The week of February 16, 2026: Sweden’s venture capital success, tariffs, AI, pensions, and much more.
The week of February 16, 2026: Sweden’s venture capital success, tariffs, AI, pensions, and much more.
In its Lisbon Agenda of 2000, the European Union gave itself the goal to “become the most competitive and dynamic knowledge-based economy in the world” by 2010, a declaration that deserves to be a punchline for the ages.
Brussels and its cheerleaders claim that a major reason for lagging innovation (€3–9 billion bottle cap revolution aside) within the bloc is the absence, unlike in the United States, of a capital market deep enough to foster early-stage companies.
In 2023, the EU’s underperformance in this area was so much of an embarrassment that Ursula von der Leyen, the president of the EU Commission, asked Mario Draghi, a former president of the European Central Bank and former Italian prime minister, to write a report suggesting how to revive the bloc’s flagging competitiveness. The choice of Draghi, a clever Machiavellian, was, for the underwhelming von der Leyen, surprisingly smart. Draghi had the intellectual weight to impress outsiders, but as a longstanding member of the EU’s ruling class, he could be relied upon to come up with prescriptions that would not be too revolutionary. Above all, they must do nothing to challenge the EU’s most hallowed principle, that an irreversible move towards the “ever closer union” of its member-states. The solution must be “more Europe,” not less.
Draghi did not disappoint.
That said, when it came to those parts of his report describing the symptoms (as opposed to discussing the causes of, and possible cures for) the EU’s malaise, Draghi pulled few punches:
Technological change is accelerating rapidly. Europe largely missed out on the digital revolution led by the internet and the productivity gains it brought: in fact, the productivity gap between the EU and the US is largely explained by the tech sector. The EU is weak in the emerging technologies that will drive future growth. Only four of the world’s top 50 tech companies are European… the EU’s global position in tech is deteriorating: from 2013 to 2023, its share of global tech revenues dropped from 22 percent to 18 percent, while the US share rose from 30 percent to 38 percent.
[B]etween 2008 and 2021, close to 30% of the “unicorns” founded in Europe – startups that went on the be valued [sic] over USD 1 billion – relocated their headquarters abroad, with the vast majority moving to the US.
As a result, the EU imports over 80 percent of its digital technology.
Those words stung in 2024, but they hurt even more in 2026 when, spurred by wars over trade and the non-war over Greenland, Brussels started talking more seriously about developing its “strategic autonomy,” a concept meant to include the digital world.
Thus, (checks notes) France will replace Microsoft Teams and Zoom with its own domestically developed video conferencing platform, which is to be in all government departments by (checks notes) 2027.
The EU has a long way to go.
To Draghi, a part of the EU’s failure to keep up could be attributed to its “fragmented” capital markets. The answer to that, he maintained, was the formation of a capital markets union (CMU), an item on the Brussels wish list since (formally) 2015. That this is really a problem is hard to square with my own experience working in international equity markets, where, when it came to capital raising, Western borders were of little practical significance.
Thus, writing for Silicon Continent, Professors Luis Garicano and Per Stromberg look at the success of Sweden, an EU member-state, in producing “unicorns.” Their findings suggest that blame for the flight and/or paucity of EU unicorns lies elsewhere than in the absence of a CMU.
As Garicano and Stromberg explain, Sweden “has ten million people and 48 unicorns . . . the fourth most unicorns per capita in the world, behind only Israel, Iceland, and the United States.” The country “has the fourth most unicorns in Europe in absolute terms, only behind the UK, Germany, and France, countries with populations five to eight times larger. Italy’s GDP is more than four times Sweden’s, yet it has one-third of the unicorns, the same ratio as Spain, which has five times Sweden’s population and twice the GDP.”
Calculating the size of capital markets is an imprecise science. Equity capital is only part of the story, and total market capitalizations are little more than snapshots, collective assessments of what stocks quoted in that market are worth at any given moment. Nevertheless, it says something that Sweden’s total market capitalization is large for the country’s size (around $1.4 trillion in early 2026), although far smaller (in absolute terms) than those of Germany ($3 trillion) and France ($3.7 trillion). But to concentrate on the domestic picture alone is misleading.
Garicano and Stromberg:
Most of Europe’s venture capital is cross border, and Sweden does not have access to a much larger domestic market for capital than Germany or France. The lack of venture capital activity in most of Europe is not a supply problem, but a demand problem: there are simply not as many promising companies for venture capitalists to invest in.
The key to Sweden’s venture capital success is not the size of its domestic capital market or its access to foreign capital, “but that it has much greater supply of investable opportunities.”
Many of Europe’s most successful unicorns emerged in countries without large domestic venture capital markets, funded primarily by foreign investors. This means that if Italy or Spain had a pipeline of promising startups, the capital would find them.
An important element in Sweden’s outperformance, as Garicano and Stromberg explain, has been its tax system. As they point out, the nature of venture capital funds is such that it can be particularly difficult for (presumably, even promising) companies at the earliest stages of development to find capital.
The result is that:
Entrepreneurs must rely on other sources of funding such as personal savings, informal capital and angel investors before they reach a stage where venture capital becomes viable. Without a pre-venture capital financing ecosystem, venture capital has nothing to invest in.
Sweden’s success is that it does provide those investable companies. It does so thanks to a virtuous cycle built on angel investors.
Angels are individuals investing in startups on their own account. They have become the most important source of equity finance at the seed and early stages. In fact, there is now more early-stage angel financing than venture capital financing in the US and elsewhere.
However, some angels are more useful than others. Investors with money are, of course, welcome, but if they can also add expertise, contacts…
And Sweden had such people in the shape of some of those who had done well out of earlier success in the tech sector:
Sweden had a significant, but not astonishing, presence in the first wave of tech companies. But those alumni have gone on to found a huge number of new companies. Former employees of Spotify, Klarna, Skype, King and iZettle have built (and backed) a wave of unicorns, from finance and payments (Anyfin, Brite, Wise) and business software (Gilion, Stravito) to energy‑grid platforms (Fever) and new game studios (Resolution Games, Snowprint).
Part of this [boom] is due to a 2003 tax reform, where corporate tax on capital gains from selling shares in unlisted companies can be postponed as long as the proceeds are reinvested in other unlisted companies. Since Swedish founders and employee shareholders hold their equity through a corporation, this created a strong incentive to recycle proceeds into new ventures after a successful exit.
It was the right incentive for the right people. A broader tax-incentive scheme to encourage investment was largely ineffective. And finding those right people is not going to be a matter of throwing subsidies around. Sweden “needed the conditions (exit opportunities, tax incentives for reinvestment, a culture that treated serial entrepreneurship as normal) for successful founders to become the next generation’s backers.” Cultural factors are important, and not just those mentioned by Garicano and Stromberg. Sweden has long since ceased to be the egalitarian society of Bernie Sanders mythmaking, if indeed it ever was. Many of the roots of Swedish social democracy were pre-Marxist, and while the country certainly had a weakness for egalitarian groupthink (typically reinforced by powerful social mores), it came with nuances not always visible to the outsider, including a respect for the more creative sides of capitalism, from engineering achievements to (sometimes) business formation. Those attitudes made it easier for Sweden to change course when its Social Democratic model ran out of money in the early 1990s.
Policies designed to support wealth-creation in the aftermath of that change of course helped foster the rise of Swedish unicorns. Sweden abolished its wealth tax in 2007. Inheritance and gift taxes had already been swept away in 2005. A tax-efficient investment vehicle launched in 2012 further increased household participation in equity markets. This helped broaden and deepen the Swedish equity market. Entrepreneurs are, naturally enough, motivated by the thought of making money — other than a simple salary — from the companies they founded. That ambition is inextricably linked to sorting out how the company is to grow beyond a certain point or how it is to be managed after its founders have stepped down.
One exit mechanism can be the sale of the company to a larger business with the resources to develop it further. The founders may keep working there, although reporting to another CEO or working within a larger organization is often not to the taste of entrepreneurs. Another alternative is taking the company public, a route that can either be the beginning of an exit (once public, it is easier for entrepreneurs to sell a stake in the business) or a step forward to the next stage in its growth. In the latter case, the entrepreneur will typically use an IPO to attract new capital needed for expansion while remaining in charge. Either way, a deep, multi-tiered (one that can handle small companies as well as large) equity market helps, and Sweden has that:
Between 2016 and 2023, Sweden recorded 823 IPOs, the highest among EU member states, with nearly 90 percent on SME growth markets.
Of course, once public, it then becomes easier for the company to raise additional capital, given the right market conditions and pricing.
Direct investment by the Swedish government seems to have been less successful, and Sweden is not the only country where investment tax credits have underperformed, perhaps because they are off target:
Evidence from tax credit adoption across 31 U.S. states suggests they mostly induced participation from investors who did not fit the profile of engaged, expert angels. In fact, fewer than one percent of tax-credit recipients identify as professional investors. As a result, while the credits led to a one-fifth increase in the total volume of angel investing, they didn’t increase any meaningful economic outcome.
The lesson from Sweden is that Europe does not need more money for developed startups. If there is a case for government intervention, it is to provide tax relief to early, experienced investors in regions that lack them along the lines of the 2003 Swedish reform. Despite the cross-border nature of European venture capital, the first rounds do still typically come from locals.
There are, warn Garicano and Stromberg, no “short-cuts” towards replicating Sweden’s success. If there is to be government investment, it is best if the state is a co-investor alongside private capital, or, indirectly, as an investor in venture capital funds. In other words, investments fare better if private money is at the helm, rather than taxpayer funds. Amazing, but true!
Sweden is not the only part of the EU where unicorns have made a surprisingly frequent appearance. Estonia is another with ten, including Bolt, Wise, Veriff, and Pipedrive. That is not a bad haul for a country of not much more than one million people. While Sweden’s is not the only route to a successful unicorn stud farm — questions about that term should be addressed to the cryptozoologist of your choice — it is noteworthy that Estonia also benefited from a cadre of angels and other individuals with the right experience, a process frequently kicked off by alumni of Skype, which was founded in Estonia in 2003. Although Estonia’s tax system, which has been rated the most competitive in the world for over a decade, does not include Sweden’s “unlisted rollover,” it does provide that a company’s profits are only taxed when they are distributed. If reinvested (or simply retained) within the business, they are untaxed. Obviously, this won’t help companies at such an early stage of development that they are not yet profitable. But once they are, it can help finance them onwards.
Naturally, other factors help explain Sweden and Estonia’s unicorn herd, but in neither country’s case did the absence of a CMU hold them back. If other conditions favoring wealth creation are missing or present in insufficient quantities, the existence of a CMU will make no difference. Rather, Brussels’s drive for a CMU is based on the priority that — regardless of any economic rationale — it attaches to building an “ever closer union” between its member-states, a process built upon the transfer of their powers and competences to the supranational EU.
The structure of the CMU described by Draghi is, by definition, one based on centralization of authority:
As a key pillar of the CMU, the European Securities and Markets Authority (ESMA) should transition from a body that coordinates national regulators into the single common regulator for all EU securities markets, similar to the US Securities and Exchange Commission. An essential step to transform ESMA into such an agency is to modify its governance and decision-making processes along similar lines as those of the ECB Governing Council, detaching them as much as possible from the national interests of EU Member States.
This is not to say that Draghi is bereft of good ideas, such as encouraging a greater deployment of savings (and particularly pension savings) into equities. But that will require a broader cultural shift within the EU toward the acceptance of a higher degree of investment risk. Such a change in attitude cannot be imposed by top-down mandate and is, in any event, hard to square with Brussels’s fondness for bureaucracy and leftist social engineering, let alone its participation in a futile “race” to net zero, which seems set to turn much of the EU’s economy into an over-regulated scrapheap.
That is not a landscape in which unicorns can be expected to thrive.
The Capital Record: Sound & Vision
We released the latest in our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which is hosted by financier David L. Bahnsen, makes use of another two formats to deliver Capital Matters’ defense of free markets. The original podcast continues, but if you want to watch David talk, please click on the YouTube link.
The 285th episode: A Report Card on Corporate America (Podcast/YouTube)
Some of the biggest companies in America are changing what they do with DEI, saying no to the Human Rights Commission and the Southern Poverty Law Center, defending fossil fuels, and yes, even defending the profit motive. It sometimes takes more nudging than we want, but today’s podcast gives you an update on how shareholder engagement, not boycott, is yielding great dividends. (Podcast/YouTube)
The Capital Matters week that was . . .
AI
While some (especially on the “tech right”) prefer a hands-off approach to AI regulation, many populists insist on the need to regulate AI, especially on the grounds of protecting families and jobs. This policy divide risks creating a political fissure in the GOP, and navigating this divide will be critical in the years ahead…
Tariffs
President Trump campaigned on draining the swamp, but his tariff policies have instead flooded the swamp with a nearly 500 percent increase in lobbying revenues tied to tariffs in the fourth quarter of 2025 compared with the fourth quarter of 2024. That increase relative to 2016 was nearly 1,600 percent…
Pensions
Retirement in America was supposed to rest on two pillars: Social Security and the 401(k)’s promise of ownership, choice, and empowerment. Now, the first pillar is cracking, and the second is being slowly hollowed out. With Social Security projected to reach insolvency within the next decade — forcing Congress to confront painful choices on raising taxes, cutting benefits, or both — Americans will depend more than ever on their private retirement savings. Instead of strengthening that lifeline, however, the legal system underlying 401(k) accounts has been slowly captured by trial attorneys, transforming a vehicle of financial independence into a regime of judicial paternalism…
Health-Care
America’s First Amendment is not a fair-weather friend. Free speech does not exist to safeguard only what is popular, polite, or convenient for those in power, nor does it hinge on whether a speaker’s intentions are benevolent or self-serving. It exists as a safeguard in cases that are just the opposite: for speech that is controversial, commercial, disruptive, and inconvenient…
The EU
France’s President Macron has long been an advocate of “Europe,” by which he mainly means the EU, achieving “strategic autonomy.” After the bust-ups of the last few months between the U.S. and its allies, the need for that autonomy is viewed in many European capitals as being much more pressing.
But how to achieve it?
Tariffs
“Held: IEEPA does not authorize the President to impose tariffs.”
That is what the Supreme Court found in today’s ruling. It’s a glorious statement — but hardly glorious enough…
All the country-specific tariffs that Trump had imposed in his second term have now been struck down, as they were predicated on the IEEPA statute that the Supreme Court just determined does not authorize levies. But Trump has also implemented many product-specific tariffs that apply to categories of imports regardless of their country of origin under the authority of Section 232 of the Trade Expansion Act, enacted in 1962…
Before you panic about the $18 trillion in investment that Trump claimed his tariffs had secured, it’s worth understanding what that number actually was. It was, in short, mostly fiction. What follows is based on Lincicome’s piece, which has tons of graphs and data to look at…
Andy McCarthy is right on the money, literally, in his post today. He argues that the new 10 percent global tariff Trump is imposing under Section 122 of the 1974 Trade Act is flatly illegal. The law authorizes limited duties only “to deal with large and serious United States balance-of-payments deficits.”
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