How the Nordic nations could become Europe's answer to Silicon Valley

In the intensely competitive battle to reap the rewards from digital technology and innovation, Europe is constantly on the look out for new unicorns.

These are the privately owned tech start-ups valued at more than $1bn (€920m). 

Such magical creatures traditionally thrive in California’s Palo Alto city,  which has come to be known as Silicon Valley. Among others, it is home to such global tech giants as Amazon, Facebook and Google. 

But Europe’s own map of unicorn factories remains quite fragmented.

Europe has the talent, it also has the money and the eco-system, yet it still lags behind when compared to the US and China. 

There has been an undoubted boom in unicorns since the term was first coined in 2013 by venture capitalist Aileen Lee to describe a privately owned, tech or innovative company valued at more than $1 billion.  

Then there were 39, but the number of unicorns globally had swelled to more than 1,200 by last year. 

According to Dealroom’s figures, the United States is home to more than half of them, followed by China and the UK. And half of those in the US were created in Silicon Valley itself. 

So where is a similarly good ecosystem in the block to mint a herd of European unicorns?

Within the EU, unicorns are particularly concentrated in Germany (which accounted for 30% of the total between 2008 and 2021), followed by France (15%) and Sweden (14%), according to a research paper commissioned by the European Commission in 2022. 

When the success stories are looked at by region, the Nordic and Baltic countries together emerge with the highest numbers of unicorn per capita.

With a population of 27 million, the Nordic nations created 73 unicorns between 2013-23, which accounts for 17% of all Europe's unicorns with only 4% of its population, according to data of Nordic-founded early-stage venture capital firm node.vc. 

“There's been a lot of really, really strong companies coming out of a very, very small region”, said John Elvesjö, Managing Partner at node.vc, adding that “just from Sweden alone, we have seen 39 unicorns, while Denmark has 16, Norway 11 with seven from Finland.”

Despite being a relatively small country, Estonia, with its population of around 1,355,375 is home to 10 unicorns including Skype, Playtech, Wise and Bolt, amongst others.

Sweden is ranked as the EU’s leading startup nation

Sweden, the main hub of unicorns within the region, has been ranked highest among the EU countries for its startup ecosystem by StartupBlink's Global Startup Ecosystem Index 2024.

The country has been named the 6th best country in the world to create a start-up, closely followed by Germany, France and the Netherlands.

However, on this ranking, the country's business environment was graded worse than last year, falling to 9th place from 5th in 2023.

What sets the Nordic countries apart from the rest of Europe?

Success stories such as Spotify’s, have historically, earned Sweden and other Nordic countries a reputation for creating the conditions which allow tech start-ups to thrive.

These conditions include access to venture capital, a strong tech knowledge base, entrepreneurship mentality and the presence of broadband internet for use by would-be companies. 

From a cultural standpoint, another factor may be attitudes towards taking a risk and the fear of failing could be less present in a country with a strong social support system, such as the Nordic countries.

However, Elvesjö, a Swedish entrepreneur who switched roles after making a name in the tech industry by creating two successful tech startups, thinks the real success comes down to two key factors. 

“We are very, very small countries. There is absolutely no chance that you can do business in your local language (...) so we all found our companies on an international basis, both contractually, collaboratively, and language-wise. So any company founded in the Nordic countries will set everything up for doing international business,” he told Euronews Business, naming high digitalisation as the other key to the region’s success.

In order to keep the Swedish startup ecosystem globally competitive, the country started initiatives, such as Eye for AI, which aims to attract top talent in AI to Sweden by offering training and opening doors to the Swedish AI community through projects.

The country also has residency programmes for immigrant entrepreneurs to start a business in Sweden for higher education and other benefits.

What holds Europe back from creating more unicorns?

As the above-cited report from the European Commission stated, the EU is rich in ideas and talent, yet in 2022, for each unicorn in the EU, there were around 8 unicorns in the US.

"The problem is that we don't have the start-ups that find the solution to grow up and become unicorns from Europe," said Carme Artigas, co-chair of the AI advisory body at the UN, speaking at a business conference in Madrid this year.

A crucial question is how capital can flow more freely to start-ups that have high potential. 

High potential is unfortunately often stopped at the border, despite the EU guaranteeing free movement, the framework conditions for innovation appear to face obstacles. 

As a co-founder of Node.vc, a venture capital firm that has backed tech startups like Lemonado, Elvesjö believes the potential to scale-up a start-up and conquer new markets in Europe, is often crucial when it is examined as a potential investment opportunity.

He says that the main problems in his everyday work are due to fragmented regulations, different currencies and languages all of which make it a lot harder to create a unicorn in the EU rather than in the US. 

Elvesjö, working in Sweden, gave an example in which a company, located 30 minutes by train, but in Denmark, required Danish lawyers to comply with the rules. In Iceland, a local bank account is a must. Another case illustrated that when a fintech company, a card issuer in Finland, wishes to expand to Poland, they have to stop and get completely new licences before entering the new market within the EU. 

"If labour law, tax law, incorporate law is all very different, (…) that makes the scaling of your business more difficult," said Elvesjö. 

“And as an investor, we always look for scalability. And I turned down companies on a weekly basis because scaling their model is not going to be easy when they go by country, by country, by country. So every new country will be a new company with all the risks and difficulties. Once you go outside of your country, to the next one, to next one, you will have to do so much work. And this is what is holding back."

Elvesjö, as many other venture capitalists and market participants, calls for a more cohesive financial and legal structure around incorporated entities.

Some of the problems could be resolved if financial systems across the block were less fragmented, which is one of the key goals for the idea behind the EU’s Capital Markets Union. However, the CMU has been in the making since 2015. 

While there is no clear agreement among the member states on all aspects of the CMU, there is an increasing sentiment across the bloc, that Europe needs to switch mindset, take more risks and support emerging disruptive tech innovation and the start-ups bringing those about.

According to a recent report by McKinsey & Co., if Europe is not successful in competing in these technologies, it could lose its strongholds in traditional industries, for instance, as a leader in automotive the EU could "become a laggard in autonomous driving".