The exits earlier this year by two of Sweden’s biggest startup names would be enough to swell the pride of any regional ecosystem. Spotify’s $27 billion IPO and iZettle’s acquisition for $2.2 billion were big deals no matter where the companies were based.

But far from being exceptions, these two headline-grabbing exits are just the latest evidence that Sweden, long recognized as a dynamic startup hub, has somehow shifted into an even higher gear. It is now arguably Europe’s top entrepreneurial hub. Though still small in terms of population and economic might, Stockholm in particular is producing exits at a pace that is the envy of other European startup capitals.

The frenzy of acquisitions and IPOs cap a remarkable decade that has seen Sweden transformed from a place known primarily as the home of Ericsson, Volvo, and Ikea to a startup engine that has international investors and entrepreneurs banging on its door. That success has triggered a virtuous circle: The returns from these exits are causing a surge in angel investing, serial entrepreneurs, and other critical ingredients that promise to push this ecosystem even higher.

While many startup economies across Europe are still hungry for validation, Sweden’s exit machine may give it an unassailable claim to be the continent’s entrepreneurial capital for years to come.

“Success breeds success,” said Mattias Ljungman, the Swedish cofounder of Atomico. “I’m more excited about Stockholm than I was at the beginning of last year. These exits create a next generation of founders who will go out and get funding from other successful founders.”

That Sweden is a startup hotbed is hardly a revelation. The Nordics in general have developed a stellar reputation with Sweden taking the lead. A study by Swedish venture capital firm Creandum noted that between 2000 and 2014, Sweden produced 263 exits valued at $23.7 billion. The Wharton School of Business called Sweden a “unicorn factory” in a 2015 study of its startup economy. And TechCrunch proclaimed in 2016 that Sweden was a “tech superstar from the north.”

Index Ventures, one of the largest investors in the Nordics, declared: “Evidence of how Stockholm has indeed become one of Europe’s ‘tier one’ tech centres isn’t hard to come by.”

But for all that acclaim, Sweden has gathered even greater momentum over the past two years.

According to data from Tech.eu, there were 120 exits of Swedish companies in 2017, up from 55 in 2016. That 2017 figure topped Germany’s 112, the U.K.’s 77, and France’s 44. While Germany was roughly flat year-over-year, U.K. exits dropped 26 percent last year, and in France they fell 31 percent. Given that those countries have anywhere from 6 to 10 times the population, the per capita success rate of Sweden’s 9.9 million inhabitants is just basically ridiculous.

Those Swedish exits in 2017 included the $340 million IPO by ecommerce startup Boozt and the $1.74 billion purchase of fintech company Bambora by France’s Ingenico. More than a dozen startups were acquired by U.S.-based companies. And the exits came from startups in a range of markets: fintech, security, ecommerce, internet of things, gaming, B2B, mobile.

The factors typically cited for this entrepreneurial prowess include strong technical training in universities, school systems that encourage independent thinking and creativity, a small domestic market that obligates startups to think internationally, heavy investments in infrastructure like blazing-fast broadband, and a history of strong design ethos.

But that has been true for decades. It doesn’t fully account for the more recent explosion.

To understand the source of this adrenaline rush, observers say it’s critical to look past recent events and gaze back about a decade when many of the companies now exiting were founded.

It was then, after a steady, methodical build up, that several pieces clicked into place which in turn have turbocharged Sweden’s ecosystem.

A Swedish wave builds

The story of iZettle illustrates the advantages that Sweden has been accumulating. The company was founded in 2008 by Jacob de Geer and Magnus Nilsson.

More than a decade earlier, de Geer began his career as one of the first employees at a Swedish marketing startup called TradeDoubler that went public in 2005. Later, he founded a bit torrent movie file sharing service called Ameibo that he sold in 2010. Meanwhile, Nilsson had bounced around the tech industry for more than a decade before becoming CEO of Wayfinder Systems, which he grew from a startup to an acquisition by Vodafone in 2009.

With their robust resumes and experience, the iZettle cofounders had little trouble stirring interest in their new venture.

“This generation of Swedish startups and tech companies are coming into the age where they are really ready to go onto the next stage,” said Johan Bendz, iZettle’s chief strategy officer, who was its second employee and also formerly at TradeDoubler.

Raising capital in iZettle’s early days was never a problem. Compared to the previous decade, when Sweden would go through cycles of up and down years, Bendz said many European VC firms had added partners who focused on the Nordics. And Sweden’s homegrown VC industry had become larger and better financed thanks to returns on previous investments.

iZettle raised almost $10 million in a 2011 seed round led by London-based Index Ventures, a firm already bullish on the region thanks to such early investments as its backing of King, the Stockholm-based social gaming startup that went public in 2013. Eventually, iZettle would go on to raise more than $300 million of venture capital.

Bendz said that from the very beginning, iZettle had big ambitions for its payment service. It was confident it could compete on a global scale, but also felt it could take its time building the company rather than looking for a fast exit at an early stage. That led to a widely anticipated IPO filing earlier this year, which was abruptly canceled when PayPal made its $2.2 billion acquisition offer.

While the deal has not officially closed yet, the eventual windfall will shower money across the Swedish ecosystem. The company has already seen some employees leave to start other companies. And now many more will have the resources for their own entrepreneurial ideas, or to back others’ projects.

Spotify shares some genetic links to iZettle. The music streaming service was cofounded in 2006 by Daniel Ek, formerly CTO of gaming startup Stardoll, and Martin Lorentzon, cofounder of TradeDoubler. But along the way to its IPO, it’s created its own mini-ecosystem of employees who have left to found their own startups.

One of the most prominent is Soundtrack Your Brand, which has raised $39 million in venture capital since its 2013 founding for its B2B music streaming service.

Soundtrack cofounder and chairman Andreas Liffgarden spent four years at Spotify before leaving in 2012 to start his own company. Another cofounder, Ola Sars, sold his music streaming startup Let’s Mix to the company that became Beats Music. Spotify invested directly in Soundtrack back in 2015, and they have a major partnership that powers Spotify Business.

When Sars talks about the Stockholm scene, he sees an accelerated network effect taking hold, one where people who have worked together in previous startups are constantly crossing paths and launching new companies, leveraging their experience.

“There’s a lot of talent coming out of places like Spotify,” Sars said. “The conditions for seeding and really doing something here has become quite good. A lot of pieces have really come together.”

Image Credit: Soundtrack Your Brand

The big success stories, like King, Spotify, and iZettle, are creating huge pools of talent that young companies can draw upon. The result is entrepreneurs who not only have much bigger ambitions, but the experience to successfully scale companies on a global basis.

“I think that what it really means for the ecosystem is that we see a better quality of first-time founder than ever before,” said Neil Murray, the founder of The Nordic Web, who launched an angel fund focused on the region last year. “They have that experience from when they were another company that scaled, even if they didn’t do it themselves.”

All the right stuff

While Sweden retains an international outlook, its entrepreneurs have all the necessary pieces to build global companies right in their backyard.

The accelerator and incubator network Sting has hosted more than 200 startups in Stockholm since CEO Pär Hedberg founded it in 2002. At the time, Hedberg had spent more than a decade as CEO at various startups. Over the years, Sting has expanded to provided help with business development, hiring, fundraising, product development, and overseas expansion.

Last year, those efforts expanded to include the launch of its own venture fund, Luminar Ventures, for early stage rounds. And Sting launched its fourth angel fund, Propel Capital IV, that consists of a network of 40 business angels and a fund roughly double the previous one.

Hedberg said Sting is overwhelmed with applications from Swedish entrepreneurs each year. As local unicorns such as Spotify and King and Minecraft gained greater popular recognition, he said he’s seen a desire to be an entrepreneur take a deeper hold among younger generations.

“Now it’s more like a snowball effect, with increasing speed,” Hedberg said. “Rather than going into corporations, kids coming out of the Royal Institute of Technology want to start a company. Our corporations are having a hard time hiring.”

Two years ago, French entrepreneur Lisa Gautier was accepted into Sting. Her startup, TPH Marketplace, was still just a concept, so she was surprised to be among the 8 entrepreneurs selected out of 170 applications. Despite being a French expat living in Stockholm, she said Sting helped her quickly plug into the local ecosystem, find co-founders, and eventually seed funding earlier this year.

“My understanding of the ecosystem was limited,” Gautier said. “So getting accepted was big for me. It gave me the connections. And now I’ve gotten so much support from the ecosystem.”

Sting is also just one part of a rapidly growing angel scene, thanks to the windfall from all those exits. In 2015, former King CEO Riccardo Zacconi cofounded angel investment fund Sweet Capital. The following year, seed stage investment fund Nordic Makers was founded by a group of Swedish and Danish entrepreneurs.

“There are some 50 people that have made more than $100 million personally in the Stockholm ecosystem,” said Pär-Jörgen Pärson, a Swedish partner at Nordic VC firm Northzone. “That is at a scale that we haven’t seen before. People were writing checks for $10,000 to $20,000 before. Now we have angels investing $100,000.”

The critical mass of angel investors was critical to helping the founders of Greta launch quickly their concept for a service that would help media companies deliver better digital and streaming experiences. Anna Ottosson connected in 2014 with two other cofounders who were previously developers at Stockholm-based Storytel, Victor Ginsburg Müller and Dennis Mårtensson.

Within a few weeks, they had stitched together some seed funding from an impressive roster of angel investors. Their ranks included Jan Erik Solem, the founder of facial recognition startup Polar Rose that was acquired by Apple in 2010. Solem is now a cofounder of Mapillary.

Greta also got backing from Hampus Jakobsson, a former entrepreneur who sold his mobile UI startup TAT to RIM back in 2010, and has since become one of Sweden’s most active angels and a partner at BlueYard Venture Capital. Finally, Greta received money from Sophia Bendz, executive in residence at Atomico and previously global marketing director at Spotify.

Beyond the money, the angels provided advice, as well as the connections to hire and meet partners and to set strategy. Greta’s founders were soon splitting their time in Silicon Valley to connect with more developers. And they turned to these angels when they make a pivotal decision earlier this year: to close down. Despite initial enthusiasm and traction, it quickly became clear tech giants like Google and Amazon were playing in the same space.

Despite the outcome, as first-time founders, Ottosson said the connection with their angel funders gave them a critical shot of confidence that was essential to convincing to try in the first place.

“Sweden is now on the second or third round of successful startups,” Ottosson said. “You have a very strong talent ecosystem here. They have been part of building strong companies and have seen it’s possible. And if you believe something can be done, it’s a big step toward making it reality.”

Image Credit: Greta.io

That investment success extends further up the ladder, where Northzone sits. Going back a decade or so, Northzone made some savvy bets in companies like Spotify and iZettle. And it has backed Klarna, another Swedish fintech startup that is expected to file for an IPO later this year. Those massive returns helped Northzone raise a new $335 million fund in 2016.

“We need to make sure the Stockholm ecosystem takes advantage of this tremendous success and fosters the next generation of entrepreneurs,” Pärson said.

Of course, the region has also benefited from the launch of Atomico in 2006, the venture fund created by former Skype CEO Niklas Zennström. The Swedish billionaire has become a towering figure not just in Sweden, but across Europe.

All this means there is no shortage of local and regional capital, which also helps attract international investors. In 2017, 442 Swedish startups raised $1.2 billion, more than double the previous year (not counting a massive fundraising by Spotify in 2016) when there were 402 fundraising rounds recorded, according to a report from Swedish investment firm Industrifonden.

Incredibly, while the total amount of international funding increased, the overall percentage that came from Swedish-based investors grew faster. This prowess was one of several reasons the Economist Intelligence Unit ranked Sweden No. 1 on a list of “the best places to invest in the next five years.”

“The VC industry in the Nordics has matured a lot,” said Patric Palm, a Swedish serial entrepreneur who cofounded agile development startup Favro last year. Palm said he’s started doing some angel investing himself. “I wouldn’t say it’s Silicon Valley. But we’re getting closer.”

The challenges ahead

While success can indeed breed success, one of the great lessons of Silicon Valley is that it can also breed its own forms of troubles. And Sweden, particularly Stockholm, is experiencing some side effects that would sound familiar to longtime Valley residents.

Though things have cooled a bit this year, average housing prices have jumped 50 percent since 2012. Commercial property rates have soared 55 percent since 2015. That is motivating startups to look at some less pricey options outside of Stockholm, particularly the city of Malmö, which has become an increasingly popular destination for entrepreneurs.

“We have a terrible housing market,” said iZettle’s Bendz. “In the quest for talent and recruiting, getting people to move here can be difficult.”

Even as Sweden struggles with a housing shortage, it’s also challenged by restrictive immigration policies than can make getting a visa for some engineers and entrepreneurs more complex than it should be. While the startup community has been calling for reforms, that seems unlikely given that the country is dealing with its version of a right-wing, anti-immigrant backlash that has plagued much of Europe in recent years.

The other common complaint here is the treatment of stock options, which can be difficult to issue and are heavily taxed. Some worry that the immigration and option issues still leave the region at a recruiting disadvantage.

“Sweden is a very small country,” Palm said. “And if you’re building world-beating companies, you need to recruit from abroad.”

Indeed, there has been a slight cool-down after the red-hot 2017. Tech.eu tracked only 26 exits in the first half of 2018, though the size of the Spotify and iZettle deals have overshadowed that dip. And The Nordic Web reported that Sweden has seen 30 fewer VC investment deals in the first half of 2018 compared to a year ago.

Still, no one here is panicking. The overall numbers and the foundation of the ecosystem are solid, even if the numbers vary from year to year. The strength of the country’s entrepreneurial assets, and its reputation among international investors and acquirers, still give it a remarkable advantage.

“It’s a good time to be putting money into to the Swedish ecosystem,” said Ljungman of Atomico. “Because in three to five years, we’re going to see another round of these big unicorn exits.”