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How Stockholm Became a 'Unicorn Factory:' Candy Crush Saga, Minecraft and Spotify Are All From Sweden

The Huffington Post The Huffington Post 18/11/2015 Helen I. Hwang
STOCKHOLM © Oleksiy Mark via Getty Images STOCKHOLM

What do Silicon Valley and Stockholm have in common? Spawning billion-dollar tech companies. After Silicon Valley, the Swedish capital produces the highest number of so-called "unicorns" per capita than any other global city. With a population of less than 900,000, Stockholm has birthed prolific global brands like Skype, Spotify, Minecraft and Candy Crush Saga. In fact, American interactive entertainment firm Activision Blizzard has just purchased the makers of Candy Crush Saga for $5.9 billion.
Experts say a number of factors -- including the global success of well-known Swedish companies, government foresight and infrastructure planning -- have fomented an environment that has fostered 22,000 tech businesses in the city alone. "Sweden has developed a human, social, educational and corporate infrastructure that supports start-ups Twitter," notes Wharton management professor Exequiel Hernandez.
The kind of spotlight that Stockholm has attracted is also fueling more investment. In terms of global cities leading the way in deal growth, Stockholm is second only to Beijing, according to CB Insights. Last year, $788 million of venture and growth capital, excluding private equity deals, was pumped into Swedish companies, the research firm notes. Venture capital investments have increased 338% from last year, and Stockholm commands 15% of the total foreign direct investment poured into the European technology sector. For a high-income country that's comparable to Switzerland in size, the Swedish are doing well in the start-up scene, notes David Hsu, Wharton management professor.

Certainly, American investors are taking notice. "Sequoia Capital; Kleiner Perkins Caufield & Byers; and Google have all invested in [Swedish companies]. It won't be long before the rest do," says Tyler Crowley, an American consultant who moved from "Silicon Beach" in the Los Angeles area to develop the Stockholm start-up scene for the city government.
Spotify, a music-streaming service that may be one of Europe's most high-profile start-ups, reached an $8.53 billion valuation this past year. Swedish telecom company TeliaSonera poured in $115 million, receiving a 1.4% stake. Think of it as the "pensioner meets the teenager," says Martin Carlsson-Wall, a Stockholm School of Economics accounting professor. "The deal is a way for [TeliaSonera] to build its brand and associate itself with a younger, innovative and faster-growing company. At the same time, Spotify is perhaps too small and can build on the strength of a big company."
"The notion of the entrepreneur in the garage or the small warehouse is romantic and true in many ways, but that doesn't happen without a lot of other infrastructure." -Exequiel Hernandez
Predecessor Swedish tech enterprises have set the pace for successful start-ups. In 2005, Swedish telecommunications company Skype was bought by eBay for $2.6 billion. Microsoft then bought Skype for $8.5 billion in 2011 in the largest takeover acquisition in Microsoft's history. Swedish software company MySQL was bought by Sun Microsystems for $1 billion in 2008 and is now owned by Oracle.
A Candy 'Crush'
The recent news about Swedish success is the record sale of King Digital, which developed Candy Crush Saga in Stockholm before the company relocated its headquarters to Dublin, Ireland. Around $3.6 billion of the purchase will be from offshore cash, and Activision Blizzard, makers of the Call of Duty video game series and the Skylanders franchise, would have lost more than $1 billion if the company had repatriated the funds, notes Ian Bogost, Georgia Institute of Technology professor of interactive computing. King Digital went public on the New York Stock Exchange for a valuation of $7.1 billion in 2014 but has struggled to come up with another successful game. "Investors want growth. If you're a company that has one massive hit ... [you have] got to be reaching the limits of what you can do," adds Kevin Werbach, a Wharton professor of legal studies and business ethics. Selling the company may be the best business solution to appease its backers, while Activision Blizzard gains entry into the mobile gaming space. (Werbach and Bogost discussed the deal during a recent appearance on the on the Knowledge@Wharton show on SiriusXM channel 111.)
Earlier this year, another successful Swedish gaming developer, Mojang, makers of Minecraft, was bought by Microsoft for $2.5 billion.
A few more unicorns are on their way, says Joseph Michael, business development manager at Stockholm Business Region Development, a government enterprise. Audio streaming service SoundCloud started in Stockholm before moving to Berlin, Germany, and was valued at $700 million at its last funding round. TrueCaller is an app that finds phone numbers and blocks spam calls, backed by two Silicon Valley investors, Kleiner Perkins Caufield & Byers and Sequoia Capital. Users are mostly located in India, Lebanon and Jordan, and 200,000 are joining each day.
To read more of my article, go to Knowledge@Wharton.

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