Chasing the Tale of the Unicorn - A study of Sweden’s misty meadows Albin Skog Mats Lewan Michael Karlström Sergey Morgulis-Yakushev Yixin Lu Robin Teigland Innovative Internet: Report 1 May 2016 Chasing the Tale of the Unicorn - Innovative Internet Report 1 2 Chasing the Tale of the Unicorn - Innovative Internet Report 1 Chasing the Tale of the Unicorn - A study of Sweden’s misty meadows Albin Skog Mats Lewan Michael Karlström Sergey Morgulis-Yakushev Yixin Lu Robin Teigland Center for Strategy and Competitiveness Stockholm School of Economics Institute for Research Stockholm, Sweden May 2016 1 Chasing the Tale of the Unicorn - Innovative Internet Report 1 SIR, Stockholm School of Economics Institute for Research Stockholm School of Economics Institute for Research is an independent research foundation, founded in 2010. The overall aim is to conduct qualified academic research within the economic sciences, which aims to unite scientific stringency with empirical relevance. The Institute´s Board consists of professors and other representatives from the faculty of Stockholm School of Economics. The Institute encour- ages and supports the affiliated researchers to communicate their research findings. The purpose of the Institute’s publications is to disseminate research concerning corporate enterprises and society. Chairman of the Board: Professor Richard Wahlund Head of the Institute: Johan Söderholm Address Stockholm School of Economics Institute for Research Box 6501, SE–113 83 Stockholm, Sverige Visiting Address: Sveavägen 65, Stockholm Telefon: +46 (0)8–736 90 00 www.economicresearch.se [email protected] 2 Chasing the Tale of the Unicorn - Innovative Internet Report 1 Chasing the Tale of the Unicorn - A study of Sweden’s misty meadows Innovative Internet: Report 1 Center for Strategy and Competitiveness, Stockholm School of Economics Institute for Research Albin Skog, Mats Lewan, Michael Karlström, Sergey Morgulis-Yakushev, Yixin Lu, Robin Teigland May 2016 ISBN: 978-91-86797-24-9. Cover photo: “Needlework” by Jenny Downing (Flickr), licensed under CC BY 2.0 Graphic design: Göran Lindqvist Albin Skog Author contact: Albin Skog: [email protected] Mats Lewan: [email protected] Michael Karlström: [email protected] Sergey Morgulis-Yakushev: [email protected] Yixin Lu: [email protected] Robin Teigland: [email protected] This report is made available under a Creative Commons license, CC BY-NC-SA 4.0. Distributed by: SIR, Stockholm School of Economics Institute for Research Box 6501, S-113 83 Stockholm, Sweden 3 Chasing the Tale of the Unicorn - Innovative Internet Report 1 4 Chasing the Tale of the Unicorn - Innovative Internet Report 1 Table of contents Foreword....................................................................................................7 Executive summary.................................................................................8 Introduction............................................................................................12 Part I 1. The first steps.....................................................................................21 2. The beginning of the Internet as we know it.................................24 3. The Internet becoming accessible for a wider public...................27 4. The inception of the IT-bubble........................................................30 5. The peak and the burst of the IT-bubble........................................34 6. The early stages of broadband and mobile Internet....................38 7. New technology, new possibilities..................................................43 8. Mobile Internet growing mature......................................................45 9. The first smartphones......................................................................49 10. Continuing development of mobile and fiber technology........52 Part II 1. Back from the boom........................................................................57 2. Connecting the dots.........................................................................62 3. The second wave..............................................................................65 4. An embedded network.....................................................................69 5. Measuring the unicorn......................................................................74 6. Embedded through formal networks.............................................80 5 Chasing the Tale of the Unicorn - Innovative Internet Report 1 Part III 1. Sweden’s misty meadows..............................................................93 2. Stockholm as a high technology hub............................................98 3. Conclusions.....................................................................................106 4. Moving forward...............................................................................110 Appendices 1. Methodology and limitations........................................................114 2. Literature.........................................................................................129 3. The authors.....................................................................................137 4. Center for Strategy and Competitiveness...................................140 5. Acknowledgements.......................................................................141 6 Chasing the Tale of the Unicorn - Innovative Internet Report 1 Foreword This is the first report from the three-year project, The Innovative Internet, which is funded by the Internet Foundation in Sweden (IIS - Internetstiftels- en i Sverige) and for which we are very grateful. In this project our primary objective is to examine how the Internet and digitalization have influenced entrepreneurship and innovation in Sweden. Since this is the first report in a larger project, we would like to point out that the results we show here should not be seen as final but rather as the starting point of a more extensive study of a highly dynamic phenomenon. In the future, more is most definitely to come. Indeed, what you will find here is more descriptive material as our next step will be to continue with our analysis, for example by extending our research net from Stockholm to other cities within Sweden, such as Gothenburg, Linköping, Malmö, Umeå, Uppsala, and Västerås, as we move our focus from unicorns to a broader set of high technology startups. We welcome feedback on the report of any kind as we believe that trans- parency and cooperation outside our research team are key to ensuring that our research is as thorough as possible. Furthermore, if you think you could help us in anyway, please do not hesitate to contact us so we could discuss a possible cooperation. If you like the report, we would be more than happy if you could help us to spread it so that as many as possible can access the results if they are interested. We hope you will find the report interesting and that you will enjoy the read! 7 Chasing the Tale of the Unicorn - Innovative Internet Report 1 Executive summary Sweden, and in particular its capital city of Stockholm, is remarkably com- petitive in the IT-sector. This is especially true when looking at the amount of highly valued startups that Stockholm has produced during the last few years. When counting the number of “unicorns”, i.e., high-tech startup com- panies that achieve a valuation of at least USD 1 billion within 10 years, Stockholm stands out as the city with the most unicorns per capita in the world and as a region second only to Silicon Valley. This is one reason why Stockholm in the international press has been called the “unicorn capital of the world”. How did Sweden arrive at this position? Indeed if one were to look at Swe- den in the early 1990s, quite a different story would be painted. At this time, the country experienced a deep banking crisis, in which the GDP dropped by a total of 6% between the summers of 1990 and 1993 and unemployment quadrupled from 3 to 12% of the labor force while the public sector deficit worsened to as much as 12% of GDP. There were numerous bankruptcies, and the words startup, entrepreneur, and venture capital were rarely used in the vocabulary of Stockholm’s business circles and in the media. This report explores the roots of this success and takes us on an initial jour- ney through the technological developments from the 1980s to today and through the first and second waves of IT startups in the country. While the Swedish ecosystem is quite fertile, providing access to valuable resources such as venture capital, human capital, and technology, Sweden does not stand out, however, in any of these aspects. Instead we propose that it is the conver- gence of a number of different factors over time that has created Sweden’s ex- ceptionally fertile breeding ground. These include factors such as an enabling business climate fueled by the highly connected informal and formal social networks among entrepreneurs, experienced business people, politicians, 8 Chasing the Tale of the Unicorn - Innovative Internet Report 1 and university researchers, especially in Stockholm, that has its base in a long history of multinational, engineering-based firms and in the 1990s IT boom and bust as well as longsighted public initiatives and supportive government policies, such as the highly developed and continuously maintained techni- cal infrastructure that enabled the early adoption, development and spread of information technology (IT) in Sweden. In this initial report,