Sweden calling

Foreign venture capital is pouring into the country.

Sweden is currently one of Europe's top destinations for foreign investors. The main attractions are thought to be the country's highly educated population and the ability of Swedish companies to think globally.

Last year, Swedish companies attracted $1.07 billion (Dh3.92 billion) in start-up and growth capital, according to the European Venture Capital Association. Investors from around the world, especially from the US, Europe and the other Nordic countries, are drawn by the high annual yields, which have maintained a steady 20 per cent over the past ten years. By comparison, the average annual rate in Europe and the US is about twelve per cent.

The Nordic countries are perhaps best known for their innovative and successful information and communications companies. But biotech remains the leading industry in terms of both the number of investments and the amount of capital invested. Life science investments have increased dramatically over the past year.

Stable returns

So why does so much foreign investment capital end up in Sweden? Jan Segerfeldt, Head of Communications at the Swedish Private Equity & Venture Capital Association (SVCA), says: "Swedish private equity has yielded very high, stable returns year after year, and this of course attracts foreign investors. Seventy per cent of the capital in Swedish venture capital companies comes from abroad. Investors are also aware of the high standard of Swedish technology, research, education and training."

Every coin has a reverse side, though. In Sweden, Segerfeldt argues, this is principally to be found in the entrepreneurial sphere.

"Our country has been dominated by a large public sector and many big companies, which means there haven't been enough role models for small entrepreneurs," he says. "The new government has said it sees the potential for improvement in this area and intends to invest in it, so hopefully things will change." Segerfeldt notes, however, that major companies such as Ericsson and ABB have provided a good training ground for small businesses. Moreover, the relatively small size of the population means that companies are forced to think in terms of exports and diversification at an early stage.

Life science

Ylva Williams of the Invest in Sweden Agency (ISA), thinks that Sweden also owes a debt of gratitude to big pharmaceutical companies founded a century ago (or more) such as Astra (now AstraZeneca) and Pharmacia (now Pfizer).

"Sweden has a long tradition in the life sciences field," she says, "and this has given us training in the management of pharmaceutical companies. We have companies dealing with each link in the value chain — everything from innovation to development, formulation, clinical testing and production."

IT industry

Rebtel is one of the Swedish companies that has received large sums from investors in California's Silicon Valley. Rebtel offers free mobile telephony — a hot territory in US venture capital circles.

Rebtel Chief Executive Officer Hjalmar Winbladh feels that in general Sweden has good, innovative entrepreneurs in the internet and telecom sectors with plenty of experience. But isn't there a risk that we are seeing another IT bubble like the one we saw five or six years ago? Winbladh doesn't think so.

"Both venture capitalists and entrepreneurs are more experienced nowadays," he says, "particularly those who were involved last time round and have come back." Segerfeldt shares this view. "We're now seeing careful, intelligent risk-taking," he says. "The industry has matured significantly in recent years, and operates differently now."
Life science and IT are the current focus of attention. So what's next?

The question remains why investment is increasing so rapidly in Sweden. Strong economic growth worldwide helps, of course, but Danny Rimer, general partner at Index Ventures (which also backed Skype), may have hit on the answer when he told Business Week, "Scandinavia has created world-class entrepreneurs who've gone on to build world-class services. That has been amplified in the past few years. Success breeds success."

— Courtesy:www.sweden.se.