Finnish Startups Attract the Most Venture Capital Investments in Europe
New Invest Europe statistics reveal that Finnish startups attracted the most venture capital investments in Europe in 2019. For the second year in a row, Finland ranks the first in terms of venture capital investments received when measured as a percentage of GDP. The current economic crisis may have an effect on investment activity, but steps are being taken to ensure that the Finnish startup ecosystem remains strong.
According to recent Invest Europe statistics, for the second year in a row, Finnish startups received the most domestic and foreign venture capital (VC) investments in Europe, when measured as a percentage of GDP. The statistics show that Finnish startups have received more investments than their European counterparts also in the long term (2015-2019). Compared to the size of the national economy, the sum of VC investments into Finnish startups was more than twice the European average. Second in the comparison were British startups.
Behind these results is a booming startup ecosystem – growth-oriented companies ready to seize innovation opportunities, and domestic VC investors who accelerate these companies’ growth and internationalisation. In the later phase of international growth, an important part in the ecosystem is also played by foreign investors who, together with domestic VCs, invest in the top startups in Finland.
In 2019, Finnish companies received a total of €293 million in VC investments (+ 28% from 2018). Of this amount, €113 million (+ 5%) came from domestic investors and €180 million (+ 48%) from foreign investors. These investments were made in a total of 176 (+ 13%) Finnish companies.
“These positive statistics show that Finnish startups and the ecosystem built around them have made great strides in recent years. However, in terms of individual investment rounds, we still lag behind the world’s leading startup ecosystems. In order to keep building top international companies, we need globally competitive financing rounds now and in the future. Finland offers great opportunities for later-stage funds”, says Pia Santavirta, Managing Director of the Finnish Venture Capital Association (FVCA).
In the first half of the year, investments have still been made at the pace of last year, and new VC funds have been announced even in the last few months. However, according to a survey for VC investors, without further funding one-third of startups will run out of cash in less than six months and one-third in 6-12 months. While the current crisis has left many promising startups in a difficult situation, steps to ensure the availability of bridge financing have already been taken.
Ensuring Future Growth
“The Vihriälä working group’s report [that assessed the impact of the coronavirus crisis and proposed measures that can be used to limit the damage to the Finnish economy] stated that the Finnish innovation ecosystem is strong, but the current crisis threatens it. I wholeheartedly agree with this: top companies with the potential to increase Finland’s competitiveness and re-shape our business scene are constantly being built here. To counter the financial strain to the national economy caused by the pandemic, we need these innovative companies that have the ability to rethink what the companies of the future will look like, and who are ready for that change. To achieve this, temporary support from the government is also needed”, comments Sami Lampinen, Chairman of the Board of FVCA.
Economic sustainability is achieved by ensuring that the most promising startups, important for Finland’s economic growth, get through the current crisis. Building on the arguments made in the Vihriälä report, the FVCA has proposed that our most potential startups are helped during the crisis with equity funding, coming from both experienced private-sector investors and the state-owned investment company Tesi in equal shares.
“With these crisis funding instruments, in a two-year timeframe at least €250 million of private capital could be activated, and a total of €500 million could be channelled to startups through market-based, private and public sector equity funding. We are not talking about grants to startups, we are talking about investments. This also means that if the company that receives an investment succeeds, the investor – in this case also the state – gets a return on the investment”, explains Inka Mero, founding partner of Voima Ventures and a member of Minister Mika Lintilä’s policy working group.
The FVCA has proposed two separate crisis funding programs. The first, €100 million scheme for promising early-stage startups, would help around 100-150 startups reach the international growth phase. The other, €150 million program would be aimed at later-stage startups that are already in the phase of international growth and would cover about 60 of these companies. In both cases, the financing arrangement would require experienced private-sector investors to participate in the financing round with a 50% share.
“If a company receives a private-sector VC investment, it means that it has undergone a thorough screening process and that experienced investors believe in its potential for growth and internationalisation. Now if ever is the time to take advantage of the know-how and networks of investors, and to harness private capital as effectively as possible to help our top startups get through the crisis. Luckily, our government recognises the importance of startups and innovations, and steps towards the right direction have already been taken. This gives foreign investors a strong signal that Finland is, and will continue to be, a good place to invest in”, Santavirta concludes.
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