Tax policy reflects what society values. If it values production and creation, it will exempt gains from production. If it values redistribution, policy will extract from producer and redistribute.
We should design tax policy to maximize production and minimize rent-seeking, which is why Land Value Tax is ideal, followed with Resource Rent Tax.
I'd argue here the importance of welfare has quite an impact in entrepreneurship in Sweden. If you know that, even if your idea fails, you won't end sleeping on the streets that helps you psychologically in taking the decision to move forward.
Thank you for raising this and your causal explanation about the uniqueness of Swedens startup ecosystem. The debate about making more VC available for startups seems never-ending.
Before we go further, it helps to distinguish terms.
A startup is in discovery/survival mode. It is still testing whether a repeatable business model exists at all. The dominant risk is problem/solution and product/market uncertainty. The core job is validation.
A scale-up has crossed that threshold. Customers pay, behavior repeats, and there is evidence that growth can be engineered. The dominant risk shifts from market uncertainty to execution risk. The core job becomes scaling.
Only a very small fraction of scale-ups ever become unicorns. That outcome sits at the extreme end of the power-law distribution VC is built to capture.
Pre-seed and seed are primarily uncertainty-reduction phases. Founder capital, friends and family, business angels, grants, and small pre-seed funds are structurally aligned with that type of risk.
Institutional VC, by contrast, is designed to leverage validated trajectories within a finite fund life. Even early-stage funds look for credible signals of scalability according to what I have personally experienced.
So when we argue there isn’t enough VC for startups, we may be conflating phases. If a venture is still in validation mode (startup), expecting institutional capital to price that uncertainty may not match how the asset class is designed.
The more relevant question is:
At what point has enough uncertainty been reduced to justify scaling capital (scale-up)?
Thank you, Luis. I agree with your post. I have a question. Clayton Christensen wrote that there is good money and bad money. Bad money comes from grants. Good money comes from customers. I don’t remember what was the kind of money for investments. Anyway, what do you think about money coming from sales? Is it possible to speed up the cash flow coming from customers (sales)? What can Governments do to promote markets (mainly in highly regulated markets such as energy or health)?
Would be interesting to estimate what proportion of these unicorns become billion dollar (or Euro) enterprises with “real” revenue (and cash flow). Is there any real difference between Sweden and Germany for instance in their ability to deliver on this potential?
In Sweden, if you create such a company there is a very good chance that a US company will buy you. We have constantly had a problem here in Sweden in that we have many, many small companies, and a few very large companies, but few medium sized ones, growing or not. People who have experience in managing an international company grow to a large size (in personel) are thus in very short supply. This makes selling to an existing large company that already has the expertise an attractive option. Things are changing. There are more Swedes with this expertise these days, and it may be that AI will mean you don't need to add as many people to grow your company larger. And managing small companies is something that Sweden does well. (Splitting your growing company into several smaller ones also happens a lot, so that each bit can be managed well.)
Would be interesting to estimate what proportion of these unicorns become billion dollar (or Euro) enterprises with “real” revenue (and cash flow). Is there any real difference between Sweden and Germany for instance in their ability to deliver on this potential?
Would be interesting to estimate what proportion of these unicorns become billion dollar (or Euro) enterprises with “real” revenue (and cash flow). Is there any real difference between Sweden and Germany for instance in their ability to deliver on this potential?
Tax policy reflects what society values. If it values production and creation, it will exempt gains from production. If it values redistribution, policy will extract from producer and redistribute.
We should design tax policy to maximize production and minimize rent-seeking, which is why Land Value Tax is ideal, followed with Resource Rent Tax.
Love to see more people that "saw the cat" commenting in all fields, apart of policy making
I'd argue here the importance of welfare has quite an impact in entrepreneurship in Sweden. If you know that, even if your idea fails, you won't end sleeping on the streets that helps you psychologically in taking the decision to move forward.
Thank you for raising this and your causal explanation about the uniqueness of Swedens startup ecosystem. The debate about making more VC available for startups seems never-ending.
Before we go further, it helps to distinguish terms.
A startup is in discovery/survival mode. It is still testing whether a repeatable business model exists at all. The dominant risk is problem/solution and product/market uncertainty. The core job is validation.
A scale-up has crossed that threshold. Customers pay, behavior repeats, and there is evidence that growth can be engineered. The dominant risk shifts from market uncertainty to execution risk. The core job becomes scaling.
Only a very small fraction of scale-ups ever become unicorns. That outcome sits at the extreme end of the power-law distribution VC is built to capture.
Pre-seed and seed are primarily uncertainty-reduction phases. Founder capital, friends and family, business angels, grants, and small pre-seed funds are structurally aligned with that type of risk.
Institutional VC, by contrast, is designed to leverage validated trajectories within a finite fund life. Even early-stage funds look for credible signals of scalability according to what I have personally experienced.
So when we argue there isn’t enough VC for startups, we may be conflating phases. If a venture is still in validation mode (startup), expecting institutional capital to price that uncertainty may not match how the asset class is designed.
The more relevant question is:
At what point has enough uncertainty been reduced to justify scaling capital (scale-up)?
Thank you, Luis. I agree with your post. I have a question. Clayton Christensen wrote that there is good money and bad money. Bad money comes from grants. Good money comes from customers. I don’t remember what was the kind of money for investments. Anyway, what do you think about money coming from sales? Is it possible to speed up the cash flow coming from customers (sales)? What can Governments do to promote markets (mainly in highly regulated markets such as energy or health)?
Here is some of what Sweden is doing in energy. in English. https://www.almi.se/en/venture-capital/meet-the-team/almi-invest-greentech/
Great! Thanks a lot for the information!
Would be interesting to estimate what proportion of these unicorns become billion dollar (or Euro) enterprises with “real” revenue (and cash flow). Is there any real difference between Sweden and Germany for instance in their ability to deliver on this potential?
In Sweden, if you create such a company there is a very good chance that a US company will buy you. We have constantly had a problem here in Sweden in that we have many, many small companies, and a few very large companies, but few medium sized ones, growing or not. People who have experience in managing an international company grow to a large size (in personel) are thus in very short supply. This makes selling to an existing large company that already has the expertise an attractive option. Things are changing. There are more Swedes with this expertise these days, and it may be that AI will mean you don't need to add as many people to grow your company larger. And managing small companies is something that Sweden does well. (Splitting your growing company into several smaller ones also happens a lot, so that each bit can be managed well.)
Would be interesting to estimate what proportion of these unicorns become billion dollar (or Euro) enterprises with “real” revenue (and cash flow). Is there any real difference between Sweden and Germany for instance in their ability to deliver on this potential?
Would be interesting to estimate what proportion of these unicorns become billion dollar (or Euro) enterprises with “real” revenue (and cash flow). Is there any real difference between Sweden and Germany for instance in their ability to deliver on this potential?