Nordic growth companies attract interest

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Growth entrepreneurship is on the rise in Finland, fuelled by the general desire for renewal, the systematic effort of universities to advance growth entrepreneurship, and the media spotlight on successful growth stories. Meanwhile, Slush Helsinki attracts more participants and more foreign attention year after year.

In addition to Finland, Sweden and Denmark have ranked at the top in Europe when comparing venture  capital investment volumes of different countries in relation to their gross domestic product. According to Creandum’s global analysis, Nordic companies accounted for almost one in ten of the unicorns, i.e. exits of over one billion dollars, made in 2005–2014. The Nordic share of European unicorn exits was over 50%.

Insight from Central Europe

Central European venture capital funds have also taken notice of this. More and more funds are actively scouting the Nordic market in search of suitable investment targets. Many don’t have the resources to establish their own office in the Nordic countries, so mapping the deal flow is mainly done by attending  local start-up events and through independent contacts.

A lack of knowledge of local practices makes investing more difficult. FII eases the way by actively communicating with investors, presenting them with interesting targets, and acting as a reliable co-investor with knowledge of local practices and legislation.

A Central European fund or investor brings the portfolio company added value when the company expands to those markets. This means opening local doors, assisting in making the right recruitments, and bringing insight to strategically important decisions.

Nordic companies must think bigger

Nordic companies have to think about things from an international perspective right from the start, because their home market is small. Big counties in Central Europe, like Germany and France, offer a reasonably large internal market; in these countries, a company doesn’t have to plan for internationalization at the start-up phase.

There is a broad spectrum of professionally skilled people living in Germany – many of them are of foreign origin. Teams of a very international makeup can be assembled with local resources.

For example, many online shops based in Berlin serve customers around the world – and in their own languages – so they don’t have to establish local sites outside Germany.

Investing in Finnish companies

The focus of Central European venture capital funds aligns with international trends, and many are focused on digitalization, cloud/SaaS services, or, more broadly, on software solutions. In addition to the mainstream, life sciences and cleantech are areas targeted by investments, albeit more selectively. Purely hardware-driven businesses are not favored by investors at the moment.

Earlybird Venture Capital, Emerald Technology Ventures, Sofinnova Ventures, Creathor Venture and Idinvest Partners, and others, have invested in Finnish companies.

Many major companies have their own corporate venturing functions, which typically have a business model that is in the middle ground between venture capital funds and strategic minority investments. Corporate venture capital funds can often leverage the parent company’s resources for the benefit of the portfolio company, but the funds may require differing rights related to the company’s decision-making. Siemens Venture Capital and Robert Bosch Venture Capital are among the players familiar to the Finns.

Allocate time for discussions

Foreign investors praise the Finnish early-stage technology field for its strong tech know-how and for the straightforward and reliable operating culture. Investors suggest that Finns would be better off introducing more extensive solution-centric models rather than individual technology applications. Sufficient diversity of expertise within teams is often brought up in discussions.

The right stage for a Finnish growth company to actively seek an investment from Central Europe – or from outside Finland in general – is typically the A-round when the first evidence of the business model’s scalability outside Finland exists. Discussions with the right parties should be initiated well ahead of the actual funding round because it generally takes months to finalize the processes.

Better utilization of untapped potential is beneficial for Finnish growth companies and for Central European early-stage investors alike. Mutual interest can certainly be found.

Jussi Sainiemi