As the global venture capital market contracts following a historic investing boom, the downturn impacts each startup market differently. While we’ve given the United States’ startup ecosystem most of our attention lately, it’s time to broaden our perspective.
And narrow our focus. In the wake of Techstars’ decision to discontinue its Swedish accelerator program, TechCrunch+ decided to dig into the country’s startup scene to understand how one smaller venture market is adapting to a changed investing climate.
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Sweden, which has a population of around that of Michigan in the United States, punches above its weight in both cultural and business terms. Any fan of heavier music will rhapsodize to you about towering Swedish heavy metal giants like At The Gates, In Flames, Amon Amarth and Meshuggah. In business terms, Zettle, Ikea, Klarna and Spotify all call Sweden home.
It’s clear, then, that while Sweden’s population doesn’t make it an instant powerhouse in terms of sheer scale, it’s a country with a history of creating and building things that the world welcomes. Surely that creates a good foundation for future startup activity; after all, Spotify is worth $25 billion by itself. Why can’t the country’s founders repeat the feat?
Techstars CEO Maëlle Gavet declined to comment on the choice to leave Sweden on the record. So today, we’re looking at Sweden with a focus on Techstars’ exit and how local venture and startup actors view it. We want to know whether there are ameliorating circumstances for the decision that will help us better grok Techstars’ call, as well as the European startup market in general and Sweden’s in particular.
Making sense of Techstars’ pullout from Sweden
In October 2021, TechCrunch+ reported on Techstars’ decision to double down on Europe. At the time, the global organization announced the launch of two new pre-seed acceleration programs, one in Paris and one in Stockholm.
Techstars is now expected to depart Sweden by the end of the year. The decision, which startup-focused media outlet Sifted described as unexpected, was communicated internally only a few weeks after the latest cohort of startups, many of them international, started the in-person program.
What will happen to startups in Techstars’ current Stockholm batch is still to be determined. We understand that each team will have to choose which option they prefer — or dislike the least — such as following a virtual program, joining a Techstars program in a different location, opting for a hybrid option or withdrawing entirely.
It is an understatement to say that the news came as a shock to Stockholm’s startup community. A LinkedIn post from the program’s managing director, Alfredo Jollon, was flooded with supportive messages from investors and entrepreneurs, including several Techstars alumni. Others also expressed disappointment with Techstars and offered support to affected founders.
Jonas Almeling, the new head of Nordics at Republic-owned startup crowdfunding platform Seedrs, was one of the most vocal commenters, so we reached out to him.
He told TechCrunch+ that “the cancellation of the program has been extremely irresponsibly handled. Especially in regard to the companies and founders that have relocated to Sweden and have invested their lives in being part of the program.”
Kryptonio Wallet co-founder and CEO Ilias Louis Hatzis had spent time with all the startups in the cohort as part of Mentor Madness week just days before news of Techstars’ decision came out. He didn’t hear it directly from Techstars’ global or local team; he learned from another mentor and in the press.
“My impression is that the decision was sudden, unexpected and the local team didn’t know about it,” he said, adding that many of the startups and founders he met had “great potential,” and he’s disappointed for them. “Being an entrepreneur myself, I can feel their pain. This whole thing must have been a big blow to them.”
Both he and Almeling praised Techstars’ local team. “In my opinion and experience, the local team have done nothing wrong,” Almeling said. “On the contrary, they were just getting started to build a great accelerator program with great companies and mentors.”
We will follow the situation as it develops, with an ear out for official communications from Techstars itself. It doesn’t appear at this juncture that this decision means much for its other programs.
But does the choice imply anything about Sweden’s startup scene? Sure, it’s not a cheap market given its tax structure, but with a history of building multibillion-dollar companies, does that really matter? Let’s peek at some recent venture capital data and see if we can better understand how Sweden is holding up amid the global pullback in venture investment.
State of the Swedish startup market
Sweden’s historical success as a progenitor of global tech brands shows up in economic data. A recent report from Atomico, a venture capital firm with offices in both France and Sweden, digging into Europe’s 2022 startup and venture data calculates that Sweden’s digital economy works out to more than 8% of the country’s gross added value. That’s far above Europe’s average of a little more than 6% and on par with the United States.
Given how central the U.S. tech scene is to global business, it’s no small feat for Sweden.
Another way to consider how active a country’s startup scene is in fundraising terms is to calculate how much capital has been raised on a per-capita basis. In Europe, per the same Atomico dataset, it reached around $140 in 2022. Sweden, in the same year, saw nearly $500 invested per citizen.
But how did the country do last year compared to 2021’s excess, and what can we see in 2023’s early data?
It’s difficult to compare any country’s recent venture capital activity to 2021 as you always wind up measuring down from the global VC market’s zenith. Sweden is no different in that respect, but its venture capital history comes with some interesting nuance.
According to PitchBook data, Swedish startups raised $5.9 billion across around 650 rounds in 2020. Those numbers shot to $13.8 billion in 2021, value spread across around 840 rounds. How far did the venture totals fall in Sweden in 2022? Not very: Startups in the country attracted $12.0 billion in total capital across a seemingly solid 630 rounds or so.
Sweden does not appear to have suffered too much last year. Indeed, compared to some markets, it had a pretty enviable 2022 in terms of nearly matching the capital its domestic startups raised the year before. This year, however, is looking a bit grim.
(It’s worth noting that data from Atomico charts a greater percentage decline in Swedish venture capital activity than we found in our search of PitchBook data; we’ll update you with firm Q1 data when the quarter closes and enough time has passed for 2022 data to better “settle.”)
Per the PitchBook dataset, Swedish startups did not raise less than $2 billion in any quarter since the start of 2021. However, in Q1 2023, early data only totals around $576 million in deal value. That’s the worst result since Q2 2020 and dramatically less than Q3 and Q4 of 2022, when Swedish startups raised $3.8 billion and $2.9 billion, respectively.
Early data is just that, but it does seem like Sweden’s impressive ability to hold onto a good portion of 2021’s venture flows in 2022 is coming to a close. This is negative, but not as bad as it might look if we merely considered the above numbers in the abstract. Startups don’t instantly spend all their raised capital, and last year saw upstart tech companies around the world cutting back on spend to extend their runway.
Much of the money raised by Swedish startups last year, and even some from the epic 2021 venture cycle, is likely still in their accounts. A modest Q1 could indicate something as small as startups pulling back on raising new funds while broader tech valuations were slack. We don’t want to be too generous in our interpretation, but as we appear to be looking at a single anomalous quarter — thus far, at least — it’s a bit hard to panic.
There’s more to explore regarding Sweden and its sister Nordics. Expect more from The Exchange on the matter over the next week.