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Investors drawn to Silicon Fjords

Many foreign firms are flocking to the Swedish venture capital arena, including European internet business accelerator GorillaPark. The early-stage wireless sector is looking especially appealing according to this Industry Standard article.

The Swedish venture capital market is the third largest in the world after the US and the UK. But in such a saturated market, and one currently in the middle of a downturn, why would yet another VC look to set up shop?

The answer is that while Swedish VCs have become more reluctant to take risks, the proliferation of wireless web companies is drawing outside firms to Europe's ‘Silicon Fjords'.

According to the Swedish Venture Capital Association, there are 149 VC companies in Sweden. The majority are of local origin and most started in the past three years. But local VCs such as Speed Ventures and Core Ventures are licking their wounds after making investments in floundering dot.com retailers like Dressmart, Boxman and LetsbuyIt.

Sweden has had its success stories - Altitun, Qeyton and Sendit were all start-ups acquired by multi-billion-dollar US firms. And the country remains an almost perfect test market for new-economy companies like Intel, Microsoft and Motorola, as its small population is among the best educated and most web-aware in the world.

In particular, the convergence of the internet and wireless services was what attracted so many VCs to Sweden in the first place. For example, US financiers Crescendo Ventures and Battery Ventures have invested in several Swedish start-ups, often in co-operation with local Swedish VC companies.

One of the latest international VCs in Sweden is GorillaPark, a pan-European Internet business accelerator, with offices in San Francisco, Amsterdam, London, Munich, Paris and now Stockholm. Paul Sturrock, managing director of GorillaPark's business operations in Stockholm, thinks Sweden is way ahead in Europe when it comes to wireless.

‘About 70 per cent of the Swedish ideas we get are about the mobile internet. We have found many exciting companies here,' he says.

According to Sturrock, the GorillaPark Stockholm venture will provide the full range of acceleration resources to help develop Swedish start-ups and to support the expansion of GorillaPark's other portfolio firms into Sweden. The Stockholm office is currently looking for eight high-tech entrepreneurs to become members of the Swedish team.

Apart from cash, start-ups will have access to a staff and office space. According to Jerome H Mol, CEO of GorillaPark: ‘Our plan is to take ideas from seed phase to initial public offering in two years. We need entrepreneurs with ideas that can grow into global companies in a couple of years.'

‘We call these companies Gorillas. Microsoft and Yahoo are two perfect examples of these Gorillas.'

But GorillaPark's attitude is unusual among Swedish investors, who tend to take less risk and seldom enter at the seed stage. This is the gap that international VCs like GorrillaPark have filled.

A Spanish VC firm called Grupo Rodania is also planning to invest in Swedish mobile internet companies, but is doing so from its Madrid base. To accomplish this, it has teamed up with Ledstiernan, a Swedish VC, in its search for good ideas in Sweden.

US firms are also bringing ideas of their own. Carl Stjernfeldt at Battery Ventures agrees that there are a lot of good business ideas in Sweden, but he thinks that Swedish start-ups lack basic knowledge. ‘In general, they do not know enough about their customers. They are bad at market research,' he claims.

It remains to be seen whether the influx of international VCs will have a positive effect on local firms. A critical voice is Klas Hillström at Investor Growth Capital. ‘I think we are about to enter a second VC wave in Sweden, but the problem is that the Swedish VCs have little experience.'

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© Standard Media Europe, February 2001