Rovio, the company behind Angry Birds, was on a roll, and just about everyone was playing Mojang’s Minecraft or King’s hit mobile game Candy Crush Saga. The global success of these Nordic stars helped put the Nordic and Baltic region on the tech heatmap.
Then the cold wind blew. Rovio started shedding employees, King’s stock tanked after its much anticipated IPO on the New York Stock Exchange, and Microsoft’s purchase of Mojang prompted the CEO to quit, raising questions about that company’s future.
And the once-mighty Nokia, which ruled the global mobile phone business and at one point was responsible for 4% of Finland’s GDP, ended up selling the crown jewels to Microsoft and laying off some 40% of its staff.
But these dark developments could be the best thing to ever happen to the region.
“We are seeing a surge of entrepreneurial activity,” says Daniel Blomquist, a partner at Creandum, a Nordic venture firm that was an early investor in Spotify and iZettle.
Former employees of the region’s growth start-ups such as Klarna, Spotify, SoundCloud, Rovio and Supercell are busy creating the next generation of Nordic companies. Many of them will be present at Slush, an annual Internet conference in Finland, which this year is expected to attract 10,000 people.
The success of the region’s growth companies is seeding this new generation, says Mathias Ackermand, an active angel investor in the Nordics. “There is Supercell money. The Spotify shareholders are selling their shares and investing in other companies. There are billions of krona in Stockholm to be employed. I have never seen so much money, money owned by people who know how to handle it. Everything is very buoyant here.”
“There is more money in the Nordics and a lot more start-ups nowadays,” agrees Martin Engdahl, who was in charge of Swedish payments company Klarna’s expansion into Germany and other foreign markets. Engdahl left Klarna to start Stockholm-based Vaulted Payments, which he describes as “Stripe for bank accounts.” The company has raised seed money from a variety of backers, including Klarna’s ex-chairman.
Finland Has Become A Strong Tech Hub
All is not rosy, however. While there is plenty of money to get early-stage companies started, follow-on rounds in the region tend to be much smaller than those in the U.S., putting companies at a disadvantage, says Max Niederhofer, a partner at Sunstone Capital.
Still, Sweden has produced more Internet company with valuations of a billion dollars or more than any other tech hub in Europe. And its entrepreneurs have had an outsized impact.
Niklas Zennström, the Swedish co-founder of Skype, helped give the world free voice services.
Qlik (formerly know as Qliktech), a start-up born in Sweden that pioneered a disruptive new approach to business intelligence software, ended up taking business from IBM, SAP, Oracle and Microsoft before launching an initial public offering on NASDAQ in 2010, with a valuation of $1.5 billion the year it went public. Spotify co-founders Daniel Ek and Martin Lorentzon have created a multi-billion-dollar company and disrupted the global music industry.
Mojang, a global gaming giant, was sold to Microsoft in September for $2.5 billion, and King, a gaming company started in Stockholm and now headquartered in London, went public on the New York Stock Exchange earlier this year, though the company, which has a market cap of $4.32 billion, saw its stock plunge from a high of $23.48 per share to a low of $10.68; the price has plateaued at $13.70.
Finland has also become a strong tech hub in its own right. MySQL, an open-source database company, which was sold to Sun Microsystems for $1 billion in 2008 and is now owned by Oracle, is just one example of major open source projects/technologies that have their roots in Finland. Monty Widenius, the main author of the original version of MySQL, has since launched MariaDB, a popular and highly-scalable database for cloud and Big Data applications, which he has rolled up into a Finnish consulting company called SkySQL. SkySQL raised $20 million last year in a round led by Intel Capital.
Sweden And Finland Hog The Headlines Denmark Boasts A Few Success Stories
Of course, Finland is also known for its thriving gaming sector. Supercell sold a 51% stake to Japan’s Softbank for $1.5 billion in 2013.
Rovio, which has expanded its Angry Birds franchise to include stuffed animals, a Hollywood film and a theme park, has built a global brand but has recently laid off over 100 staff members. “Rovio took one success and tried to make it an entertainment brand and that strategy failed,” says Niederhofer.
That is not discouraging other Finnish gaming companies, such as Seriously, which was started by veterans from Rovio, Remedy Entertainment and 20th Century Fox. Despite Rovio’s troubles, “we believe that today’s mobile gaming is a fantastic opportunity to create new IP, new brands and properties that can have massive reach and that the biggest brands in entertainment are going to be mobile first,” says Seriously co-founder Petri Järvilehto, the former executive vice-president of games at Rovio Entertainment.
While Sweden and Finland hog the headlines Denmark boasts a few success stories of its own: Unity Technologies, the maker of video game development engines and tools, which has an estimated valuation of around $1 billion; Zendesk, which went public on the New York Stock Exchange earlier this year with a total take of $100 million at an initial valuation of $631.7 million; and online food delivery service JustEat, which was founded in Denmark, went public in London in April, with a £360 million IPO that valued the company at £1.47 billion.
The start-up scene is luring Nordic natives who moved to the Valley to come back to start new ventures. Take the case of Johan Attby, who studied math and physics in the U.S. and then founded Tific, a Silicon Valley-based automated IT company which was purchased in 2011 by the U.S.’s Plum Technologies. Attby then returned to his native Sweden to launch Fishbrain, one of the largest niche social communities on Facebook. The community has some 630,000 users; about 450,000 of them are in the U.S.
Truecaller Raised A $60 Million Round In October
Although Attby admits he doesn’t particularly like sport fishing, he chose the sector because it is a $45 billion industry. Fishbrain, which uses a freemium model, collects data to allow anglers to figure out the best spot to fish and share photos of their catches. In July the company raised a $2.4 million round led by Northzone and Active Venture Partners.
The big change over the last few years is that tier-one venture firms such as Index, Balderton, and Accel Partners are much more active in in the region, says Petteri Koponen, a founding partner at Lifelong Ventures, a Finnish early-stage venture capital fund. More than half of the companies in its portfolio have attracted venture capital from outside the Nordic region.
Tier-one VCs are also turning their sights on Stockholm. Truecaller, a Stockholm-based service that allows its users to help identify unknown phone numbers, raised a $60 million round in October that included UK-based Atomico and Silicon Valley venture firms Kleiner Perkins Caufield & Byers and Sequoia Capital.
Russia, now Europe’s largest Internet market, has attracted its fair share of Western venture capital, from firms like Intel Capital, Mangrove Partners and Index Ventures. Nor is the geopolitical climate dampening the climate for investment or squashing entrepreneurial spirits in Russia, Ukraine and in some other parts the former Soviet Union, says Sasha Galitsky, a partner at Moscow-based Almaz Capital and a scheduled speaker at Slush. “We are getting pretty good deal flow,” he says.
Winds Of Fortune
In fact, political uncertainties are pushing companies based in the former Soviet Union to focus on the global, rather than the domestic market, says Galitsky.
And in November, Belarus–based Apalon, a top 10 developer of iOS applications worldwide as measured by monthly downloads, was sold in September to the U.S.’s Mindspark Interactive Network for an undisclosed sum.
Start-ups in the Baltic countries are also attracting the attention of venture capitalists. “I am getting a lot of referrals from Nordic VCs for start-ups in the Baltics which they think are interesting but it is still too early for them,” says Ackermand, the angel investor.
So forget the big chill. The winds of fortune look likely to ensure that the region remains hot for some time.