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.
What strikes me about this essay is that there is enormous untapped potential to greatly boost startups formation in many countries. The potential is quite good news. If a few more countries would adopt the same policies we'd eventually see the same effects, albeit with substantial delays.
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.)
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)?
I also would believe there are other important reasons for Sweden's success. For example, relatively open society with relatively equal opportunities and education. In too many societies it is only kids from rich families who stand a chance, others spwnd their energy on surviving. More equal the society, bigger the talent pool.
Is there any strong evidence to support the idea that a lack of angel investors is the bottleneck elsewhere? Because angel money seems like the easiest kind of money to deploy - all you need is some former entrepreneurs or wealthy families who want to do it as a hobby. From what I've gathered talking to investors in Finland and sub-Saharan Africa, the problem is a lack of funding at Series B-D, where capital markets in many countries (including Finland) are not deep enough but VCs are still home-biased at that stage.
I don't know to what extent this is VCs "talking their own book" (trying to get the government as LPs for bigger funds), because the people in Finland making this argument were raising a 400m fund at the time and ended up getting lots of government money, but to me it seems at least somewhat plausible. Providing solid evidence is also a problem because a bottleneck at some point in the system will spill over to the rest of the system - angels will not invest if there are no plausible exit opportunities because of a lack of investors being able to make 50-100m EUR investments later on.
To me what Sweden seems to have is a lot of money held by families that are willing to deploy it in "unconventional" ways (Wallenbergs starting EQT as one of the first European PE firms outside of the UK), relatively active stock markets that will accept smaller listings (companies like TradeDoubler etc. all listed relatively early) etc..
Anecdotally, from having talked to angel investors, it doesn't really seem like tax plays a huge consideration in their decisions, even if it maybe should from the perspective of "rational" economics. Similar to when you talk to VCs about valuations and they say something like it doesn't matter because you are trying to get into the best companies.
It is a bit disheartening to see how little actual evidence exists on the issue though.
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
What strikes me about this essay is that there is enormous untapped potential to greatly boost startups formation in many countries. The potential is quite good news. If a few more countries would adopt the same policies we'd eventually see the same effects, albeit with substantial delays.
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.)
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.
I don’t think there’s anything that supports this theory.
https://www.library.hbs.edu/working-knowledge/food-stamp-entrepreneurs-how-public-assistance-enables-business-bootstrapping
Not applicable. Not in Sweden. Do you not have any knowledge of the neighboring countries with fewer unicorns?
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)?
https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/12/revenue-statistics-2025_07ca0a8e/3a264267-en.pdf
According to OECD statistics tax revenue (all) to GDP in Sweden was at 41.4% in 2024. As a comparison the U.S. was at 25.6% (near the bottom).
I also would believe there are other important reasons for Sweden's success. For example, relatively open society with relatively equal opportunities and education. In too many societies it is only kids from rich families who stand a chance, others spwnd their energy on surviving. More equal the society, bigger the talent pool.
Is there any strong evidence to support the idea that a lack of angel investors is the bottleneck elsewhere? Because angel money seems like the easiest kind of money to deploy - all you need is some former entrepreneurs or wealthy families who want to do it as a hobby. From what I've gathered talking to investors in Finland and sub-Saharan Africa, the problem is a lack of funding at Series B-D, where capital markets in many countries (including Finland) are not deep enough but VCs are still home-biased at that stage.
I don't know to what extent this is VCs "talking their own book" (trying to get the government as LPs for bigger funds), because the people in Finland making this argument were raising a 400m fund at the time and ended up getting lots of government money, but to me it seems at least somewhat plausible. Providing solid evidence is also a problem because a bottleneck at some point in the system will spill over to the rest of the system - angels will not invest if there are no plausible exit opportunities because of a lack of investors being able to make 50-100m EUR investments later on.
To me what Sweden seems to have is a lot of money held by families that are willing to deploy it in "unconventional" ways (Wallenbergs starting EQT as one of the first European PE firms outside of the UK), relatively active stock markets that will accept smaller listings (companies like TradeDoubler etc. all listed relatively early) etc..
Anecdotally, from having talked to angel investors, it doesn't really seem like tax plays a huge consideration in their decisions, even if it maybe should from the perspective of "rational" economics. Similar to when you talk to VCs about valuations and they say something like it doesn't matter because you are trying to get into the best companies.
It is a bit disheartening to see how little actual evidence exists on the issue though.
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?