A London-based private equity manager has traveled across Sweden is search of the most exciting tech start-ups – here are his top five investment picks.

As Sweden clambers out of recession, a new generation of technology start-ups emerges as a reminder that Sweden is home to one of the most thriving technology sectors in the world.

“There is a resurgence in entrepreneurial enthusiasm, in entrepreneurial drive in Sweden,” says David Carratt, managing director at Kennet, the private equity firm based in London and Silicon Valley.

David just returned from a trip to meet with a variety of technology start-ups across the country. Although entrepreneurial activity is not as feverish as in the late 1990s, there is a “generation of people coming through who see entrerpreneurialism as a valid career choice and want to develop a business that is going to change the world,” Carratt adds.

Kennet, which has approximately $600million under management, is particularly interested in investments in technology and capital efficient start-ups, which have grown nationally and could benefit from the external funding to take the next step into the worlds – an important next step at times shrugged off as too risky a move.

“Sweden is the largest country in the Nordic region and there is a tendency to think that it is a big enough domestic market and if it is not big enough itself, then at least the Nordic area is big enough. This probably holds back some start ups from becoming more international and going to a European market or going to a US market or going to an Asian Pacific market - in a way, it is a bit of a red herring - a false objective, ” says David Carratt. 

Traditionally, approximately 70 percent of Kennet’s investments are in software, with Software-as-a-Service, or SaaS, one of the most interesting areas at the moment. One of David Carratt’s favourites in the field is Stockholm-based Netigate which allows companies to prepare sophisticated surveys for their employees or their own customers themselves. This way, the companies can self-serve and the costs of sales for Netigate are low.

Another big focus of the venture capitalist are companies that use the internet as a distribution medium. One already very successful example is Spotify, which uses the internet to distribute music legally by negotiating rights with music owners. The company was in the news recently, when, according to British daily The Times, several senior record industry executives warned that the music service would not survive, if it continues to be available free of charge and relied solely on advertising revenues. Companies such as Spotify rely on advertising revenues and premium customers who pay a monthly fee for the service. David Carratt, however, has confidence in the business model and points to the controversy surrounding The Pirate Bay lawsuit.

“They had the audacity to speak on behalf of the whole Swedish nation and I think there were lots of Swedish consumers and Internet Service Providers that don’t agree with that, but would like a music or movie download service and are prepared to sign up for a legally negotiated service, ” adds Carratt.

A variation of that business model includes companies such as Voddler. Founded in 2005, Voddler provides videos on demand legally by negotiating rights with the studios and other stakeholders and recovers part of the costs through advertising. Thirdly, moving to software providers in the telecommunications sector, Carratt highlights the potential of Scalado, a company based in Lund that develops software to be installed in mobile phones and allows for the manipulation of images for example.

Another group that has developed very impressively over the past years is QlikTech. Founded in 1993, QlikTech provides software that allows users to point-and-click through the analysis of complex data. Like Scalado, QlikTech has its roots in Lund, where many technology companies are based.

David’s outlook for Sweden’s tech sector is upbeat: “Sweden is the laboratory of the world in terms of uptake of mobile phones and broadband and Swedish entrepreneurs have a great opportunity to experiment with new business models and see things working for the first time.”

Patrizia Kokot is a freelance journalist based in London.