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Nordic Dreams

Innovation, Startups, and the Nordic Region's Connection to Silicon Valley

The Nordic Entrepreneurial Landscape

The San Francisco Bay Area, which includes Silicon Valley, is widely considered to be the world’s leading center for technology, innovation and entrepreneurial activity. Its assets in research, sector concentration and risk capital work together to create a global innovation platform, making the Bay Area/Silicon Valley region a magnet for both large and small companies from around the world. In this respect, the Bay Area is a hub that connects to other global knowledge-led regions, inviting companies and countries to access and leverage its resources in order to better compete and grow globally.

European companies fill that landscape. While numerically that flow and the economic activity it represents is led by Europe’s largest economies, the economies of the Nordic region (Sweden, Norway, Finland, Denmark and Iceland) punch far above their weight, with a disproportionately large impact and business presence relative to the size of their populations and economies.

Acknowledgments

This report was prepared by Sean Randolph, Senior Director at the Bay Area Council Economic Institute. Camila Mena, Research Analyst at the Economic Institute, and Sebastian Hamirani, an intern from California Polytechnic State University–San Luis Obispo, contributed to the research.

The Institute is indebted to the sponsors that enabled the development of this report: the European Union, which provided underlying grant support for the project; the Swedish Agency for Growth Policy Analysis; the Consulate of Sweden, the Consulate of Norway, Innovation Center Denmark, and Tekes.

Leaders of many government agencies, universities, accelerators, venture firms, and private companies, including many startup founders, contributed their insights through one-on-one interviews. They are listed in the Appendix.

We also wish to thank the following knowledge partners, who provided key data that helped inform the study: Mind the Bridge, Factory, and Tech.eu.

Innovation Advantage

The Nordic region’s economies place high on global innovation rankings. Sweden, Denmark and Finland place consistently among the top ten.
While each has its distinctive traits and assets, the Nordic countries share several elements in common. These include highly educated societies, with less income inequality than most developed economies; high-quality universities; strength in technology; and an industrial base that includes robust apprenticeship programs. Sector strengths in their economies build on this foundation. All of the Nordic countries have small populations with correspondingly small domestic markets, which makes thinking globally a necessity. From the outset, many Nordic companies and their governments tend to look outward when it comes to global competition and markets.

Startup Hubs

The startup bridge to the Bay Area is anchored in a handful of major cities that have emerged as key startup and entrepreneurial hubs. These the places where the Bay Area’s European startups primarily come from and where future partnerships are most likely to develop. Stockholm is one of Europe’s five leading startup centers. Helsinki and Copenhagen also figure prominently. All Nordic capitals, including Oslo and Reykjavik, are developing increasingly robust and active startup environments.

From Startup to Scaleup

A 2016 Startup Europe Partnership (SEP) analysis of ICT scaleups in the five Nordic countries (“Northern Lights: ICT Scaleups in the Nordics”) identifies 430 (defined for SEP’s analysis as companies that have raised more than USD 1 million) and have together attracted USD 6.5 billion in investment. Sweden accounts for the largest number with 149, and USD 3.4 billion in investment. This puts the total number of Nordic scaleups on a par with the UK, and with Germany and France together.

Some of these companies have become global players, including Supercell, Spotify, King.com, Klarna, iZettle and Zendesk. Gaming is a particularly strong sector, but a growing number of companies can also be found in software, digital media, fintech, and hardware. Twenty Nordic scaleups have moved their headquarters abroad, primarily (75 percent) to the US, with the balance in leading European centers such as London and Berlin; most continue to maintain significant operations in their home countries.
The lion’s share of this activity is occurring in major cities: Stockholm (with USD 3 billion raised by 90 scaleups), followed by Copenhagen (USD 1billion raised by 70 scaleups), Helsinki (USD .8 billion raised by 83 scaleups), Oslo (USD .4 billion raised by 33 scaleups), and Reykjavik (USD .1 billion raised by 13 scaleups).

Sweden in particular sits prominently on Europe’s investment map. In 2016 the UK, France, Germany and Sweden led Europe in both the number of investment deals and investment volume, with the greatest jumps in funding from 2015 registered in France and Sweden. In 2016, Sweden saw a record number of investment rounds and capital raised—twice the number of 2015.

Sector Strengths

The Nordic region’s economies stand out as early adopters of cloud computing, enhancing their innovative capacity and digital competitiveness. Finland, with strong IT, telecommunications, and mobile gaming sectors, has Europe’s highest rate of cloud adoption; by one estimate, half of Finland’s economic activity will be digital by 2025. Sweden and Denmark join Finland on the short list of Europe’s top adopters.

Sectors where the Nordic region shows strength across the board include e-commerce, software, fintech, life sciences, and entertainment in Sweden; gaming (computer and mobile), e-commerce, software, and health in Finland; software, bio-pharma, and renewable energy in Denmark; biotech, software, and IoT in Norway; and games and virtual reality Iceland.

The growing energy of the Nordic startup scene can be seen in the Slush conference held each winter in Helsinki. The 2016 conference attracted 343,000 visitors and 17,500 participants, two-thirds of them from Nordic countries. That included 2,336 startups and 1,146 investors. Slush organizers chartered an aircraft to fly participants directly from the Bay Area.

Systemic Challenges

As in much of Europe, Nordic startups face two major systemic challenges: access to capital and limited market scale. Both factors draw them to the Bay Area.

Funding

While the Nordic region enjoys active angel investor communities and ample seed funding, Series A funding is hard to find, and Series B or C (growth funding) is even more difficult to secure. Most venture firms and the levels of funding they can provide are small compared to Silicon Valley.

Market Scale

Even large European economies such as France or Germany lack the scale of the US market. This is a particularly large issue for the smaller economies of the Nordic region. For startups whose highest ambition is to lead in their home markets, there’s no problem; but for companies that want to become global players, this is a challenge. It is particularly the case for IT companies where the scale of the US market greatly exceeds that of all European markets combined. As a result, once startups have consolidated a base in their home markets and want to grow, many leapfrog Europe and come to the United States—usually to the Bay Area.

The Bay Area Connection

European entrepreneurs come to the Bay Area mainly to find venture capital and to scale. They also come to tap into the business and marketing expertise at which the Bay Area excels. Many draw on a deep infrastructure of institutional support provided by their governments and by businesses and business leaders from their home countries that are already embedded in the region. This bridge, composed of overlapping public and private networks, provides startups with short-term landing pads and with expertise, advice, and connections to help them grow their businesses.

For Nordic startups, this support infrastructure is built around three major components: government offices (consulates and national or subnational government agencies); Nordic Innovation House; and regional business organizations. Particularly for government offices, the functions of these entities often overlap. Taken together, the Nordic presence is substantial.

Government Offices, Nordic Innovation House, and Business Organizations

Nordic governments are represented by consulates (Norway, Sweden, Denmark), honorary consulates (Finland and Iceland), business support units (Business Sweden and Finpro), and national technology agencies (Tekes, Vinnova and Innovation Center Denmark). They also collaborate through Nordic Innovation House, which offers a soft-landing space for startups from across the Nordic region—Norway, Sweden, Finland, Iceland, and Denmark—as a cooperative project of all five counties. Initial support for the project came from the region’s multinational innovation partnership Nordic Innovation, and is sustained by private companies through membership subscriptions.

The trend among country representatives and cross-nationally between government agencies is toward collaboration, as a collective presence is increasingly seen as being more impactful than more isolated initiatives. This approach is exemplified by Silicon Vikings, a regional association of business leaders hailing from Nordic countries. Headquartered in Silicon Valley, the Silicon Vikings global network includes chapters in Copenhagen, Gothenburg (Sweden), Helsinki, Oslo, Reykjavik and Stockholm. Participation was recently extended to neighboring Baltic countries (Estonia, Latvia and Lithuania), adding Tallinn, Vilnius and Riga to the list of overseas hubs. Other business groups such as the Danish American Chamber of Commerce and the Swedish-American Chamber of Commerce actively include startup-oriented events in their agendas.

Leading Corporations

A number of leading Nordic corporations are present in the Bay Area, with the goal of connecting to and participating in the region’s innovation economy. Most often, larger Nordic companies are present in Silicon Valley through what can be termed “innovation outposts,” which vary in size from a handful to several hundred staff. Since technology and ideas move rapidly, to fully participate in the region’s innovation economy companies need a full-time presence. These offices play multiple roles, monitoring technology trends and developments, reporting back to their home offices, and developing partnerships with universities and with large Bay Area companies. Recognizing that young companies are often more nimble and can out-innovate even companies with large research budgets, these corporate outposts also seek out startups, to identify those with business models or technologies that can support their business plans through partnerships and acquisitions. Major companies with a presence in the region, some with venture arms, include ABB, Nokia, Volvo and Ericsson. Independent venture firms such as Sweden’s Creandum have also established a presence.

The Bridge to Silicon Valley

A recent survey by Silicon Vikings identifies 160 Nordic startups operating in the Bay Area, of which 79 responded to the survey or participated in interviews. Of those, half (51 percent) were started in the Nordic region and later opened a US subsidiary or affiliate, and half (49 percent) were started in the US by a Nordic founder. The number of companies with Nordic founders is led by Sweden (37 percent), followed by Norway (17 percent), Denmark (29 percent), and Finland (11 percent), with Estonia (3 percent) and Iceland (3 percent) accounting for the balance. Sweden also leads in the number of companies that started in the Nordics and subsequently started operations in the US (32 percent), followed by Denmark (30 percent), Norway (14 percent), Finland (14 percent), Iceland (4 percent), Estonia (3 percent) and Lithuania (3 percent).

Why They Come

Why Nordic and other European startups come to the Bay Area in such numbers reflects the challenges that they continue to face in Europe, primarily relating to capital and scale. They find the world’s largest pool of venture capital and investors who understand startups. They also find unparalleled opportunities to scale in the US and globally.
Some companies come to the Bay Area for another reason: their business models are built on platforms created by Bay Area companies. Many consumer-facing startups work at some point with companies such as Apple, Google, Facebook, or Twitter, which may require a full-time presence to build products collaboratively. This is the case with Swedish music streaming company Spotify, which established a Bay Area office in 2010 in order to be close to the region’s tech community and to companies such as Facebook, Twitter and Uber, with which it has strategic partnerships and whose platforms are central to its ability to scale.

How They Grow

Often, startups that gain traction will move their management team and headquarters to the Bay Area, with one or more of the founders relocating. A US-headquartered company will usually maintain an affiliate presence in its home country to handle operations there. In other cases, the European company will keep its headquarters and leadership team at home and create a US affiliate.

In either case, the pattern that most often emerges reflects a division of labor, where different and complementary tasks are performed in the Bay Area and at home. Frequently this stems from the high cost of employing engineers in the Bay Area and the availability and lower cost of engineers of comparable quality in Europe. Bay Area offices usually source investment and lead expansion into US and global markets. Home offices typically provide infrastructure and engineering support. As a result, the employee count at home may be larger, even if the company becomes US-headquartered. Both the Bay Area and the home country gain: the Bay Area through an infusion of companies and talent, and the home country through the increased employment, revenue, and visibility that comes from having a successful global company that is more competitive and has grown faster than it could have had it stayed at home.

Building the Nordic Connection

The Nordic region plays a significant and growing role as an economic partner for the Bay Area. Its presence is marked not only by large technology companies such as Nokia and Ericsson, but by large numbers of startups that come to the region to source funding, to partner, and to scale and grow globally. In the process, some such as Zendesk have become leading global companies. The relationship builds on a foundation of innovative capacity that distinguishes the Nordic countries—Sweden, Denmark, Norway, Finland and Iceland—from other countries relative to their economic size and population. They also share a perspective that aligns with the prevailing Bay Area/Silicon Valley ethos: an orientation toward innovation and entrepreneurship, and an ambition to grow globally. This offers high-value opportunities for the Bay Area and complementary benefits for its Nordic partners.