View from Silicon Valhalla: the lessons of Sweden’s rise to tech powerhouse

Spotify’s listing on the New York Stock Exchange in April 2018 was a surprisingly muted affair: no bell-ringing or new shares – an act of defiance against Wall Street convention. Co-founder Daniel Ek did not even attend.

The music streaming service, founded 20 years ago this week in Stockholm, has always been the mascot for a different kind of capitalism, having been driven by radical innovation but born, rather awkwardly, in a Nordic social democracy. Spotify, now valued at about $110bn, can fairly claim to have been first in a string of Swedish tech successes including Klarna, the buy-now-pay-later platform which is also listed in the US, and more recently Lovable, the “vibe-coding” AI startup.

“The flywheel effect is incredibly important for the success of the Swedish ecosystem,” says PJ Pärson, one of Spotify’s earliest investors and a partner at Northzone VC, referring to the phenomenon of shareholder employees who “recycle capital” by funding or starting their own businesses after a lucrative exit. He estimates that between 65 and 70 Spotify alumni have gone on to found companies receiving serious venture capital funding in Sweden.

Britain could take cues. In nominal terms, the UK has 181 “unicorns” – companies with a valuation over $1n – compared with 46 for Sweden. But for sheer density of innovation, Sweden’s model is hard to beat.

For the last five years, the country has consistently ranked number one in Europe for venture capital investment per capita, according to Dealbook. The total value of its tech ecosystem has doubled in that time, to €239bn. Stockholm raised about $6.8bn in IPOs in 2025 – roughly four times what London raised in the same period. No doubt as a consequence Sweden has 45 billionaires, about 1.5 times more per capita than the US.

What created this “Silicon Valhalla”? Once a pioneer of Keynesian economics, the Swedish government has more recently been proactive in pumping up private investment. There are, for instance, strict rules about where Swedish pension funds can invest, and multiple financial literacy campaigns targeted at young people to invest in the stock market.

After a series of reforms, AP3, one of the country’s largest funds, now holds about 12% of its assets in Swedish-listed equities from a total fund of about SEK 500-800bn. The UK equivalent – the Local Government Pension Scheme, managing roughly £360bn – allocates about 4% to domestic equities. This week Louis Taylor, CEO of the British Business Bank, referred to the lack of pension fund participation in the UK’s home market as a “scandal”.

The Swedish government has been unafraid to take on risk, at one point accounting for a quarter of VC investment in the country. Over the past decade that has declined to about 6% as the founder “flywheel” has accelerated, due mostly to a 2003 tax reform which allowed capital gains tax from selling shares in unlisted companies to be deferred, so long as the proceeds are reinvested in other domestic unlisted companies.

Of course, there are flaws. Spotify and Klarna both chose to float in the US, where pools of capital are deeper. Sweden and Britain both face an acute challenge of scaling tech companies – and then keeping them at home. More than once, the Swedish state has backed innovation with millions, only to watch it fail. Meanwhile, the threat of Chinese industrial competition is growing.

“It’s the wrong conversation to say that everyone listing in the US means the European market is a failure,” says Pärson, adding that the real structural flaw is that European startup success is “funded by predominantly US capital, especially in the later stages”.

But the “flywheel” logic goes that if you build investable companies, that capital pool will eventually grow. That is something Sweden has in spades.

Sweden’s west coast does not have the heat, or the intense rivalry, of America’s. Gothenburg, the country’s second largest city, is known for its seafood, amusement park and culture of fika – breaks in the working day to pause for coffee, cinnamon pastries and social wellbeing.

It also has a higher research and development (R&D) spend per capita than Stockholm, two science-focused universities with their own venture capital arms, a burgeoning festival for startups called GoWest, and one of the densest industrial clusters in Northern Europe. Companies with operations there include Volvo, SKF, Ericsson, Saab and AstraZeneca.

Proximity and collaboration, say residents, are what give Gothenburg its innovative edge. Magnus Björsne, CEO of AstraZeneca’s BioVentureHub (BVH), describes innovation as “a contact sport”.

Set up in 2014 as a joint project by AstraZeneca and the Swedish government, the BVH is a unique kind of incubator. University researchers and early-stage companies are embedded within a 6,000 sq ft R&D campus where they can gain access to AstraZeneca’s industrial expertise, data (to train AI models that “they can’t buy for any amount of money”), strategic advisers with PhDs, lab infrastructure and regulatory experience. In essence, it’s the “development” bit of R&D.

In exchange, AstraZeneca takes no equity, has no exclusivity, and does not charge upfront fees. If a company becomes commercial after graduating from the hub, it doesn’t have to strike a deal with the pharma giant, but in many cases, having worked together closely (and had fika in their joint cafe designed by an architect of nightclubs) it’s the obvious option.

“We don’t have systems in industry or academia to track the absence of cost,” says Björsne. “If I teach you everything I know, it doesn't show up in your balance sheet. But the value is immense.”

The project was a leap of faith, only making a hard return in year 10. But after government funding ended, AstraZeneca doubled the budget and it’s building a new sustainability hub on the same model. Across Gothenburg, similar “hubs” have sprouted, including Volvo’s MobilityXlab, focused on electric vehicles, and its DefenceXlab, launched last month.

Could Cambridge, where AstraZeneca also has a footprint, also be a candidate? “It’s not impossible to do in Cambridge, but somebody needs to raise their hand, be brave, and say, ‘I’m willing,’” says Björsne.

In March the UK government committed up to £800m in development funding for the Oxford-Cambridge corridor, including £15m for an innovation hub modelled on Boston’s LabCentral. It’s claimed the whole project could add £78bn to the British economy by 2035. The Treasury has also, commendably, capitalised the British Business Bank with £2.5bn a year to invest in British VC, allowing it to recently take stakes in UK scale-ups Kraken and Wayve.

But it still feels like there’s some knitting to do: Gothenburg, a post-industrial port city of 600,000 people, has produced more than 370 spinout companies over the past three decades – comparable output to Oxford and Cambridge combined. All without taking a penny of equity from the researchers who built them.

Sweden is one of the few countries in the world to retain what’s known as “professor’s privilege”. Since 1947, when an agreement was struck between trade unions and employers, Swedish academics have personally owned their research output by default.

In the US, UK, Germany, Finland, Norway and elsewhere, IP generated using university resources or grants belongs to the institution, so the institution demands equity stakes in spinout companies as compensation. Leeds University takes a median stake of 42%, Oxford takes 20%, and Cambridge takes 8.8%.

“Professor’s privilege is a quiet but enormous competitive advantage in deep tech, medtech, and biotech,” says Dominic Davies, a former patent attorney who moved from the UK to Sweden and started his own company, Lightbringer. “It sidesteps the slow, often extractive tech transfer offices (TTO) you see elsewhere, and I’ve worked with researchers who relocated to Sweden specifically to keep ownership of their work. The UK would benefit enormously from adopting something similar.”

The argument in favour is that researchers have a personal financial incentive to commercialise their work. This results in a high density of founder-owned companies, and loyal alumni who return year after year to coach the next batch.

The counter is that if a university has no stake in commercialisation, it has no incentive to build support infrastructure. Indeed, Oxford University Innovation has explicitly considered and rejected the model on those grounds.

But leaders at Gothenburg’s universities, and their partially state-backed venture capitalist arms, argue that professor’s privilege forces them to step up to attract the best research, providing not just capital but business development support including “match-making” researchers with CEOs to run their companies. “We just can’t lay back and say you have to come to us like a TTO. We have to be the best – otherwise, they won't play with us,” says Pontus Ottoson, CEO of Chalmers Ventures, the VC wing of Chalmers University of Technology.

Could UK universities ever fully relinquish their IP rights? That’s unlikely given the parlous state of their finances, but reforms have sought to nudge average stakes downwards. “There is a movement in Europe among at least a few leading universities to be very careful about using the right to take too much equity,” says Mats Lundkvist, vice president at Chalmers University.

Chalmers Ventures’ numbers speak for themselves. With starting capital of SEK 49m, it has grown a portfolio with a market value of SEK 350m and returned SEK 200m through exits. The oldest company in its portfolio is 27 years old – a far longer hold than the typical VC.

Pontus argues that the investment Chalmers is planting today is what will be needed in 10 to 15 years. “You have mega trends like AI, maybe quantum. And of course, there’s Maslow’s hierarchy of needs: you need to eat, you need clean water, you need energy. Those trends will always be there.” Who knows, they may even produce some unicorns.

Until then, though, there’s still plenty of work to do – for both the UK and Sweden – to conquer what’s referred to as “second valley of death”: the gap between proving a technology and building the industrial infrastructure to deploy it at scale.

For Gothenburg, that lesson has been painfully learned in the saga of Northvolt. Having raised more than $15bn from Goldman Sachs, JPMorgan, Volkswagen and multiple Swedish pension funds, the celebrated battery company failed to scale production at its gigafactory in Skellefteå. Car makers cancelled orders and by November 2024 Northvolt had cut 1,500 jobs and begun filing for bankruptcy – it turned out to be the largest in Swedish industrial history.

But the failure was shared with Europe. It demonstrated how the continent lacks a coherent institutional strategy for funding companies that need to spend $5-10bn before they generate meaningful revenue. Moreover, in sectors like automotive, it is often the Chinese state setting the price floor.

“I’m worried about the pace at which China is developing innovation at the moment,” says AstraZeneca’s Björsne. “My biggest concern is that companies move to markets which are much more willing to pay for innovation than Europe.”

British innovation is arguably facing the same challenges, and to rise to them will require more than pledges of new infrastructure. The UK needs a radical rethinking of how to embed corporate R&D, incentivise equity participation and provide a social safety net for entrepreneurs to take risks. As The Observer has argued previously, Britain should offer to be a co-founder of a European innovation zone, establishing common rules for tech scale-ups and access to VC capital on common terms. Does our other co-founder live across the North Sea?

Photographs by Jana Janina/Getty Images, Charles Abbott/Getty Images, David Paul Morris/Bloomberg via Getty Images