Nordic startup bloom may wither without government support

In a recent open letter to the Swedish government and local government of Stockholm from the founders of billion-dollar, Stockholm-headquartered music streaming service Spotify, Daniel Ek and Martin Lorentzon called for more support of the country's booming startup environment.

Lorentzon and Ek argued the Swedish startup ecosystem that fostered "EUnicorns" such as King, Mojang, Klarna and iZettle is at risk of being left behind if concerted efforts are not made to improve the property market, remuneration options and education.

The letter attacked the absence of coding as a mandatory subject in schools while woodwork remained on curriculums, suggesting the Swedish education system would not be able to turn out enough qualified labour to support the rapidly changing business landscape. Likewise, it reignited the long-standing debate over employee stock options – a startup staple used in many countries in lieu of salary during the early stages of a company's development – which are currently taxed at 70% in Sweden, making it a non-viable option for the country's startups.

Stuck at home
One of the issues raised is a factor that holds broadly true for all of Scandinavian capitals and many major cities. Ek and Lorentzon warn that the country will miss out on the jobs and economic growth generated by the successful startup ecosystem if efforts are not made to create affordable accommodation options for professionals companies such as Spotify will be hiring in the thousands in coming years.

It does not require any great level of skill to read between the lines of Spotify's letter and see the veiled threat to withdraw from the Swedish capital, where property prices are among the highest in the world, supply is highly limited, and the rental market is more or less non-existent.

The situation is comparable in Copenhagen and Oslo, which feature some of Europe's steepest property prices and underdeveloped or excessively expensive rental markets. A recent analysis by the Copenhagen council projected population growth of 100,000 people by 2027, which would result in the need for 45,000 additional homes to accommodate the influx.

Similarly, 18% fewer housebuilding projects were started in Oslo in Q1 2016 than the year before. Oslo has long figured among the world's priciest property markets, supported by high average wages, but prohibitive for bootstrapped founders looking for a place to headquarter the next big thing in tech.

However, the problem is most acute in Stockholm, where the extreme lack of developable land has put a premium on all property in and around the city.

With central bank interest rates among the lowest in the world across the Scandinavian countries and massive population migration towards the biggest cities, property prices in the Nordic capitals are unlikely to become more affordable any time soon without major intervention.

Moving out
If accommodation and office space becomes prohibitively expensive in Stockholm, Copenhagen and Oslo, there is nothing to stop entrepreneurs from moving their startups to neighbouring countries such as Helsinki's mobile gaming hotbed, or the burgeoning Baltic tech hub in Estonia.

Given the relatively high level of youth unemployment in Sweden and the Norwegian job losses resulting from the oil price crash, Scandinavian countries cannot afford to lose out on job-creating startups.

While action is unquestionably needed in the capital cities, the property crisis may also present an opportunity for governments to address another pressing issue: continued migration towards larger cities. The Nordic capitals are all witnessing unprecedented population growth, as people move out of smaller cities, leaving non-urban areas increasingly desolate and economically challenged.

Given the relatively short distances involved, quality of technological infrastructure and history of Nordic governments to develop solid public transport links, building cheap accommodation in the suburbs or towns within commuting distance of the capitals is a realistic option that should be considered. Likewise, generating areas outside major cities that are well-connected to airports and transport could help attract startups and the much-needed economic growth they stimulate to the withering outlying regions.

However, these efforts must be supported and driven by the Nordic governments, as the free market will not be able to rise to the challenges and meet the demand without being supplemented by a permissive regulatory environment and the public purse.

Ultimately, the importance of supporting the Nordic startup environment is also about future-proofing economies with long-standing industrial biases by making them a sustainable place for companies that operate in the modern, technological and digitally driven economy that is driving growth on a global scale.

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