Growing Pains In Sweden

High-tech Scandinavia? forward-looking Sweden? Johan Stael von Holstein begs to differ. Sure, the Nordic countries have more Internet connections per capita than the United States. But von Holstein says it's still far too difficult to grow a high-tech company in his native country. Employment costs are high, personal taxes are onerous--and the culture is just too damn conservative. "The Swedish market just doesn't understand the concept of growth companies," he complains. "It's easier to start a paper mill than an Internet company."

Harsh words, and a little surprising: von Holstein is one of Europe's most successful entrepreneurs. Five years ago he and three partners founded a Web-site-design company called Icon Medialab. It is now the largest Internet consultancy in Europe, with expected sales this year of $50 million. The company creates Web sites for multinationals doing business in Europe, and it has an impressive list of clients--among them Nestle, Coca-Cola and Volkswagen. It is also one of Sweden's most popular stocks. Robert Ahldin, an analyst with the Swedish investment bank Matteus Securities, estimates that Europe's Internet-services market will skyrocket from roughly $1 billion this year to $10 billion in 2003. And next year Icon's revenues are expected to triple.

So what accounts for the chip on von Holstein's shoulder? Two things: his experiences as a European Internet pioneer and the advantages his American competitors enjoy. When von Holstein and his colleagues started Icon, venture capital was little more than a concept in Sweden. Von Holstein had to borrow $250,000 from a Swedish executive to get going. Now, at last, things are changing. "The Swedish venture-capital market has improved dramatically over the last six months," says Ahldin. "It's easy now for new companies to find financing."

Good news, to be sure--as is the fourfold increase in Icon's stock price since its IPO last year. But neither development convinces von Holstein that Sweden is ready to fund world-class tech companies. The 37-year-old entrepreneur, who owns 5 percent of Icon, contends that his company is shortchanged by the "immature" Stockholm exchange. "If we were a U.S. company, we'd have grown much faster and be three times as big." Icon's U.S. competitors, among them Scient and Razorfish, can easily finance their international expansion because their stocks are so highly valued. Such companies boast stock prices as high as 40 times revenues. Icon's trades at eight times revenues. The situation is so dire, he is moving part of Icon's headquarters from Stockholm to Brussels--and he wants to list the firm on the U.S. Nasdaq exchange. Von Holstein has himself moved to Amsterdam.

Luckily, Icon's clients don't care about its stock-market valuations. They just want help with the Web. A year ago, Icon helped Volkswagen Sweden create the auto industry's first virtual showroom. The VW Sweden Web site now gets more than 4,300 visitors a day--300 more than the company's 75 dealerships get. Nestle chose Icon to develop a Nordic Internet strategy for its Nescafe coffee. Bank One, a major U.S. bank holding company, is using Icon to design its Web site in the United Kingdom.

The Web services industry began with an emphasis on design and advertising. But the business has shifted toward providing end-to-end e-commerce services for major corporations--brand development, research and processing electronic sales. Handling those duties requires consultancies to be fairly large and sophisticated. Companies like Icon need to get big fast, or they become acquisition candidates. Last April the Interpublic Group, one of the world's largest advertising and marketing companies, invested $20 million in Icon in exchange for a 20 percent ownership stake.

The investment gives Icon a much-needed financial fillip at a time when expansion--not making profits--is the priority. Eventually, von Holstein wants to become a player in the mammoth U.S. Internet market (the firm has offices in New York and San Francisco). If that happens, the ambitious entrepreneur might finally stop fretting about his home country. Sweden is changing, just not fast enough to suit young leaders in a hyperkinetic industry.