The Swedish Startup Manifesto

Startups are building Sweden's future welfare. Support the manifesto!

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Annika Lidne Dramatify
Annika Lidne, Dramatify
Jessica Stark SUP46

The most startup-friendly country in the world!

Our goal is for Sweden to become the best country in the world when it comes to startups as a popular movement. Startups with a breadth of solutions from different industries, with founders from many different backgrounds, in different phases of developments, that creates jobs, welfare and the next generation of large companies.

Contact: hello@startupmanifesto.se

Dinesh Nayar Fyndiq
Nils-Erik Jansson Jansson & Norin
Sofia Franzén Owegoo
Carl Waldekranz Tictail
Alan Mamedi Truecaller
Alexandra Bylund NewsHubby
Nami Zarringhalam Truecaller
Jacob de Geer iZettle
Martin Källström Narrative
Douglas Roos Nyheter24
Adiba Barney SV Forum
Andreas Ehn Approach
Section: manifesto

The Manifesto. Click the headlines to the left to get the whole picture

1. THE MOST STARTUP-FRIENDLY COUNTRY IN THE WORLD

Many believe that the country’s big corporations push the Swedish economy forward. This is not accurate. 99 per cent of all companies in Sweden are small businesses and today they account for four out of five jobs. This is not reflected in Sweden’s financial politics where the focus lies on big corporations, and where the biggest slice of state funds are allocated to mature companies and regional policy regulations, with a very slim investment in, and understanding of, new and growing businesses. If you make an international comparison, exceptionally few Swedish small businesses grow into medium-sized enterprises.

Meanwhile Sweden is – paradoxically enough – the second best country in the world when it comes to producing modern billion-dollar startups. Only Silicon Valley beat Stockholm when it comes to unicorns per capita. But this refers to a handful of companies.

Our goal is for Sweden to become the best country in the world when it comes to startups as a popular movement. Startups with a breadth of solutions from different industries, with founders from many different backgrounds, in different phases of developments, that creates jobs, welfare and the next generation of large companies.

The authors of the Swedish Startup Manifesto want Sweden to become the most startup friendly country in the world where many, many young companies grow, thrive and stay.

Sweden has to make a shift from being a country with successful startups, despite the barriers that politicians and legislation put in their way – to becoming the most startup friendly country. Where innovative and fast growing companies are seen as the key to new jobs, maintaining the welfare and as the next generation of big companies. For this to happen, we need a combination of initiatives and changes within specific, for society exceptionally important, areas.

References
1) Sweden is in relation to its population second best globally after the U.S. when it comes to building billion dollar companies, according to a calculation by Niklas Zennström’s investment company Atomico Ventures. In definite numbers we are ranked three, after U.S and China.
2) Source: Ekonomifakta / SCB, http://www.ekonomifakta.se/sv/Fakta/Foretagande/Naringslivet/Naringslivets-struktur/

2. WHY STARTUPS?

OBJECTIVE: Sweden is to become the best in the world in breadth, having many, many startups in various stages of development and thus meet the regrowth to ensure future prosperity and jobs.

JOBS – Four out of five jobs are today created in small businesses, but Swedish small businesses have historically had a very hard time to grow. Startups are per definition “a company looking for a scalable and repetitive business model with high and quick growth” which generates a big amount of jobs per company, already at an early stage.

EXAMPLE – Spotify has, six years after launching, over 1500 employees. At the startup hub SUP46, most companies have 5-10 employees one year after founding the company. This may not sound like a lot, but take into account that 74 per cent of Swedish companies are sole proprietorships and 22,4 per cent are micro businesses with up to 9 employees, it is a huge achievement.

JOBS – In later stages, startups create highly qualified and well-paid jobs, which in turn create opportunities, and jobs for a large service sector that provides services to both companies and employees.

EXAMPLE – In San Francisco a large flora of service jobs are growing, from smart food companies and service companies to physical and virtual assistants. In Sweden Hemfrid, Linas Matkasse and Uber are the most well known, but we also have startups such as Shipwallet and Universal Avenue. Sweden can help by reducing barriers for jobs that are less qualified, and temporary jobs. This would mean that both innovative startups, and people who are experiencing a difficulty in entering the job market, can develop together.

INFLOW OF CAPITAL – With the right legislation, startups will dramatically increase the inflow of capital and the foreign investments in Sweden.

EXAMPLE – The two British investment schemes SEIS and EIS have sharply increased the inflow of foreign capital into the UK, and thus investments in British startup companies. We want to see the corresponding measures in Sweden as soon as possible

IMAGE OF SWEDEN – Startups create an image of Sweden as an innovative, modern country that attracts interest, visitors and capital.

EXAMPLE


THE FUTURE – Today’s rapidly growing startups are tomorrow’s large Swedish corporations that creates jobs, innovation, market capitalization and revenue. That is if they elect to stay in Sweden instead of being forced to make the decision to leave the country for better opportunities abroad already during their early development.

EXAMPLE – Soundcloud, Readmill, Vint and Yubico are examples of Swedish startups that very early on made the decision to leave Sweden. PolarRose, C3 Technologies, Mojang (Minecraft) and Videoplaza are examples of the increasing number of Swedish startups that early on are bought by foreign companies. Almost all big corporations that make the backbone of the Swedish industry were started before World War II, with the exception of H&M.

3. ENABLING

OBJECTIVE: Sweden should be the best country in the world to pursue your startup in, and “startup” should be an official definition with legal rights.

THE RULES OF THE GAME – A long-term perspective and stability in economic and labour market legislation related to startups is of utmost importance for founders and investors make investment decisions.

REPRESENTATION – In all proposals and committees regarding economic and labour market legislation, not only big corporations and traditional companies, but also startups should be represented. General policy should be for politicians and authorities to put as few obstacles as possible in the way and instead act as enablers.

READ MORE – The issues important to businesses are radically different for big corporations, traditional companies and startups. Very few people working in the first two categories have ever worked with startups and know the issues that are specifically important for startups. Apart from that, startups do not have an organisation that represents them. The founders are focused on growing their companies and have no capital to spare to support a new industry organisation. And, unlike big corporations and traditional companies, there is no purpose on its own to be based in Sweden.

STARTUP DEFINITION –  Create a legal definition that can be linked with various rights and measures. This allows us to define the sort of companies in which sectors should receive special support when they are considered to have the greatest positive impact on our society.

EXAMPLE – Vi Sweden should look at, and mimic, the criteria of the British SEIS and EIS regarding the framework in which a startup should be defined. 

  • We propose that the state helps startups get started through a reduction in payroll taxes by 50 per cent during the first five years.
  • We suggest generous rules when it comes to stock options for staff in startup companies, such as the American model, this does not only attract talent to startup companies but also secondarily creates an ecosystem of angel investors for new startups when these are cashed out.
  • Being able to invest profits from closely held companies in SEIS / EIS companies without having to tax the close company for income of service.

STOP THE PENALTY TAX – Sweden is the only country in the world that has a penalty tax on entrepreneurs. This is reflected in our overall corporate structure in which 96,4 per cent of the companies are one-man or closely held companies that have a huge difficulty growing.

READ MORE – Today entrepreneurs are punished in comparison to if they instead had passively bought shares in a large listed company. Entrepreneurs often refrain from wages, social safety nets, vacation and pension contributions. Then, when selling their company, they are met by a 58% tax of the profit. This does not encourage others to entrepreneurship, only bad solutions to escape tax. Simplifying the closely held company rules (3:12-rules) is therefore a must. For example, taxing active shareholders up to market-average salary for their position, and everything above that – regardless of whether it is dividends or sales – should be taxed as capital.

STARTUP VISA – Market and create a simpler process for startup visas and increase the understanding from the authorities on existing startup founders from outside of Europe

READ MORE – The fight for innovation and startups is today fierce between different countries. Many countries offer and market startup visas for foreign entrepreneurs, including Swedish startups that are often offered much better conditions than they have in Sweden. In Sweden “Startup visas” exist, but few people know about it and Sweden does nothing to attract or retain foreign contractors – on the contrary. Today, startup founders are expelled or threatened with deportation due to the fact that they have given priority to the growth of their business, investments and staff salaries in advance of their own salary. The Swedish Migration Board therefore sees them as not having a sufficient salary, although they can indeed support themselves and their company is growing.

 

PUBLIC INNOVATION –  LOU (The Public Procurement Act) should be rewritten so that the public sector gives priority to purchases from startups and innovation companies.

READ MORE – This means businesses would be able to fund themselves through customers, something that is particularly valuable for companies in specialized niches that may have difficulty attracting general venture capital. For the public sector this means early access to cutting edge solutions and new innovative methods, and can act as an extra motor for more digital solutions that can benefit both staff and users.

SHARING ECONOMY - Remove legal barriers and facilitate the sharing economy.

READ MORE – The Sharing Economy, is a generic name for activities aimed at reducing resource consumption through more efficient utilization of capacity such as the sharing of access to goods and services. In Sweden there are obstacles especially regarding tax and labour laws that prevent the sharing economy. Tax rules such as when one is labelled as self-employed or employed, and regulations around unemployment benefits, which rewards people for being passive as opposed to working on smaller or shorter projects. In some cases there are also industry regulations when it comes to services and housing. Known examples within sharing economy are Airbnb (housing), Uber (transportation) and Taskrabbit (smaller services).


4. ACCESS TO TALENT

OBJECTIVE: Attract and keep the best talent

EMPLOYEE STOCK OPTIONS  - Today, Swedish startups both in early and later stages have a difficulty competing for the best talent, which is needed to become a market leader. Many also want to be able to share a part of the success with their employees if it comes to that. Unclear and inappropriate laws and very high taxes stop this today. Swedish startups therefore need to be able to offer stock options to their staff as per the American way.

READ MORE – It seems bizarre that in Sweden, with our emphasis on participation in the working life and the attempts with wage-earner funds, is a country where there are resistance to all attempts to ensure that the staff receives a share in the success of the company. In practice this means that Swedish startups have a difficulty competing with more traditional employers for talent. One should not underestimate the risk of accepting a position in a company that may not survive. At later stages, when the company expands internationally, Swedish startups have a difficulty competing for talent since they lack the edge that is given in most international startup companies. We therefore need clearer rules regarding employee stock options that allows vesting and is taxed as capital.

ATTRACT YOUNG FOREIGN TALENT – Return to the earlier system of free education for foreign students in STEM subjects.

READ MORE – To compete with other countries today, Sweden needs more intelligent people and one of the best ways is to attract students who have already completed their basic training and are among the best in their country. We therefore wish to see a return of the old system of free education for foreign students in STEM subjects, as well as an extended visa period – at least 6 months – after graduation. This is to increase the chances that the student stays and works in Sweden. The foreign students are not just a valuable talent pool for Swedish startups but also give Swedish students invaluable contacts with the outside world and networks for life are created. It can be noted that for example Germany offers free university education for basic studies and generous scholarships for Masters programs.

SIMPLER RECRUITMENT - Quicker and easier processes for recruiting staff from outside of EU.

READ MORE – The shortage of skilled talent in Sweden means that startups need to recruit outside of Sweden, often outside of the EU. Today, the processing time is often so long that talent rather chooses other countries, such as the U.S. Processing times also include up to a year to receive a renewed work permit and during this period of time the person cannot leave the country. This most often mean that they cannot perform their professional duties fully, since traveling internationally is often an important part for employees of startups.

REMOVE EMPLOYMENT BARRIERS - The state and/or union should not have any input on who a startup an employ.

READ MORE – Startups generally have little or no contact with the trade unions. When a person with non-European passport is to be employed, it is the union that must approve the employment. This might be necessary for some industries, but for startups it is not about dumping wages but instead about getting hold of qualified people with the right education, experience and network. The state and the trade unions should not have any sort of decision-making power over this. For a startup EVERY single recruitment is critical and one wrong recruitment can risk the entire company.

CREATIVE HOUSING SOLUTIONS - The shortage of housing is choking Swedish startups and results in young startups leaving the country.

READ MORE – The shortage of housing does not result in Swedish startups moving to Västerås, Luleå or Åmål. They leave for Berlin, London or San Francisco. The issue is not primarily in regard to homes for the founders but mainly for recruited staff that is not local. Housing shortage in big cities requires long-term solutions, but startups need short-term, creative solutions here and now to not prevent growth or relocation: a simplified conversions of venues and warehouses to small temporary residential hotels, temporary accommodation on ships, loosened rules when it comes to noise, size, kitchen, bathrooms and handicap rules. The issue is not primarily the cost but availability – to even find a home for either shorter or longer period of time.

5. ACCESS TO CAPITAL

OBJECTIVE: Sweden should be the best country in the world to invest in startups. To the state, changes in taxes and venture capital mean good business in the short term through increased capital inflow and long-term through increased tax base.

STATE CAPITAL – Diversion of the state venture capital from regional policy, mature companies and commercialization of research, to seed and startup funding of growth companies.

READ MORE – The state risk capital is today mainly focused on regional policy, to keep chosen industries under its wings, primarily the automotive industry, or the commercialization of research. The National Audit Office noted in an audit of the state venture capital, in January 2014, that it is directed entirely wrong and ineffective.

The new Swedish Government Official Report SOU 2015:64, was recently released, where the criticism has been addressed and new proposals have been made. It is in general a good proposal, but it is worrying that the ICT sector is barely mentioned for the benefit of industrial and life science as a recipient of venture capital initiatives. Equally worrying is the lack of the very early efforts, under 5M sek, for seed and startup companies. 

We therefore recommend that the efforts advocated in SOU 2015:64 also includes a solution where primarily business angels but also VC companies, who invest in very early stages are verified and after that funds are automatically co-invested with these seed investors. Small, many and quick, but early investments below 5M sek, and main range being 100.000 up to 1M sek have shown very positive results, for example by the U.S. startup fund 500 Startups. The goal is to increase and speed up the number of early investments.

INNOVATION SYSTEM – Diverting the innovation system from the one-eyed focus on the commercialization of research to a growth initiative regardless of the entrepreneur’s background.

READ MORE – Most successful Swedish startups are a result of an entrepreneur seeing a need, and in the next step creating a solution to meet the customer’s willingness to pay for something. These entrepreneur’s rarely receive any support at all, and the amount of people who want to, but can’t afford to put in their own money, is unresearched.

The outcome of the commercialization of research however is low and the researchers themselves are deeply dissatisfied with the current system.

The focus for the innovation system must lay on the potential and market opportunities, on growth and growth innovations, not on where the entrepreneur comes from, what chances of success he or she has or if she will be able to convince a researcher or scientist to co-sign an application. The innovation system should also strive for breadth and diversity, especially when it comes to underrepresented gender or ethnic background. 

INCREASED INFLOW OF CAPITAL – Create conditions for increased capital inflow and investments through risk minimization.

READ MORE – The UK has seen a sharp increase in both domestic investments and inflow of foreign capital after the SEIS and EIS schemes were implemented. This means a significantly reduced risk for the investor through tax settlement and tax rebates if the company fails. We see it as crucial for the future of Sweden to adopt similar rules. The existing investment deduction applies only to private individuals and therefore has little effect.

REMOVE DOUBLE TAXATION – Foreign investors are today taxed twice for their investments in Swedish startups. In order to increase investment, this double taxation should be removed.

READ MORE – Foreign investors, in particular the usual form Limited Partnerships, are often taxed double for their investments in Swedish startups. They are taxed in their homeland and in Sweden, unless they have a holding company in one of the European tax havens of Luxembourg, Jersey or Guernsey.

It should be considered attractive to invest in Swedish startups without this hassle, or having to choose to invest in companies in other countries who do not engage in double taxation. We assume that the government will consider this straight away and that the taxation, going forward, will be only in the investor’s homeland, in accordance with general taxation principles.

ACTIVE ENTREPRENEURIAL CAPITAL – Entrepreneurial capital should be invested in other entrepreneurs, not be tied up.

READ MORE – There is today a way to get around the 58 per cent in taxes that is generated when selling a closely held company, which is to put the profit aside for five years in another company. Billions are therefore passively lying in bank accounts waiting, instead of being invested. We know that those who invest most heavily in seed companies are other entrepreneurs. If this capital, at any point during these five years, were to be invested according to the Swedish version of the SEIS and EIS rules they should be transformed and taxed as capital, not as income.

INCREASE OF ACQUI-HIRES - Create better conditions for Acqui-hires, which greatly increases investments in early stages.

READ MORE – Many American (and Swedish) companies are today bought simply for the reason that the buyer wants the team, not primarily the product or the company. This creates increased investments in seed companies since investors know that the risk decreases.

In Europe Acqui-hires are uncommon for a number of reasons, mainly tradition and labour law-related. By giving tax breaks for larger commercial undertakings (i.e. not VC’s), either by offsetting losses elsewhere, or in harmony with the Swedish version of the SEIS and EIS rules, the state can signal that they wish to encourage the purchase of companies in early stages as part of an innovation strategy – in this case to increase innovation and competitiveness in medium and large sized companies, but also increase the supply of capital in seed companies.

6. EDUCATION

OBJECTIVE: Young Swedes should want to realize their own dreams and ideas, not become employees and realize the ideas and dreams of others.  

CREATE JOBS - We should educate entrepreneurs, creators and problem solvers – not workers.

READ MORE – Focus throughout the school – from preschool to university – should be on creating your own job, not “getting” a job once you graduate. The majority of jobs of the future do not exist today. We don’t know what they are or what they will require. Future businesses and government organisations will also hire fewer people, which is why we need more entrepreneurs, both those building billion dollar companies and those who “only” support themselves and their families.

PRACTICAL INSPIRATION - The young people need to be inspired and get diversified role models from an early age, to become entrepreneurs but also developers. The industry has a responsibility to act and fund activities that lead to more young people from different backgrounds, cultures and gender, choose a path that leads to innovative new companies.

READ MORE – The industry can, on a general level, work to actively reach out to, communicate with and inspire young people who might not be reached today. Each startup can act locally by for example contacting schools for lectures, work experience periods and involvement in local startup events and tech meetups.

DIGITAL KNOWLEDGE - Swedish pupils must become digital “super users”. Prioritize knowledge for students and teachers on digital knowledge, programming and entrepreneurship in schools and leisure activities from preschool and up.

READ MORE – IGiven the necessary transformation of the Swedish school, we have a great opportunity to work in new ways and bring in new perspectives to the schools. Swedish students and teachers must become digital super users who can use data sources, technology and statistics to describe everything from historical events through interactive maps and make stunning graphical statistical models in social studies, to understand the grammar so as they are able to make digital text analyses, or build their own games to facilitate learning. New technology also allows for the “flipped classroom”, bringing experts in at an early stage.

Sweden is well known as a good startup country with a stable government, good public sector, infrastructure education and service. Our social safety net means that many dare to create a startup, but this is not enough today.

Many countries are competing hard to attract startups, create more innovation and attract talent. Several of these have conditions similar to Sweden while at the same time offering bigger markets and concrete benefits such as capital, housing, wage subsidies and so on.

Sweden is good when it comes to startups, we are however lousy at making small businesses grow big. We have just glimpsed the transformation of business and labour that lays before us that heads in the digitization.

If Sweden should continue to be a high-tech, innovative country where almost half of its GDP come from exports, where there are plenty of jobs and a great welfare, we must also become the most startup-friendly country. Our future is being created in our startups. Today. Now.

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