2001 – A Mad Odyssey

By Mark Ollila

What an interesting start to the year it is – the markets are depressed, governments are talking about recession, a new American president, foot and mouth disease spreading, the six nations getting cancelled, and tax relief for foreigners in Sweden. I knew this was going to be a strange year – and especially for the well travelled entrepreneur.

I met an interesting analyst from a well respected venture capital firm in Cannes the other week. He was talking about why they do not invest in Sweden. Now this had to be interesting I thought. Sweden, the IT Valley, the Wireless Valley, the home of famous Inventors. Why not invest in Sweden? He calmly replied, “There are so many VC companies in Sweden, that the market is saturated. Also, most startups in Sweden comprise of a group of 26 years old, straight out of University, with no working experience”. His reply had a sting of truth in it.

Let’s examine both issues. It seems that everyone wants to be a VC at the moment, from your relatives to former Internet consultant millionaires. The Venture Capital Industry in Sweden seems to be holding on to their money quite hard at the moment. But what do you expect from an industry that traditionally, has not existed that long, and in so, has no real understanding of “risk” in the term risk capital. Risk capital means risk! There are no guarantees that the money will be returned in any form, not alone the 20 times the amount that so many VC’s expected. Looking at the other side of the coin, it seems that people also want to create their own company, their own spin-off that will make a millions. This is at all levels, and at certain areas, encouraged. Looking at universities, we are starting to see student driven technology parks – aka Drivhuset, that allow students to become entrepreneurs. Traditional companies are creating their own employee driven entrepreneurship programmes which allow the companies to, one, keep their employees, and two, possibly make a bundle of cash. Looking at that analysts comments, we see one thing – in today’s market – ideas, concepts, visions are worth a lot, but only if they are accompanied with execution and business sense. So, what does this lead us to? A bit of a strategy change – in that, VC will need to start considering the nurturing, mentoring aspect of entrepreneurship. They will need to be involved in a more hands on role, helping develop and grow the organisation of their investment. Most importantly, they have to become entrepreneurs themselves again.

On to another topic I will have to comment on - the government’s approach to tax relief for expert foreigners is extremely positive. It will attract talent to Sweden, who would normally be put off by the low salaries and high taxes. I am a bit concerned about one thing though – this new tax law will not retain talent that is already here – the talent that has already been building, and will continue to build up the infrastructure, technology and content in the IT industry. In this case there, should be a retroactive application of the new law. Continuing, the next step I recommend to the government, is the abolishment of this crazy tax rule that allows people to be taxed for money they never saw. I believe Astrid Lindgren experienced this, and that several IT entrepreneurs from the past couple of years experienced this. Luckily for me, I have not been hit hard by this --- but do have something to share. Last year a company that I was involved in received a tentative offer of 50 million sek, in a pure share swap. The other company was worth about 85 euros a share on the stockmarket. This was a nice deal – but involved a share lockup of about 18 months. A huge taxbill, with a lockup constraint! Luckily, we did not go for the deal. Today, the same company is worth about 1-5 million sek, and the other company, 5 euros a share. We would of gained nothing except personal bankruptcy – and for been an entrepreneur. I shared this thought mainly because there are 100’s of new companies popping up in the area of Mobile Internet and services around it, people been recruited, and various salary packages created, with mergers in the process. I also think that the new tax relief policy that I think was positive could be moot if all the new expert foreigners suddenly get hit by this particular tax law. Food for thought huh!