Finnish Deep-Tech Scene: How to Ramp Up the Pioneering Spirit
When the economic situation is globally challenging, the financing of growth companies has also taken a hit – this is unlikely to come as a surprise to anyone. According to our recent study focusing on Finnish deep tech companies and their funding, the activity of international investors has decreased over the past year, affecting particularly those companies whose next phase involves scaling to international markets.
And these investments are in high demand: scaling science and research-based deep tech companies often require significant capital in their development phase before critical commercial inflection points are reached. Product development is expensive, especially if production facilities are a necessary part of the growth journey.
Despite the challenges in funding dynamics and the macro environment, everything is not as grim as it seems. On a positive note, the Finnish deep tech sector is doing quite well: early-stage companies are pushing through with the help of a healthy early-stage investor base, and some have really started to scale.
The main hurdle is later stage funding, which has always been an issue, but now more than ever. However, deep tech is gaining popularity amongst venture capitalists and rightfully so: it has massive potential. Deep tech is at the core of disruption and the companies in this sector are building actual, tangible products that aim to change the world, and often are considerably better and more ecological than the solutions they substitute. Who wouldn’t want to have better, faster, lighter and cheaper products?
Potential profits go hand in hand with positive impact, and both increase with scale. I expect the later stage funding hurdle to lower – companies (and their investors) just need to position themselves to be a no-brainer to both investors and customers. A tall order, but possible.
Greetings From Silicon Valley
Earlier this fall, I spent some time in the US to see what was happening, gain insight on deep tech and climate trends all while strengthening our network in Silicon Valley. I met with a couple dozen local venture capitalists, and most shared a similar view: the Nordics (Finland included) is seen as an appealing environment for deep/climate tech as the region is known for progressive attitudes towards climate solutions with tons of world-class engineering talent.
This, of course, sounds like a fantastic opportunity for the Nordics (& Finland): companies with strong technological foundations in a welcoming environment aligning well with interests of US investors – a match made in heaven, right? There are still some issues that need to be tackled though: the US market is massive, with tons and tons of investment opportunities. Investors may see the Nordics as an appealing market, but making deals across the Atlantic without feet on the ground and having more than enough deal flow locally leads to a logical outcome: overlooking the region despite the appeal.
What can be done? First, let’s face the facts, Finland is a small and remote market. We are punching above our weight, but we are a small player in the global scene. This is why we need to be proactive. International relationships need to be built, and the best way to start is through presence. Even though we live in the Zoom era, physical meetings work best to build trust and start dialogue. I found out firsthand that getting introduced to other relevant investors is not that difficult after you’ve built trust – you just need to ask 😉
So, my advice for both Finnish companies looking for investors and Finnish venture capital funds seeking co-investors: increase ambition and boldly explore the US market. Competition is brutal, so the feedback from US investors is extremely valuable, even if they pass on a deal – you lose nothing but gain significantly.
If you want to talk about deep tech (and deep tech-y climate) in Finland, stay in touch!
Tuomas Rekonen
Investment Manager
tuomas.rekonen@tesi.fi
