Swedish companies across all sectors attracted impressive amounts of venture capital in 2006. In total, Skr6.4 billion (€680 million; $910 million) of venture capital was invested in Swedish start-ups last year, an increase of 45 percent over 2005, according to research recently published by the Swedish Private Equity and Venture Capital Association (SVCA).

So why are Swedish start-ups so popular with venture capitalists? The country's political and cultural context is of fundamental importance. Young Swedish businesses boast considerable political support from organisations like Invest in Sweden. Founded in 1995, Invest in Sweden is a government-funded agency that promotes venture capital investment in the country.

Says Per Hedblom, manager of venture capital relations at Invest in Sweden: “As the government agency responsible for attracting foreign investments to Sweden, we introduce Swedish technology companies to international venture capitalists, to put these companies on the venture capital radar.”

However, others think that the impact of political collaboration on the development of the venture capital market has been overrated. Says Tom Berggren, managing director of the SVCA: “The support of organisations like Invest in Sweden is not unique to Sweden and has not been fundamental in shaping the indigenous venture capital market.”

Berggren thinks that Sweden's international mindset has been much more important in attracting venture capital investment. He says: “The presence of multi-nationals like Ericsson and AstraZeneca has provided a training ground for start-ups, while the small size of the population forces companies to think about the export market. Such a global business approach really attracts international investors.”

Two sectors in particular have stood out as targets for venture capital investment: biotech and cleantech. Reflects Hedblom: “Sweden VCs have traditionally been active in the biotech and ICT sectors, whereas the cleantech sector represents a new market opportunity attracting interest from Swedish VCs.”

A total of Skr407 million of venture capital was invested in Swedish biotech companies in 2006. The sector is made up of about 400 companies, making it Europe's fourth largest, and the largest in relation to population and GDP. Biotech companies operate in collaboration with Sweden's universities, which exposes future entrepreneurs to sophisticated businesses, and drives university spin-outs.

Indeed, the presence of global biotech companies like AstraZeneca and Pfizer in Sweden has had a clear impact. When Pfizer spun out some of its businesses, like Biacore and Biovitrum, in Sweden in the late 1990s, numerous new biotech companies emerged.

International investors are attracted to the country's biotech sector largely because of the impressive returns that have been generated by some deals. 3i's exit of SBL Vaccines in November highlighted the potential profitability of Swedish biotech deals. NASDAQ-listed Dutch biotech company Crucell bought the business for €39.4 million ($51 million), representing a return of 16 times the original investment.

Swedish cleantech companies attracted Skr240 million of venture capital in 2006, according to the SVCA. Investor interest in the cleantech sector, particularly the heat pumps segment, has increased considerably. This has largely been driven by venture success stories like IVT and Thermia.

The cleantech sector has received considerable political attention in Sweden as in other countries, resulting in significant repercussions for cleantech companies. Says Hedblom: “The global warming debate has triggered widespread interest in the cleantech sector – both from political organisations and from venture capitalists.”

It's a debate that should ensure the future of Swedish venture, in the biotech and cleantech sectors in particular, remains healthy.