Silicon Vikings talk on Danish Entrepreneurship

Published July 1st, 2007 edit replace rm!

The other day I went to a lunch with the Silicon Vikings who are an association of Scandinavian’s and interested parties who meet up once a month to network and talk about specific issues. If you are Scandinavian and in the Bay area you should go, it is definitely and interesting crowd of Scandinavian’s who now call the Bay Area home.

The lunch meeting I went to was called SV Lunch: Best Practices in Support of Inbound Entrepreneurs in Silicon Valley. The talk was given by Marianne of Innovation Center Denmark in Palo Alto.

Their job is to advise Danish entrepreneurs moving into the valley for both funding and market reasons in how to do so. However they also have a secondary function of advising various agencies in Denmark on getting more like Silicon Valley.

I mostly agree with her comments on the difficulties faced by Danish startups. She mentioned that the largest problems were:

  • Fear or inability of networking
  • No entrepreneurial tradition
  • Low expectations
  • Lack of understanding of the term value proposition
  • They are always the only people with this idea
  • Irrational fear of their ideas being stolen

Many of the things she said are of course generalizations. There are definitely lots of exceptions, but I think its fair to agree with her on the majority of these points.

The inability of networking is something that is ingrained in Danes (and other nationalities as well of course). We as a nation tend to stick with our student friends all of our life and don’t like situations where we have to talk with new people. I am blessed by being part American, but growing up in Denmark makes it hard for me to go talk to new people the first time. I’m fine once introductions are made, but until then I’m shaking in my pants.

The entrepreneurial tradition thing is a sad thing. In 1988 when various business associations in Denmark needed young Danish entrepreneurs to send to various EU conferences, I was the only person they could find. Yes I knew several others, but it really was not a common thing to be an entrepreneur in the 80s in Denmark. I can see people of my generation are really scared of the idea of entrepreneurship.

However as I mentioned at the talk, I think computers, games, mobiles and the internet has had a big impact of the generations coming after mine. Dane’s in the 20s are a lot more open to the idea of setting up shop than my generation. I can only assume this trend will grow. From the Copenhagen.rb meetings I can see that there is a definite change in the mindset of people.

You also are seeing more and more creative people in Copenhagen following their dreams starting magazines, designing clothes, launching bars etc.

I think one of the biggest problems facing Danish entrepreneurs is that they get penalized if they succeed. While many things are simple there are still lots of annoying regulatory roadblocks:

  • Up to 65% personal income tax
  • Antiquated company registration law requires you to deposit more than $20,000 cash as share capital in a bank account before you can even get incorporated.
  • Ridiculous requirement requiring you to deprecate computer equipment purchases over several years if your total purchases in a year is more than $2000. In the US I think the current figure is over $100,000. This is a real pain for small computer related businesses.
  • 165% “registration fee” on cars
  • If you run your business next to a job you can risk being classified a “hobby business” in which case they disallow all and any deductions

There are also a few bright points:

  • Sole Proprietors and Partnerships can chose to be taxed as a corporation (kind of like an opposite s-corp or LLC), however no limited liability
  • At 30% corporate income tax rates are relatively low (I think even lower than most places in the US)
  • You don’t pay the %25 sales tax if you’re a business. Suddenly that Mac Book Pro costs the same as in the US.

For more on this checkout my Bootstrappers guide for Denmark.

There are loopholes around many of these. Most of which involve leaving Denmark either physically or virtually. Many prospective entrepreneurs are scared by these problems and have grand plans to start their business when they finally leave Denmark.

Legislators in Denmark have no interest in fixing any of the above problems as very few politicians in Denmark have business owners as their prime constituents.

Marianne said at the meeting that she things it’s great if Danish startups move over here to the Valley. She says that Danes abroad tend to start moving back once their kids reach school age. Then they will bring back with them what they’ve learned abroad.

I guess you could say this is what has happened both in India and Taiwan, where lots of former bay area residents returned home to start successful businesses. I hope she’s right and I think it’s healthy for anyone to go abroad for a while, but I still think you won’t see too many Danes returning to do startups until the basic regulatory infrastructure gets up to scratch.

I would really be interested in hearing comments from other Danish entrepreneurs both at home and abroad, what you think. I’m notoriously opinionated and tend to see everything through my Libertarian lenses.

Posted July 1st, 2007

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Comments
michael@arbdesign.dk

Michael July 2nd, 2007

Interesting post! As you say I think the mindset is changing these years.

During my Informatics studies I think somewhere between 40%-60% had there own company and when we graduated 4 out of 28 continued or started there own thing.

In my perspective it is very easy to get started and the bureaucracy does seem less than the US or UK equivalent as far as I can tell. I still hate doing the paperwork but it’s not overwhelming.

I have a Danish I/S company with a Brit and we chose to start in Copenhagen since I knew the Danish system. We have recently moved to Prague for lower living costs but still with the Danish company. We make enough money to make ends meet but do not have the high tax percentage. We are here to build our own webapp and once we bring that live I think we will create a UK Limited company.

As Marianne mention I would eventually like to bring up kids in Denmark but until that happens I have no strong desire to stay in Denmark.

I still think we are sometimes too comfortable in Denmark and as you mention stick to our high school and university friends or a very narrow circle. But I also see a small group of people embracing the globalized playground we have now. Hopefully this is a growing trend.

Finally I think the environment for entrepreneurs in Denmark are very different now from the 80s. In Aalborg for instance there are "so ":http://www.kickstart.auc.dk/dk/stardust_-_ivaerksaetternetvaerk many offers that it’s difficult to decide which one(s) to get involved in.

Thanks for a great blog by the way :) Your story has been a great inspiration for me in my choices.

michael@arbdesign.dk

Michael July 2nd, 2007

Oh and I tried to make a trackback from here.

I don’t know if it didn’t work or it’s awaiting moderation.

(You can delete this post)

pelle@stakeventures.com

Pelle July 2nd, 2007

Hi Michael,
Great comment (and blog btw. it’s now firmly in my feed reader).

You are right of course about lots of IT students having businesses while studying, I had forgotten about that. It’s a shame though that no more than 4 out of 28 continued on with it.

Another thing you are right about is that it is very easy to register as a sole proprietorship or partnership in Denmark. Probably even easier than the UK.

The advantage that the UK has is that it is incredibly simple and cheap to incorporate, so almost everyone incorporates. If you’re an IT consultant it is even betters as there are companies that you pay a small monthly fee to manage every aspect of tax and paperwork for your company.

But yes, when I was in the UK I did find the actual VAT registration process a bit annoying. IR35 is also a pain, I’m sure Femi knows about it. I don’t think Denmark has anything like it.

I think you guys are doing the right thing and while please don’t let this stop what you are doing, please start planning on a strategy for taking your business out of Denmark (maybe using a UK ltd) or you might have to sell the business to yourselves and pay income tax on the profits.

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My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). I live in wonderful Managua, Nicaragua. I work with Clojure, Bitcoin and Ethereum.

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