18. June 2013–
When thinking of Finnish tech startups, two global gaming phenomenons usually come to mind: Rovio and Supercell. But the land of sweeping forests and countless saunas is home to more than just multi-million dollar game companies. Recently, Finland came in at third place – behind the UK and France – for equity financing in Europe with a 12 per cent share of all investment into European VC-backed companies, according to a quarterly report released by Dow Jones VentureSource.
VentureVillage was part of a group of journalists invited by Finnfacts to scope out the entrepreneurial climate in Finland. Is the Nordic country becoming Northern Europe's startup hothouse? How is Nokia's decline affecting startups? Read on to find out...
Finland's big boost of public funding
Interestingly, Finland's burgeoning tech scene is largely fuelled by Tekes – a public-funded agency for financing innovative R&D and business in the country with a whopping annual budget of €550m. A rare breed in Europe, the non-profit governmental organisation offers services to Finnish or international companies located in Finland and does not take any equity or ownership on intellectual property.
In 2012, Tekes' funding specifically for startups rose to €135m with Supercell – a company now boasting $2.4m in revenue per day – completing its €1m funding scheme for Young Innovative Growth Companies (YIC) last December. YIC, which employs a rigorous startup selection process and planned phases and evaluation panels, aims to accelerate the growth and internationalisation of promising companies.
“Public funding is a type of leverage for private funding – you can’t really operate your company sustainably with public funding alone. But in general, there is a shortage of really early-stage funding in Finland," explained Antti Vilpponen, the former ArcticStartup CEO who is now working at infrastructure-as-a-service startup UpCloud. "You have to bootstrap quite far by yourself before you can actually attract proper funding."
"We need to recreate the VC industry"
As an effort to further boost the Finnish startup ecosystem, Vigo – a temporary accelerator initiative aimed at bridging the gap between early-stage tech startups and international venture funding – was launched in 2009 by the Finnish Ministry of Employment and Economy.
"In the US, you have accelerators like Y Combinator and TechStars, which is also active in Europe, but those programmes focus more on pre-seed funding – we focus on seed stage," said Vigo Programme Coordinator Seppo Ruotsalainen. "Here, there are a few VCs but their volumes are far too low. And if there are no private VCs, then the market is not actually working and that's a big concern."
"The main goal of the Vigo programme is to recreate the VC industry for early-stage startups. At the same time, we want to increase the number of startups and successful international A rounds," Ruotsalainen continued.
But often times, funding in itself is not enough to help get a startup off the ground, which is why the backbone of the programme is made up of Vigo Accelerators – private companies run by seasoned entrepreneurs who provide funding, mentorship and access to their networks to startups.
Unlike in Germany or the US – where mentors participating in accelerators often don't receive equity or contribute funding – each Vigo Accelerator is led by experienced entrepreneurs who must invest both time and money, creating more incentives for coaching. Currently, there are ten Vigo Accelerators spanning the sectors of cleantech, games, web, fashion and mobile.
When we asked Vilpponen, who previously headed tech blog ArcticStartup, about other notable accelerators in Finland, he responded: "Vigo is definitely the most successful one and most of it has to do with the careful screening of participating companies and the mentors."
"For mentors, the programme is appealing because these are experienced entrepreneurs who are able to put their own stake into the startup and leverage or multiply their investment. This format they're testing at Vigo is similar to the accelerator models in Israel and Singapore, where the government multiplies private funding invested into companies," added Vilpponen.
Still, the Vigo Programme is only a "temporary intervention". Come 2016, when the initiative is expected to terminate, it'll be interesting to see how the Finnish venture capital market has changed and whether it successfully attracted international investors into the ecosystem.
The Finnish startup landscape – more than just Angry Birds
With Supercell under its belt, Lifeline Ventures – an accelerator focusing on health, web and games – has the largest portfolio in the Vigo Programme. But it's not only mobile games taking the reigns of the tech scene: we got to meet a group of innovative companies tackling everything from waste management to physical activity tracking.
In a sleekly designed, all-white meeting room that looked like a page from the future, ZenRobotics cofounder (and former rap singer) Jufo Peltomaa gave us some background behind the huge EU waste problem and the "first robotic waste sorting system in the world". With the help of advanced machine learning technology, the ZenRobotics Recycler separates construction waste from a conveyor belt and picks out recyclable materials, which are then deposited into specific bins for collection and potential reuse.
On the other end of startup spectrum is Moves, an app designed to track your physical activity continuously through the day. Unlike RunKeeper, it is able to recognise a variety of movements – such as walking, cycling, running and mode of transportation – automatically and in the background (so as to not drain your battery). The aim? To create awareness on how much you move so that you can take control of your fitness and well-being.
Recently, health tech device maker Valkee – a Lifeline portfolio company – scored an impressive €7.4m round of funding from both new and existing investors, which include well-known angel Esther Dyson and Playfish CEO Kristian Segerstrale.
Founded by Juuso Nissilä and ex-Nokia research Antti Aunio, Valkee has developed a device that shines light into the brain through the ear canals to prevent or treat Seasonal Affective Disorder – a common occurrence in Finnish winters when there are sometimes only six hours of daylight.
Nokia's decline is helping develop the ecosystem
Once the world's leading mobile phone company, Nokia is now sliding behind competitors Samsung and Apple. Last June, Nokia announced that 10,000 jobs would be slashed from the mobile division by the end of 2013. Between the beginning of 2009 to the end of 2011, the company's staff in Finland has been declining at a rate of 27 per cent.
"The only benefit of Nokia cutting back has been the emergence of startups. Many skilled former Nokia employees have decided to start businesses of their own," said Nokia's former Chief Executive Olli-Pekka Kallasvuo – who left the company in late 2010 – in an interview with the Wall Street Journal earlier this year.
The job cuts spawned Nokia's Bridge programme in April 2011, which offers seed funding to departing employees to set up their own startups. Among the companies to receive financing from the scheme is much-hyped smartphone startup Jolla.
Headquartered in a spacious glassy building in Helsinki, Jolla has developed an eponymous device that runs on its own open Sailfish OS, which was revived from a nixed Nokia project. Two of the phone's main draws are its gesture-based UI and smart removable backplate, known as "The Other Half", that can change the device's software when snapped on.
Jolla CEO Tomi Pienimäki told us that the startup is expecting its second round of investment "within weeks" and already claims preorders from 118 countries. The mobile device is slated to be shipped out later this year.
Startup Sauna priming a new pool of startups
On the outskirts of Helsinki, in a building that was once used as a warehouse for hand disinfectant liquid, you'll find the Startup Sauna coworking space. Founded in 2010, the non-profit organisation offers three programmes – an internship, accelerator and conference – for startups and aspiring entrepreneurs in Northern Europe and Russia.
The Startup Sauna programme, held twice a year, provides workshops, coaching and small sums of money (approximately €1000) to entrepreneurial teams. Antti Ylimutka, who headed the Startup Sauna until last week, said that the aim is to develop young companies to the stage where they'll be ready to raise a seed round of funding.
"A Vigo Accelerator is usually the next step. We are trying – with Vigo – to prime these startups so they eventually get investment," he added. Startup Sauna takes no equity from companies and is funded by Aalto University and Tekes among others.
"I talked to Steve Blank in a cafe once and he told me, 'Just focus on creating good startups, the rest will come,'" recalled Ylimutka. "It’s happening piece by piece. I don’t think there’s one solution to build a good startup ecosystem, it’s a combination of things and it happens bit by bit."
Angry Birds – flickr user Harshit Sekhon
Helsinki – © Scanrail - Fotolia.com