Tuesday, September 24, 2013

Tech startups: the Stockholm guide

Welcome to Stockholm: In constant iteration 

Caroline Walerud, co-founder of 3D scanning startup Volumental, explains that even in Sweden's mature startup scene, she had to turn to Kickstarter this summer to raise more than $20,000 in seed funding. 

Volumental, my own startup, was born in a hotel room during a Skype call at 3am in October 2012. I was calling three technologists from Stockholm's Royal Institute of Technology, whom I had first met just days before. We decided to start the world's first cloud-based 3D scanning service. 

The 3D revolution will change the world, but it requires access both to 3D printers and to 3D models for printing. But those 3D models are still too difficult to create - and that is what Volumental is here to change, from one of the top startup hotspots in the world. 

Caroline Walerud of VolumentalCaroline Walerud of 3D scanning startup Volumental. Photo by stockholminnovation on Flickr. All rights reserved.

Welcome to Stockholm, birthplace of Mojang and Spotify. We're an educated, early-adopter people, often described as trendy Germans who speak great English. We're tech-savvy and, with the help of a supportive ecosystem, our start-ups quickly go global. Volumental's first customer, for example, was Australian. 

Still, we are the land of the 'safety junkies', as described by the Swedish psychiatrist David Eberhard. It pains me to write that Swedes are afraid of failure, but we are. Like it or not, successful ventures are not built in the lab; they evolve through repeated market testing. In that evolution, failure is natural and weeds out bad ideas. Failure should welcome feedback. 

Unfortunately even the government is afraid of failure, despite most early capital coming from public institutions with book-long applications. Early grants are earmarked for consultants, pushing the focus away from sales and towards administration and meticulous business planning. 

An introduction to Volumental

The Swedish innovation agency Vinnova is doing a great job changing that approach, but they can't do it alone. Private funding cannot fill this gap: due to suffocating tax laws on investment Sweden has few business angels, and even venture capitalists are safety junkies in their own way. Because of this, Volumental is focusing on international funding sources, such as our Kickstarter campaign that went live this summer and exceeded its fundraising target. 

How do startups compete with big business? That safety dependency means we fight for magical people, but they prefer stability. Instead of high salaries, we want to incentivise with shares and stock options, but tax regulation made this almost impossible to set up.

Sweden must realise that today we are fighting for the rising stars in a global market, losing start-ups to the speedier Silicon Valley. In that 3am call, I took the leap into Volumental. It was the first of many late nights when we were only a team of techies with a cool idea, months of hard work with no pay and constantly firefighting problems. 

We're still learning from our failures, now with customers, funding and a team of eleven, and getting closer to success. This is part of Stockholm - a capital iterating on its failures, and getting better every time.

Caroline Walerud, BA Cantab
Chief executive and co-founder of Volumental

Klarna: The biggest mobile startup you've never heard of

Klarna tells Jemima Kiss why its payment system takes the pain out of buying on mobile, and why it is also sitting on a powerful big data play.

• One-click mobile payments tool

• Used for 30% of Sweden's ecommerce transactions

• Pay later option that consolidates bills across multiple retailers

Buy something using Klarna on any retail site and you'll immediately notice the difference; a clean, minimised login that can be done in one-click, and you can choose to pay immediately using Visa, Mastercard or online banking - or choose to pay next month. Complex logins, repeating information and paying before goods arrive were all points of pain that Klarna is trying to fix, explains director of product management Ted Bowman. 

Klarna is a mobile checkout systemKlarna's mobile checkout service. Photo: Klarna Photograph: /PR

"We think we are the first product that makes people want to buy on mobile. No-one has totally cracked it but we're very focused on mobile conversions." He explains how the fiddly process of buying online is easily disrupted - the doorbell rings, the kids kick off, you can't find your purse - so the simpler to process, the more likely you are to complete the transaction. And if you buy using Klarna from multiple sites, you can pay the whole bill together once each month.

How can Klarna offer credit to consumers without taking on too much risk? The answer, says Bowman, is by employing far more sophisticated and comprehensive ways of tracking a user's credit worthiness. "We think we have the best risk assessment in the world, looking at 142 different factors on a transaction by transaction basis, from social media and time of day and to data on individual things you have bought. If you suddenly go online and buy five iPads shipping to Romania at 5am, we'll flag that up."

Ted Bowman, Klarna's director of product managementTed Bowman, Klarna's director of product management. Photo: Klarna Photograph: /PR

The front end, meanwhile, combines a simple interface with the idea of making Klarna the 'want' button on retail sites. The focus is on being part of a physical goods delivery system - there is no interest in being used to buy virtual goods, which have a less tangible value. One click checkout is done using your email address or phone number, and the process uses information from previous orders or a third party provider to prefill the rest of your details. 

How ethical is it to gather this kind of fine grain information about consumers and use it against them in this way? "The German authorities are very particular about the data we use to make credit decisions," says comms VP Claes Tellman, who not coincidentally has a background in the risk assessment-heavy gambling industry. "Debts are growing for younger people, but debts on Klarma have gone down to 0.5%. We don't let debtors in."

Are they challenging PayPal? "We'd be happy to have the level of success they have had in the US but we do think there is room for improvement," says product manager Phil Mikal of the eight countries in which Klaran operates. "Our product is not the same country to country, and we learn through the pain and success of each unique product." In Sweden, the benefits are a highly educated workforce with a way of working that is very focused on solutions to problems, he explains. Swedish companies tend to be less hierarchical, so junior staff are more free to questions managers. 

StockholmStockholm's archipelago. Photograph: Ville Hyvönen/flickr

Klarna's story is a familiar one of tenacious founders in their early twenties with a good idea. Sebastian Siemiatkowski, Victor Jacobsson and Niklas Adalberth have had a meteoric rise from meeting at Burger King, to a level of ubiquity in Sweden on a par with cash or credit cards, where Klarna accounts for 30% of all ecommerce transactions. Klarna's slick Stockholm offices are home to most of its 800 staff, backed by Sequoia, General Atlantic, Digital Sky, Oresund and by veteran Swedish investor Jane Walerud - mother of Volumental founder Caroline - who pitched in the first $80k back in 2005. 

There's an intensity and growth in Sweden that echoes the success of Silicon Valley, but a particularly Swedish thought leadership, commercial polish and highly skilled workforce. 

Klarna's new office modelled in LegoKlarna's new office, as modelled in Lego. Photograph: Jemima Kiss

Klarna is being used 15,000 merchants, starting to expand from its large userbase in Sweden, and has been used by 20 million individual consumers for 60m transactions since launch. It processed €2bn in transaction volumes for 2012 with an average spend of €40, and is profitable with "a couple of hundred million in revenues" since launch. 

As well as breaking new markets, Klarna is also looking at its goldmine of real-time retail data; a powerful chunk of market insight especially at peaks like Christmas. Compare that to market insight at the startup Editd, which mines fashion sector data from retail and trend watching sites to inform retailers designs, stock and price points and you can see how powerful, though sensitive, this cross-industry could be. "That would have to be rolled out in a universally accepted way because sharing data between merchants is controversial. We're not yet at a point where we could release that as a product, but we are looking at that on our roadmap."

Tictail: the future of selling online

Tictail's sleek, simple and brilliant plan to be the Tumblr of online stores - and with an API to match. Co-founder Carl Waldekranz tells Jemima Kiss more.

Carl Waldekranz, co-founder and chief executive of Tictail

Stockholm soundbites: Per Roman of GP Bullhound

Jemima Kiss interviews Per Roman of tech investment bank GP Bullhound on the strengths and challenges of the Stockholm tech scene.

Spotify: why discovery tools put it on course for the mainstream

Beloved by music geeks the world over, Spotify is arguably Sweden's most famous modern export. But how can the service move into the mainstream? Jemima Kiss speaks to Ian Robbins on Spotify's product development team for music discovery.

• Sweden's most famous startup wants a more mainstream consumer audience

• Web version and stickier recommendations designed for more plays

• Artist pages to be pushed as promotional tools

Spotify's lobby at its Stockholm HQSpotify's lobby at its Stockholm HQ. Photo: Jemima Kiss Photograph: /Jemima Kiss

Music discovery has been top of the Spotify user's request list since, arguably, the service began. The site offers two different experiences, explains Ian Robbins from the product development team; the lean forward user who knows exactly what she wants to listen to and isn't daunted by that blank search box; and the lean back user, who wants a more serendipitous experience akin to radio. 

It's that lean back experience that had been missing until the discovery feature for the web app launched in April on trial and then more broadly in May this year. Crucially, discovery is a feature designed to pull in and keep new users, making the service more sticky and accessible - and mainstream.

"Personalisation is a powerful experience and infectious," said Robbins. "When you come into the product from the first day as a new user, it shows what you're listening to, what might interest you and tells you that if you follow artists and bands the experience will become even more personalised." 

Collaborative workspace at SpotifyCollaborative workspace at Spotify. Photo: Jemima Kiss

Users who browse more play more music, he said, pointing to user data, so the aim is to encourage more playlists and more plays. He described more 'affection' for Spotify itself once those kind of discoveries have been unlocked.

This desire to appeal to a mainstream music fan informs the way that Spotify rolls out new products; rather than use an elite group of Spotify obsessives or musos to test new features, the site now rolls out to 1%of all users, then 2%, then 5% and then site-wide. Feedback is then far more relevant for the majority of users.

Spotify admits to being caught out by the speed at which users are moving to mobile platforms. "It makes 'platformisation' even more important. Everything is now mobile first, " says Robbins. "That isn't the priority for all companies - it depends what the product or service is, and who the userbase is." iPhone users, for Spotify, are slightly more geeky, but the rocketing number of Android users - and more mainstream users - means it is now as important to develop for. 

The three core products are now iPad, iPhone and web app, the latter being a significant step towards reaching a mainstream who might be uncomfortable downloading desktop software.

A Nirvana-themed meeting room at Spotify's HQA Nirvana-themed meeting room at Spotify's HQ. Photo: Jemima Kiss

There are clever tweaks in discovery; the new preview tool play's with press-and-hold, so click off and the current song continues playing. A little of the touch-and-hold of Vine? The preview is a small clip a certain percentage of the way through the song - 'the magical mean'. 

Spotify has also ditched the 'friend' model in favour of the 'follow' model; Robbins describes this as a broader and more relevant term, as users can follow albums as well as artists. Those artist pages can now be customised, giving them a profile to curate and making followers - their fans - visible. 

Making playlists for fans is popular; Daft Punk do this regularly, and the massive success of Get Lucky on Spotify (and everywhere else) has made it the site's number one track of all time with more than 63m listens. Robbins talks about the acquisition of fellow-Swedish playlist company Tuneigo in May. "It was already one of our best partners and the traffic stood out last year - it's about brilliant curation." It gave Spotify a market-tested playlist tool, and accelerated its work on music discovery tools. 

"Phase 4 is to expand that artists experience to more of a promotional platform," Robbins explains, "That follow model means artists can take advantage of having all those fans, so they could ask followers to login to share a preview of their new single. We want to create a level of customisation that is measured, so not quite the MySpace side of the spectrum but not the same site for everyone - developers get tools, and artists get promotion."

Stockholm soundbites: Johan Jorgensen of FundedByMe

Jemima Kiss interviews Johan Jorgensen of FundedByMe, a platform that connects investors with entrepreneurs.

Stockholm soundbites: Anton Johansson of Osom

A simplified classifieds app, Osom presents items for sale in an Instagram-style format. Founder Anton Johansson tells Jemima Kiss about 'emotional shopping'.

King: quietly ruling the social games space

A veteran of ten years in the casual games space, King's format for social and increasingly mobile games is one of Sweden's big success stories

• Games studio specialises in casual, social games

• Breakout hit Candy Crush Saga

• Games translated into 30 languages 

King's success in casual, social games seems less covered by the media than console-centric games press, but that could just be because its core audience of female players aged 25-45 are more interested in playing the games rather than reading about them. King's own focus on that area, and refining a format that has worked repeatedly, came after their initial strategy of partnering with portals like Yahoo started to falter.

King is working on hit-proofing its gamesKing is working on hit-proofing its games. Photo: Jemima Kiss

"Facebook was sucking the air out of casual game play but that took a while to understand that," said Sebastian Knutsson, chief creative officer. "We reinvented what we did, took half the Stockholm staff and put them on new formats using our knowledge of games, until we found formats that work well. 

King is profitable, though Knutsson won't talk financials. Users are 50-60% females in that 25-45 age bracket, although more men are finding King's titles since they began to focus more on mobile; they seem happier to admit to playing these accessible, populist games on mobile than on Facebook. 

KIng's Thomas Hartwig and Sebastian KnutssonKIng's Thomas Hartwig and Sebastian Knutsson. Photograph: /PR

Its runaway success is the Candy Crush saga, a familiar format of addictively rearranging colourful sweets. "We don't expect every game to reach that level of success, but we are trying to hit-proof the business by launching games on our platform on the web in a smaller, lighter form, then get a sense of the response and embellish the gameplay," says Knutsson. "We have a higher success rate than most, but many of our games are evergreen. Card games are as popular as ever, and Tetris just as much as it was 20 years ago."

For casual gamers, or people just starting, it's normal to start with something that feels familiar, even nostalgic, just as new users of Spotify tend to search for the music they loved 20 years ago. The way to engage those users is not by giving them tools to brag about their achievements, but with tools that let friends help each other - particularly on the infamous Level 65 of Candy Crush. 

King's games had around 92 million daily users, as of June 2013, with Candy Crush its breakout hitKing's games had around 92 million daily users, as of June 2013, with Candy Crush its breakout hit. Photograph: /PR

King has offices in London, Stockholm, Hamburg and Bucharest amongst others. Knutsson said the focus on product and innovation, - perhaps without the bluster and hype of some US social games companies - has contributed to a stealthy success for this sector; Scandinavian games accounted for five of the top ten iPhone games at time of writing. It's often said, but the principle of being humble about success is innate.

"I think you have to be careful about believing that success is permanent, that we have to say what the mistakes are and build the right internal culture and manage that success in a good way," said co-founder Thomas Hartwig. The team develops games quickly - about three months is typical from conception to launch - and the focus is on developing game IP, though the ideas that don't work are just as important in informing game design.

Plans afoot in King's Stockholm officePlans afoot in King's Stockholm office. Photo: Jemima Kiss

It's easier to grow new territories on mobile, he said, but while there is huge potential in the US and Europe, it's Asia - particularly Japan and China - that would be the grand prize. "There's intense competition from local players and it's hard for western companies to grow big. China has a huge market and big studios. The future giants will be Asian - Tencent has something like 48,000 staff. But Candy Crush has been the number one game in Hong Kong, Taiwan and Singapore. The game is general enough that it speaks to a mainstream audience but needs strong marketing channels and partnerships to get into that market."

There are 39 staff at King who work on data analysis, using information on gameplay to inform their new titles. "That work with data combines with intuition and experience to fine tune our games. But longevity is trickier than getting the one hit that explodes. Repeating it is the big challenge, though there is an advantage in being in a segment where the games aren't really bleeding edge - the consumers are less fickle, and if you have good relationships with those consumers you can keep them for ten years."

Stockholm soundbites: Fredrik Espinoza and Magnus Sahlgren of Gavagai

Semantic data analysis tool for speech, Gavagai has multiple applications. Chief technology officer Fredrik Espinoza and co-founder Magnus Sahlgren introduce the technology.

Stockholm soundbites: Martin Kaellstroem of Memoto

Lifeblogging tool Memoto takes two photos a minute all day. Chief executive Martin Kaellstroem tells Jemima Kiss why he thinks we need a lifeblogging camera.

Schibsted: How one 'reckless' acquisition cast the mould

The Scandinavian publisher explains its ten-year strategy of building - and buying - complementary sites around classifieds and consumer services 

• Newspaper publisher with portfolio of 20 consumer websites from finance to weather

• 'Broken the addiction to the advertising model'

• Media companies well placed to offer marketing support for growth

Schibsted's Stockholm officeSchibsted's Stockholm office. Photo: Jemima Kiss Photograph: /Jemima Kiss

While most of the rest of the newspaper industry was tying itself in knots about the death of print, Norway's Schibsted was ploughing ahead with diversification. In 2003, Schibsted paid around £20m for blocket.se, a traditional online classifieds site that has become a template for complementary businesses to Schibsted's media portfolio. With plans to close the printing presses in 2017, the race to online profitability is on.

Though "considered reckless" by the media at the time, according to head of growth investments Dan Ouchterlony, Blocket has become Sweden's biggest classifieds site and profits quickly grew to justify the purchase price; in 2012, EBITDA profit grew 54% year-on-year to £41m. Schibsted had failed to replicate what Blocket was doing in the early days, and so bought the site instead. 

Blocket classifieds siteBlocket is Sweden's most successful classifieds site. Photo by THS Armada on Flickr. Some rights reserved.

"The decision was not a management one, but driven from the floor because journalists felt classifieds were a natural extension," said Ouchterlony. Schibsted has invested in another seven established classifieds sites, including Willhaben.at in Austria and Coches.net in Spain, as well as 14 earlier stage sites including Mudah in Malaysia and Bikhir.ma in Morocco. Most are based on the Blocket model, though Richard Sandenskog, a former journalist and the investment manager for Schibsted Growth, says the point is not to make a quick buck out of consumers, but to provide tools that help them make better decisions. 

Aftonbladet office. Aftonbladet office. Photo by bengt-re on Flickr. Some rights reserved.

Schibsted's media properties include Norway's Aftenpost and Verdens Gang, the 20 Minutes brand in France, Spain and Switzerland and the Swedish national tabloid Aftonbladet. Aftonbladet's network claimed 4.8m unique browsers for the last week of August 2013 making it one of the busiest sites in Sweden, with Blocket recording 3.3m. Another principle has been to use unsold inventory on Schibsted's media sites to promote its own companies - rather than flogging the space through services like Google who auction to the highest display bidder. TV guides, weather, daily deals, personal finance, insurance and mobile price plans all complement those media sites, said Sandenskog. Schibsted's sunny open plan Stockholm offices are buzzing with banks of startup teams, all working on these complementary products.

Schibsted's early-stage startups share its Stockholm office. Schibsted's early-stage startups share its Stockholm office. Photo: Jemima Kiss

"Journalists don't think they are in the media business - they think they are in the content production business, so they don't get excited about new business models. But the fact that we have this model today shows we are major global players - the mindset is a more commercialised environment than broadsheets." Sandenskog said journalism has been addicted to the ad-funded model for 150 years, yet display advertising is just not large enough to support news businesses now. "Management has been doing this long enough to be curious about what could happen if they bet on the internet, and did so even during the financial crisis - we effectively moved to cannibalise our own business." 

But the window of opportunity to develop these consumer-focused web businesses is getting increasingly competitive. Concept clones now take months, not years, to roll out and with increasing activity in China and the ever present US, that competition is global. But that does have some benefit for a Scandinavian company initially insulated against English-language competition by its domestic market. "We're getting bigger and bigger footprints, and can help startups omit VCs," said Ouchterlony. "We explain that we can help them scale, and use our firehose of marketing power as well as the experience of our 20 portfolio companies." 

"There are hundreds of profitable internet companies - very healthy local investments and transparently profitable. The profound conclusion you draw is to not try to be the next Facebook, Google or Twitter."

From Schibsted's entrance hallFrom Schibsted's entrance hall. Photo: Jemima Kiss

Stockholm soundbite: Bengt Lidgard and Sven Emtell of DoReMir

The chief executive and chief technology officer of DoReMir join Jemima Kiss to explain how music notation tool Score Cleaner evolved from a research project to a simple but powerful consumer app.

Stockholm soundbite: Martin Vilcans and Rikard Herlitz of Goo

Goo's browser-based tools power 3D graphics for games and retail sites, all built in HTML5 and plug-in free. Jemima Kiss finds out more from Martin Vilcans and Rikard Herlitz from Goo.

Need to know...

• Sweden's Green Party MP and economic spokesperson Per Bolund won a standing ovation at Stockholm's STHLM Tech Meetup earlier this year for making a proposal to the Swedish parliament that would reduce tax startup employees pay on their equity in the company. At the moment, employees are effectively taxed twice on equity, meaning they lose as much as 80-90% of the equity value in tax. That makes it much harder for startups to use equity as an incentive to attract new talent - something that's standard in the wider tech industry - so it's bound to be hugely popular. That said, the Green Party won only a 7.3% share of the vote in Sweden's last election and is very far from being in power, so there is little chance of changing the law unless one of the major parties decide to pick this up.

• 'Jantelagen' is somewhere between a social tradition, a cultural mindset and an unspoken characteristic of Scandinavians in which individual success or self-promotion is frowned upon, while humility and shared success is seen as more worthy and valuable. It is often discussed and regularly dismissed, but however realistic, there has unquestionably been a lack of self promotion and credit for the Swedish startup scene in particular, which punches way above its weight in terms of commercial acumen and talent. 

• LA-based tech rabble rouser Tyler Crowley has been living and working in Stockholm this year helping organise Stockholm's Tech Meetup and motivating entrepreneurs and developers to promote Stockholm's talent more widely. The hashtag #sthlmtech is supposed to help that, but there's also the blog Swedish Startup Space, Martin McKenna's excellent blog on the scene and even a pop-up shop for startups. There's no shortage of specialist tech meet ups, and an international, established pool of veteran tech talent contributing to the discussion, including Maja Brisvall and Beata Wickbom.

The last word on Stockholm's brightest stars:

The Instabridge app makes your wifi network easily shareable with friends:

Magine does live TV better - viewers can remind, pause and watch programmes from the start. Entrepreneur Mahesh Kumar is one to watch:

Stockholm at nightStockholm at night. Photo by Jacob Haddon on Flickr. Some rights reserved.

The Swedish government agency Stockholm Business Region paid for accommodation and travel for this report. Editorial is independent