A man rides to work in front of Stockholm's frozen harbor, in January 2010. Progressive policies and a tight-knit, tech culture has made Sweden a Silicon Valley rival.
Credit: Olivier Morin

MALMO, Sweden — When tech entrepreneur Petter Ivmark returned to Stockholm last year after a lengthy stint in Silicon Valley, he rapidly sensed the change that had come over his home city. The impetus: two local companies — Skype and Spotify — had gone global.

"You can definitely feel that there’s change in the air, but its nascent," said Ivmark, co-founder of computer vision start-up, 13th Lab. "There’s more of an entrepreneurial spirit. I think the Skype thing was good, because it showed we can do huge things."

It’s a bit like Swedish pop after ABBA, said Martin Thornkvist, an analyst at Media Evolution, which promotes start-ups in the city of Malmo.

"Before ABBA, nobody thought that it was possible for a Swedish act to be big in the UK. We just recorded covers in Swedish. But after ABBA, there was a know-how built up about how to do it. The same thing has happened to Sweden in [the tech] space."

Swedish tech’s “ABBA moment” arguably came in 2006, when eBay bought Skype for $2.6bn. But it was given new impetus this September when Spotify, a Swedish music-streaming service, teamed up with Facebook, gaining it 7.3m Facebook users in less than a month.

For a country of nine-million inhabitants on the outer fringes of Europe, Sweden has long punched well above its weight in the world of tech start-ups.

One example is Sims Social — a game by Swedish company Playfish — which is battling San Francisco’s CityVille to become the most-played on Facebook. There are also a host of payment systems under development (iZettle, Klarna and Flattr), travel companies (Tripbirds and Tripl) video streaming, and sharing sites like Voddler, Videofy.me, and Globavenue.tv

So, why Sweden?

Underpinning it all is expertise. Some of this has emerged around mobile-phone giant Ericsson. Some has resulted from far-sighted government policies that gave Swedes computers with broadband internet before almost any other country.

Sweden’s pioneering home-computing initiative, for instance, led people to buy a million tax-free home computers in 1998 alone.

“It happened when I was 17 years old," said Hannes Skirgard. His mother had brought a Macintosh Performa 6200 as early as 1995. He got his first programmer job in 1997, just as the PC policy kicked in. More recently, he founded Goldfish CRM, which claims to make sales cold-calls addictive.

At the same time, the internet entrepreneur Jonas Birgersson — known in Sweden as the “Broadband Jesus” — was lobbying tirelessly for ever faster broadband to be rolled out across the country. In 1999, he struck a deal with the country’s largest housing cooperative to roll out high-speed internet to almost one million Swedes.

Soon, file-sharing sites Kazaa and The Pirate Bay sprung up. (The latter’s founders eventually were jailed for copyright infringement).

The ground had been laid for today’s start-up boom.

Sebastian Siemiatkowski, the chief executive of Klarna, attends a regular poker night in Sweden’s capital Stockholm, along with around 60 other start-up founders. Among them is Niklas Zennström, who went from Kazaa to Skype to founding the venture capital firm Atomico.

"In the poker society, there are a lot of entrepreneurs who have been successful two or three times, so there’s capital available," he said. "It’s not too big a country, which is why all those networks intertwine."

Some of the world’s biggest venture-capital outfits are now scrutinizing the scene, seeking out the next Spotify.

"The Nordics generally, and Sweden in particular, are a very vibrant market for venture capitalists," said Ben Holmes, from the London office of Switzerland’s Index Ventures. "The chasm between geeks and marketers doesn’t exist so much in Sweden,” said Holmes, “so they have quite productive teams."

Mike Moritz of Sequoia Capital — which had the foresight to invest in Google, PayPal and Yahoo in their early stages — has put up funding for Sweden’s Klarn, and Stardoll. The latter is a dress-up game for girls, where Spotify’s co-founder Daniel Ek was chief technology officer.

"I’m extremely bulllish on Stockholm as a start-up scene in the next couple of years," said Klarna’s Siemiatkowski. "Because all these success stories reinforce each other. It attracts more capital and helps start up new companies. Sequoia keep asking me for examples of companies in Sweden I think might be interesting."

So which Swedish companies might change the world next? Here are five start-ups poised for potential break-out success:

Klarna lets customers buy things online without giving credit-card details and pay only once they’ve received the goods. It pays the retailer and takes on the risk that customers won't pay them back, crunching vast amounts of publicly-available data, including national registers and Facebook, to winnow out fraudsters and debtors. All the buyer needs to do is give their name, date of birth and address.

Its ease of use has already won Klarna a 20-percent share in online payments in its home country, and a growing share elsewhere in Europe. Its next goal is to hit the US, where it will face off against the mighty Paypal. "This is definitely a competing solution to them," said chief executive Sebastian Siemiatkowski. "If you look at the Swedish market, they’re basically non existent here, and I think a big reason for that is Klarna’s dominance."

Klarna is forecasting a profit of 7 million euros this year. It has backing from Silicon Valley’s Sequoia Capital.

Planeto is launching a social network where instead of following people, users follow topics they’re interested in. Users complete quizzes that assess their expertise, potentially winning them a louder voice on the network. The company will rival Quora, the “knowledge market” founded by former Facebook executives Adam D'Angelo and Charlie Cheever. Planeto Founder Martin Walfisz’s previous venture was the Massive computer games studio behind the widely popular World in Conflict and Ground Control games. "If all goes well, we will succeed in pushing out a new type of social network that has a new type of knowledge. And if that succeeds as we hope, then we are going to be a huge in a year's time. Really big."

Wrapp combines the idea of gift cards — a $100 billion industry in the US — with discount vouchers, mixing in social networking. Wrapp app users are alerted to their friends’ birthdays and can then send them the discount vouchers offered by retailers, topping them up with their own money.

The company launched in Sweden earlier this year and is now preparing for a launch in the US and UK. It was co-founded by start-up veteran Hjalmar Winbladh — who launched the Skype rival Rebtel — and by Andreas Ehn, the former chief technology officer for Spotify.

13th Lab's sole contribution so far has been Ball Invasion, an iPad app that uses the camera to turn your real surroundings into a shoot 'em up arena, projecting balls onto the screen. In July, it became Sweden’s fourth most-downloaded iPad app.

But the company — founded by computer-vision Ph.D. student Oskar Linde, former Yahoo developer Anders Bond, and Petter Ivmark — has huge ambitions. It aims to use its expertise in 3D tracking to become the platform for a whole new set of apps and games using augmented reality, based on the ability of the cameras in the iPhone and iPad to map users’ surroundings.

"We aim to be a computer-vision company,” Ivmark said. “We believe that the camera has the potential to be the most important thing in your smart phone. We are releasing our technology as a platform for people to build on. Our aim is to make it as ubiquitous as possible. Our aim is that if people want to add computer vision to their app, they think of us."

Soundcloud. After launching in 2008, Soundcloud rapidly challenged MySpace as the platform musicians used to show off their noodlings. It has since repositioned as an “audio Youtube,” the leading social sound platform on the web.

It has added a “record” button to its iPhone app, and has attracted bloggers, journalists, and others, bringing the total number of users to more than 7 million. The Swedish founders, Alexander Ljung and Eric Wahlforss, shifted the company from Stockholm to Berlin just before it was launched, and opened an office in San Francisco last month.

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