Oil and Gas Pose Challenge to Norway’s Tech Startups

May 29, 2013, 4:14 p.m. ET

Oil and Gas Pose Challenge to Norway’s Tech Startups

By BEN ROONEY

For those who follow Europe’s tech scene, naming startups from the Nordic/Baltic region wouldn’t be too hard.

There are any number from Sweden (music streaming site Spotify AB, payment service Klarna AB, games maker Mojang AB). Finland is host to Angry Birds maker Rovio. Even tiny Estonia has virtual fitting-room-provider Fits.me. But Norway? The browser company Opera Software OPERA.OS +0.23% ASA and…and, unless you are in the oil and gas business, chances are you are going to struggle.This isn’t to say that Norway doesn’t have a tech startup scene, but when compared with its regional neighbors, it punches well below its weight. So why is it that a country that, according to the World Bank, has the third-highest per capita GDP in the world ($98,081 in 2011 compared with $48,112 for the U.S.) should be such a tech startup flyweight?

The high per capita GDP and the fledgling tech scene aren’t unrelated. The dominance of oil and gas in Norway’s economy is squeezing out other sectors, and Norway risks forfeiting its entrepreneurial future unless cultural and structural impediments are removed while oil reserves still have the power to bankroll innovation.

Norway is attracting venture funds. While dwarfed by neighbor Sweden, which according to data from the European Private Equity and Venture Capital Association attracted €222 million ($286 million) in venture investment in 2012, Norway did pull in €112 million, more than tech hot spot Finland’s €79 million.

But where is that money going? Nearly a third of Norway’s money (€35 million) went to the energy and environment sector, compared with just 4% in Sweden and 15% in Finland.

The Nordic Growth Entrepreneurship Review 2012, an analysis of regional entrepreneurship, found that while Norway had a high number of fast-growing companies, nearly half were either in the oil-and-gas sector, or in aquaculture.

According to Fredrik Syversen, the director of industry development at IKT-Norge, the trade organization for the Norwegian ICT industry, the imbalance is harming the growth of Norwegian tech startups.

“All funding is geared towards oil and gas,” he said. “As an investor you are looking for good returns; the returns from the North Sea are much more secure and will bring you back much more.

“For tech startups to compete with the success we have in the oil and gas [sectors] is almost impossible.”

But rather than fight the sector, startups should work with it, said Tor Grønsund author of a forthcoming book, “Startup Vikings.” He said the sector represents a great opportunity.

“In much the same way as Israeli startups have a relationship with the military sector, so too can Norwegian ones work with oil and gas,” Mr. Grønsund said. Tech companies “can deliver services to the oil-and-gas industry and that will create spillovers that will give back to the tech scene in general. Startups can use it as a springboard.”

Hallstein Bjercke, Oslo’s vice mayor, said there are moves to diversify away from natural resources. “Even though oil is peak right now—the income has never been bigger—I would say that the focus is shifting in Norway,” he said. “Tech is becoming more and more important. We see knowledge-based industry as the future. You can’t live on resources forever.”

He said the government was trying to play its part, pointing to funding available to startups through the government’s Innovation Norway agency. But Mr. Bjercke did admit there were fiscal issues that had to be addressed to help build a thriving angel investor community: “Stock options are taxed and there are no incentives for investors to become angels,” he said.

He said that a shortage of capital for non-oil-and-gas companies meant that too often companies were starved of cash at just the time they needed it to grow, resulting in early exits. “What has been the challenge so far is that they reach a certain level of international success, and at that level they have been acquired as they have not been able to be grow further as a Norwegian-based company.”

That, or they leave Norway. One such enterprise in the process of moving is Companybook, a business data provider. Founded nearly three years ago, the Oslo-based startup is relocating its headquarters to London, said new Chief Executive Officer Chris Rhodes. The company, which was funded entirely by high-net-worth individuals in Norway, is moving because, said Mr. Rhodes, being in Norway wasn’t conducive to building a global company.

“These people [the founders] recognize that both from a growth and from an acquisition perspective, Norway is not the place to be.”

But like so much of western Europe there are cultural issues that need to be overcome in Norwegian society, said Mr. Grønsund, if entrepreneurialism is to take root. One problem that Norway’s wealth brings is that given the choice between the hard life of a tech entrepreneur, and other options, many Norwegians don’t see the attraction.

“The challenge is the alternatives in the Norwegian job markets are too good. When confronted with ‘should I become an entrepreneur?’ there is too much risk compared with existing job opportunities for bright young people.”