“The Nordic region is characterised by its ability to grow hightech businesses fast,” proclaimed former Swedish Prime Minister Carl Bildt in his keynote address to the recent Nordic Private Equity Congress in Stockholm.

As an example, he cited GSM technology, which, he said, has achieved a penetration rate of 29 percent of the world's population in the last 15 years. The world's first GSM phone call was made on March 27 1991 using the network of Finnish telecom operator Radiolinja.

He also referred to perhaps the most striking recent example of a Nordic technological success story – Skype, the internet telephony business which has its legal headquarters in Luxembourg but is run by a management team comprised of Swedish, Danish and Estonian nationals. Launched in 2003, the firm had enlisted 100 million users by the time of its sale to Ebay in September last year in a deal worth up to $4.1 billion.

For Bildt, such achievements are not just of passing interest. He is currently chairman of the Nordic Venture Network, an organisation that brings together 12 of the region's leading venture capital firms to explore ways of assisting each other as well as developing strategic relationships with international financial and industrial players. The question now occupying the minds of these, and other, VC investors is ‘where's the next Skype?’

At the same conference, one possible answer was provided. Video game development is not a new technology, but the level of sophistication behind it has grown rapidly. Among a clutch of independent video game developers in Sweden is Starbreeze, based in the high-tech hotbed of Uppsala, 70 kilometres north of Stockholm. Established in 1998 and listed in 2000 on AktieTorget, a stock market for young growth businesses, the firm struggled financially until 2004 when it began making profits for the first time.

The turning of the corner coincided with the appointment two years ago of Johan Kristiansson as CEO, who was previously head of Swedish venture capital firm AVZ. It was also the year in which Starbreeze released its Chronicles of Riddick game, based on the Hollywood movie of the same name. While the movie, starring Vin Diesel, tanked at the box office, the game was a critical success and is still delivering royalties to Starbreeze [game developers are normally paid an advance by a game publisher such as EA or Activision to develop a game, with royalty payments kicking in at a specified level of subsequent sales].

Speaking at the conference, Kristiansson provided plenty of evidence that video game development is riding a wave. As the table below shows, video gaming is the fastest growing segment of the media entertainment industry, with $27 billion of global sales presently and an 11 percent per annum growth rate forecast for the next five years. He also said the demand for games will grow as new platforms are launched. In December 2005, Microsoft launched its Xbox 360, while Sony's Playstation 3 and Nintendo's Wii are due to hit the shelves later this year.

One might assume that Swedish venture capitalists would be best placed to capitalise. After all, as part of his keynote speech, Bildt highlighted that Sweden boasts Europe's highest level of venture investment as a percentage of GDP. And yet, according to Kristiansson, venture capital backing for Nordic game developers has to date been thin on the ground. One reason he volunteered to PEI is that such businesses are seen as “creative and artistic” and, hence, “hard to evaluate”. But as evidence of a compelling investment opportunity grows, VCs might nonetheless now be expected to apply themselves to the task.