 2005 and listed on the Oslo Stock Exchange earlier this year.

Now, industry watchers are poised for a new crop of startups to emerge from the region, inspired by the likes of Trolltech, Opera, and Skype. “Scandinavia has created world-class entrepreneurs who’ve gone on to build world-class services,” says Danny Rimer, general partner at Index Ventures, which backed Skype. “That has been amplified in the past few years. Success breeds success.”

It helps that there has been a sea change in attitude toward entrepreneurs since the dot-com bubble burst, says Rebtel’s Winbladh. “Failing is not seen as bad as before.”

MOVING ABROAD. Yet for all the inspiration and technical expertise, entrepreneurs say there are elements of Scandinavian society that still must change if entrepreneurialism is to flourish. One big sticking point: It’s tough to motivate employees by giving them stock options because options are taxed at high personal income tax rates when they’re exercised.

It’s thus “very difficult to employ people who can share the upside…which is what you need to grow,” says Winbladh. As a consequence, some entrepreneurs say, startups move headquarters abroad at their first opportunity to ensure they can attract the best talent.

There are encouraging signs of change. Many entrepreneurs say, for instance, that they expect the new center-right Swedish government to usher in a more startup-friendly environment. Others call for more collaboration between government and industry to keep the entrepreneurial breeding ground fertile. “It won’t happen on autopilot,” said Eilert Hanoa, founder of Mamut, a Norwegian company that makes business software for small to midsize enterprises.

Source

The spark is back in the north. After all, who doesn’t dream of being the next Skype?

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