The fundamentally broken Finnish funding system

Amen to this.

I totally agree! I would personally love to work with an international project with both Finnish and foreign partners. Aiming anything only for the Finnish market is, in my opinion, a suicide. And especially when we're talking about the internet or anything to do with mobile technology, there's no reason why stay in Finland. But for some reason it seems the Finns want to do everything themselves, they want to have everything in Finnish (even though the level of their English is extremely good). Why invent the wheel again instead of going forward is beyond me.

This was a really good post, thank you!

I believe the problem here lies deeply in the cornerstones of the Finnish culture. Risk taking is not accepted in any area of life here. If you drop out of school to start a band or create a startup, you're being foolish.

Only long-time commitment and sweat capital are valued high. And only if you make something the investors can hold in hand. Services are not taken seriously.

The whole country talks about innovations all the time. It seems the whole concept has become a mantra that really has lost its sense. We can't produce innovations by sitting down and trying to come up with innovations. No. It needs experiments, mistakes and epic fails.

We can't wait for one big idea. We need hundreds of ideas. We need hundreds of startups.

If you have an idea about a product and want to start a factory, you need a million. If you have an idea about a web service and want to put it up, you need three months, a small team and a few Ks to live while doing it. The cost of a funding application process must be somewhat similar.

Have to agree on many parts. Some comments on the last part:

"Lastly, I would like to stress that funders do not have enough access to information about the startups in the country to make decisions."

What should startups then do about this? Whose problem is it?

"There is too little public information about the business angels here and how to reach them. There are very few business angel networks, and they are too difficult to reach."

Sure. That's their decision, as it will one day be yours. Those who want direct and unsifted dealflow, make themselves available,

"There are too few international VCs scouting the market. It would be helpful to see efforts to bring more of them at regular events here, the same way VCs go to Y-Combinator to find their next Google."

The basic reply for this is that deal flow in Finland is poor.
Better deal flow (like in Y) will bring the investors in. Why would they attend if the company funding asks are not solid revenue generating cases? How would you use your time most efficiently as a VC?

Good post Ramine

For Petri, I think there is very strong mentality in Finland that preps people to work for big companies after graduation, instead of actually figuring out on their what they might want to do, and how to achieve it.

Would be nice to discuss case studies of businesses such as Habbo hotel here, though.

I think starting in Finland is not the best situation. Yet it cannot be the worst (hopefully).

The key point is that TEKES only funds R&D, not business potential.

I've known companies who kept on re-inventing the same product, each time using a different programming language or software architecture paradigm, and who repeatedly got funding from TEKES to do that.

In theory, TEKES has recently started demanding at least a vague sign of business potential in the applications that they receive but, in practice, the people making the decisions are all engineers, so they make the decisions based on cool new technologies to fund, rather than on demonstrated market potential.

The same thing goes for most consulting companies and parapublic organizations in Finland: this is a nation build by engineers, through engineers and for engineers. To some Finn with an engineering degree, everything is an engineering nail waiting to be hammered down with engineering tools. That's why most Finns with any real business ambition end up leaving the country for greener pastures such as UK or USA. Not only is funding in Finland mostly technology-oriented, rather than market-oriented, but the whole business culture here is permeated with engineering buzzwords and concepts.

Excellent post Ramine, though I don't fully agree with your comparison that YC has spent less than $3M to "create" all these success stories. I mean, surely all of these companies got quick access to a lot of capital as they started to grow?

It is true that we don't have Y-Combinator type of organization here. Well, we perhaps have one group of quite prominent people who tried to do it, but they have so far failed to find a single company worth investing into, as far as I know.

I am currently in silicon valley and just last night I had a great talk about the Finnish situation over a dinner. I think the fundamental problem is that the existence of Tekes keeps the private money out of the early stage companies. The Vigo program is obviously an excellent step to the right direction, but in a way the program exists because the system is fundamentally broken to begin with.

Entrepreneurs have a fairly easy access to small amounts of money from government if they just spend enough time jumping through the hoops, which means most are not willing to take early stage investments in exchange of a share in the company. It's hard for early stage investors to compete with Tekes (and of course they should not have to - you should almost be required to raise some angel capital in order to get Tekes funding).

Good post Ramine & I mostly agree but still I would say that Finnish biz-people / entrepreneurs whine too much and do too little! Entrepreneurs should spend some (more) time and read through Tekes material. Yes yes, bureucracy, too many pages, forms to be filled, slow decision making etc bla bla bla. I would rather see public funders such as Tekes as an extra opportunity for Finnish companies. MNEs like Nokia has good understanding on how to utilize Tekes funding. Start-ups could perhaps learn something from bigger companies?

What comes to the projects, it is up to the entrepreneurs / project lead to define the goals of the development project and to decide what they try to achieve in Tekes projects. If there are no sensible results or if you don't get the money at all, I don't think you can put the blame ONLY on Tekes experts. Obviously there is something missing in your proposal (even though they haven't acted as CEOs they have gone through hundreds of applications, biz-plans and budgets).

Naturally there are many areas of improvement as well. Perhaps Tekes do not have that many (ex-)CEOs or entrepreneurs making decision on funding but then again -- those ex-CEO dudes / dudettes most likely haven't applied for a job at Tekes. Maybe that is because traditionally Tekes has been looking for Technology Experts not Business Specialists. Also there is certain historical burden but it is ok to give feedback and proposals to improve and chance how things are done. Start a riot, pick up a phone or write an e-mail.

Tekes should also collaborate more with experienced advisors who could be appointed (hired) to start-up projects. And for internationalization -- Tekes (and FinPro) both have impressive network of offices around the world which do not provide that good help. At least I have searched for contacts and help (set up a company in US, find partners etc.) via Tekes (US) but they haven't been able to help me. I am surely not the only one. So of course there are areas of improvement but as you Ramine have said, focus on getting things done -- search help from other sources, meet a lot people etc. Also for funding Tekes is not the only source of funding even if we don't have well organized angel networks etc.

And maybe entrepreneurs should focus more on managing their burnrate, focus on quick results and networking. Besides experienced advisors there are plenty of things you could learn from other entrepreneurs. Luckily various types of networking events already take place in Helsinki. FINALLY! I hope the same trend is coming true in other towns / cities as well.

Ramine, great post - you nailed it! Luckily there are growing number of entrepreneurial people that are becoming aware of this fact. Thanks to aaaltoes.com, arcticstartup.com, slush etc.

We as entrepreneurs also need to understand that we hold the keys to fix this:

A) by saying NO to structures (and even money) that we DO NOT believe in
B) jointly supporting structures we DO believe in
C) ourselves doing as much as we can in addition to talking about these issues

If we just wait that "someone" will fix these, we are not behaving like entrepreneurs and we'll get (and deserve, what can be expect. - also I think this same problem is much wider than just Finland..

To Jani. Right on.

Some of the problems to TEKES money comes from EU, as there are rules how "support" money can be given, so that it would not "harm the competition" - whatever the reason, it's pretty messed up.

All of the money, regardless of the source should be somehow tied into agreed success metrics that make clear business sense. Also like the idea that there should be "mandatory private capital" (angel or similar) for any support funding.

Also, there is no reason why y-combinator or techStars type of programs/organizations could not be run in Finland. Few of the lessons learned from aaltoes SV visit was that, if such program would be setup in Finland, it should be kept open to anyone from anywhere (no need to limit to Finnish people), for both start-ups & investors. Also for the demo days part of these programs, if the investors can not come to Finland, then startups need to be flown to investors for few weeks. IE to keep demo days in place like San Francisco, London etc.

Another lesson was to understand it's not really countries competing than it is cities from different countries competing worldwide, that kinda have potential to change some of the thinking when trying to find solutions to these issues.

Thanks for all the replies.
There's a lot of discussion here, on FB, and on Arctic startup (http://bit.ly/4VIbvz).

I have to say that yes, Tekes is not the only source, but in general the system needs improvements. It's good to see so many people want to see changes though.

That said, Sonja, I agree, having this tool at our disposition is a very powerful competitive edge, which most other countries do not have. We simply have to adapt, and them also.

Interesting topic. I agree with you on many points. On some I disagree, however.

"Finland has plenty of capital. For example, public efforts from entities such as Tekes and VeraVenture pour several millions in projects. Consider that Y-Combinator has invested in ~150 startups, for a total sum of less than $3M since its creation.

So the issue is not so much the lack of money, but how it is spent..."

I think that VeraVenture is doing a fairly good job. Perhaps they are funding a few companies that should not be funded, but that is almost part of their mission.

And funding startups is such a small part of what TEKES is doing and should be doing! I think that if you compare TEKES to Y-Combinator and the likes, you are missing the point. (Or do not know what you are talking about.)

Although there is surely potential for improvement, my own experiences on doing business with TEKES people are very positive. And the beaurocracy is not actually that cumbersome. There are, for example, very good instructions for applications on the webpags. This is why I do not, at all, understand this "bashing" of TEKES. (Of course, part of it is probably explained by the fact that some people have had a few of their applications rejected...)

And good examples of new ideas taking off at TEKES are the NIY (young innovative companies) program and also how Verso program has been managed. Then again, with Vigo I think it is too early to tell. My initial guess is that at least the current compensation model for the accelerators is not optimized for rapid growth and success of the startups. (At least the consulting fees seem to be fairly large.) Basically, my opinion is that it is often more efficient to fund good entrepreneurs and companies directly. I could be wrong, and this does not need to be totally either or...

"Lastly, I would like to stress that funders do not have enough access to information about the startups in the country to make decisions. There is too little public information about the business angels here and how to reach them. There are very few business angel networks, and they are too difficult to reach. There are too few international VCs scouting the market. It would be helpful to see efforts to bring more of them at regular events here, the same way VCs go to Y-Combinator to find their next Google."

If the companies that are seeking money do not find the funders and provide them with enough information I guess that tells a lot about whether they should receive funding?

Of course, there are not that many angel investors and funders in Finland because we are not that rich. We do not have any oil - like to Norwegians - and we came down from the trees a few centuries later than the Swedes. However, in my relatively limited experience the foreign investors are actually surprisingly active. I have been contacted by foreign VCs, although we are not even seeking funding.

"I sincerely hope we can make the system here more efficient. If we don’t, it would mean that most companies will either lack proper chances to succeed, or have to move abroad. In any case, the biggest loser will be the Finnish economy."

I hope that too. But I think that the main challenge is entrepreneurship itself, how it is valued and made attractive for entrepreneurs themselves - not funding. Actually, I think that many companies should be thinking more about how to get (more) money from customers, not investors. Listening to a lot of people in the "start-up scene" (especially the people in the so called incubators), sometimes it seems that the sole purpose of a young company is just to try to get as much funding as possible.

Sonja, I could not agree with you more! Nothing to add!

Sonja, you rock!

Excellent discussion - thanks for starting this Ramine!

Some comments and ad-ons..

There is one fundamental bias on these Tekes criticisms discussion, for some reason always when I read these I get understanding that VC funding is somehow *free from burden of bureaucracy*, and Tekes funding is full it. Well, that is not the case. VC money can be (and typically is) much much more demanding that to write good reports for Tekes how their money was spend. In challenging situations Tekes reporting may feel like a joy

I think that starting entrepreneurs should see that Tekes reporting as a practice for doing VC reporting work. If you think that this type of reporting is too challenging for your company, maybe you also should not go looking that far for VC investment.

I have been following Tekes in different ways about 10 years now, and it has improved alot. And so has the finnish entrepreneurial landscape also. Maybe the legislation is not most friendly, nor the climate, but there is more and more this kind of discussions going on in the web or in different corner tables, and office corridors! And that is what counts, the spirit and will to be entrepreneur, the more people there is of that nature - the more like it is that the structures will change, as Valto did put it!

Keep up the good conversation and furthermost, go and do!

Mikki, I'd like to clarify a few things I may have expressed unclearly.

At no point did I question the value of VeraVenture's investments in this post. If anything, I'd like to see more VCs here.

I fully agree that Tekes is needed, and is a valuable tool to support R&D projects. I quote: “While I understand the value Tekes for R&D of large projects, it is an inadequate tool for stimulating growth entrepreneurship”. Just to clarify, I'm not saying that Tekes is a bad thing in general.

I would like to state that I have not moved forward with any Tekes application yet, for the simple reason that I did not have time to dedicate to this. MySites has been funded entirely by private investments, except for an early loan from Finnvera. We did not apply (or get rejected) by Tekes.

You say: “If the companies that are seeking money do not find the funders and provide them with enough information I guess that tells a lot about whether they should receive funding?”

I would like to stress that Muxlim, Jaiku, MySites, Xihalife and Dopplr all decided to raise foreign money.
In particular, Muxlim attempted to raise funding in Finland for one year without success, before being able to raise money from Sweden in a week. I sincerely deplore this.

Aknu:
I agree. Of course any money comes with tracking and reporting

However, the very existence of Vigo shows that there are efforts to be made in making things easier and better. I am very positive about these changes, but it will take time to see if they deliver!

In my opinion the government should not be in the VC field at all. I might be that most of the people in Finland would not share this opinion, so be it. It also might be difficult for some of entrepreneurs to speak about that in public since practically every tech business that has been running for more that five years is taking money from TEKES. I know I am;)

So, I found TEKES money to be totally different thing than private investor money. Comparing these is difficult. TEKES does not push companies to do great business. That is just not the way how public money works. They make sure that company follows the rules they give with the money, that is what they can do.

I found this issue quite annoying: in order to lower your taxation you have to get government funding to every bigger project you do. So, first you do business, then pay taxes, then go to TEKES and ask for some of your money back. Order of these steps might vary. Bigger companies hire people to do that, small time players do by themselves. For us all it is overhead.

I know there are great people working at TEKES and I'm in great debt for your efforts, thank you! I'm not saying that people there are not capable of doing good judgement. In their position I would do the same thing, follow the rules. However, I would never invest my own money to capitalize companies to get consultants (usually without any glue in that specific business) to figure out what might be the right market or so on. How many of TEKES employees would invest their own money to those companies/activities? Would you give someone without a working product €100K for networking, BizDev or market research? I know I wouldn't;)

It is also a bad sign that nowadays there are organizations only to coordinate TEKES projects, some formed as privately held corporations(what? entrepreneurship?). Why do we have so many people coordinating Finnish HighTech startups in their journey to the global market and so few people running those companies?

Staying in the Valley currently, I must agree with you, Finland is not good for testing a product for global market. User base is too small. You get the wrong idea about the market. Our best selling product has less than 1% of its market in Finland and yes we have done marketing in Finland. Starting in Finland, then expanding to global is the most expensive way to do it.

That all being said from my perspective as an entrepreneur, I still found TEKES to be good (maybe not optimal) for Finnish economy and this is why:
Ok, lets face it, they fund projects that no private investor would ever fund. Projects with no business capabilities at all. But every time they fund something it goes >1 times to GDP of Finland. Just the way going to Iraq boosted to US economy. If you would load the same money to airplane and drop it to Helsinki it would have less positive effect to the GDP.

Obviously that is not a ultimate good thing for the economy in the long term, but it offers great possibilities to adjust economy in shot term and therefore adds stability to it. So one thing TEKES has to be capable of, is to be capable to use lot of money. If you have to spend €560M, you will run out of great startups (guess less than 500 in Finland). Therefore you need rules that make it possible to fund something else. E.g. http://www.supermatrix.fi. But would you invest your own money to Supermatrix Do you really think we will all start to use thin clients and Finnet will drive Google and Apple out of business in Finland? I know, that was provocative, the good thing is that they are building faster networks...

Generally it has never been a great idea to put politicians to tell which industry will make the new Nokia. They don't know, we don't know, but the market will tell us eventually. Why is it always so in Finland, that we end up having something like Sitra to put our taxpayers money to something, a new bio-tech-Nokia perhaps? Are our politicians so much smarter than their colleagues in other countries;) What I would like to see in the near future would be that TEKES would have smaller and less specific projects. To just fund everything with the least overhead possible for the both parties. Currently TEKES uses about €0.7M in operational costs for every €10M they fund. Please correct me if I'm reading it wrong.

[...]any glue[...] typo of the day

Thanks Ramine, Sonja and all, good discussion here. Will spread the link.

Thanks Ramine, great post and a highly important topic.

We do not need to improve the current system, we need a totally new system. Also the biggest problem is not that the companies do not want to grow - the most serious problem is that many of them don't want to be entrepreneurs at all and they think about how to end the company.

One problem is that we measure effectivity by input/output (money) only even though there are many other points of efficiency that are needed in order to get innovation to the market, such as production, innovation, access and resource effieciences (dÁveni).

Also the understanding of the use and social benefits of technology is bad, very bad. Finland has lost 10 years in that competitive advantage, falsely believing being nr. 1. The innovation systems are to blame about this misery,

I truly hope that people like you keep on writing about this. Sooner or later the change must come!

I totally agree what you say. Thanks for bringing this into mainstream online discussion.

Finnish innovation system needs, in my opinion and experience, a massive reshake and reorganisation. My motto: "You cannot learn how to play Championships League matches, by just watching the games and visiting the stadions. Learn to play and then play!" I wish our support system would encourage our companies to get themselves better involved in "playing the league", not only to play at best "arranged friendly-matches"...

I think there is one more angle to this which supports Ramine's views. I just wrote an article in Talouselämä few weeks ago raising the same issue.

My conclusion is that A) Finnish companies are more focusing on securing funding than the actual strategy of internationalization B) Finnish companies have absurdly outsourced their internationalization decision to public funding authorities ie. if Tekes or TE-Keskus will turn down application, then companies usually abandon internationalization.

What worries me most is that this is rule rather than exception. Only very few companies make a strategic decision to expand, apply for funding and even if it is not approved they will still carry out the expansion strategy. The rest are just testing if they got luckly in the funding lottery. Sad but so true.

Timo

This is a very well written article which I can relate to well as, like the author, I am not Finnish but spent time there over a number of years. In 2003 I surveyed a selection of Finnish digital media companies. In response to the question "Do you have international customers?" most replied "Yes". When asked to identify them, most replied "Nokia". When reminded that Nokia is a Finnish company, they said that Nokia sells its products in international markets, so if they sell a product to Nokia, they are selling to an international client.

At the time Nokia accounted for something in the region of 25% of Finnish exports so perhaps their interpretation of Nokia as an international customer might have been understandable. However it seemed to have the effect of reducing the need to export directly. For these companies, having a giant in their midst created a dependency on Nokia leading to complacency and a distortion in exports. Perhaps a legacy of that situations still exists today.

In Ireland, we have similar concerns. The location here of giants like Google, Ebay and Facebook was initially welcomed but is now seen in some quarters as a drain on young digital media talent which may restrict the growth of the indigenous sector here. Finland is seen here as a role model for innovation, whereas we are seen as great at exporting ourselves if not our innovations. I still have a great affection for Finland (hello to any of my friends there who read this) and I still believe there could be a valuable exchange of experience in this area between Ireland and Finland, possibly even leading to some productive partnerships.

Hi, interesting conversation for sure. Agree that this is a discussion worth having.

One note on international fundraising. Its great when it works, but as far as I know there are 7 Finnish firms who have gotten funded by international investors in 2009 so far (out of about 50 or so growth VC investments total) - Heptagon, Imbera, EvoStem, Nexstim, Eniram, Silecs, and My Sites - happy if anyone can correct me by the way) - as far as I know only 2 had no Finnish investors already.

I will fully agree that there are very significant missed opportunities in general on the internet and social media side in Finland. There is no private VC culture at all in these fields, only a few angels kicking around, plus VeraVentures which is doing an admiral job holding up the market in that space... Would warrant some more investors IMHO.

A good point about internationalization. It is a kind of secret dream of every entrepreneur, especially in the bits sector, since immaterial things like services and software can be duplicated effortlessly, once protected in legal sense. We're a team headed towards creating a service which is partially "in the flesh", and guided by IT. It's interesting to see what kind of venture possibilities exist. The internationalization is part of the plan, in that in this logistics project which basically recreates an easy to use personal transport system for all home needs, we do a terrain automapping system, so it's irrelevant where the system is being used. Piloting it first in one country, we strongly believe that it is portable to other countries as well, given that the local laws, economics and traditions are researched and taken into account.

Aiming (not) for growth is a cultural trait; it's pure Finnish modesty. I think it's got the good and bad side. Basically the modesty appeals to many of us, and some other cultures as well. Then again, too much modesty makes a project look uninteresting and the people unenthusiastic. I believe in visionary leaders who can energize other people. Virgin's Branson and many others show the way by sizzling behaviour, and vigour, and belief in what they're building, even in their weakest moments. Kind of whacko attitude but with solid business sense in the background.

@Jukka Paulin

Hi, I think not wanting to grow is not an issue of modesty but an issue of business and instutional cultures and attitude towards entrepreneurship. We have an old saying that tells it all "I possess the narrow but long bread working in a institution". This is what people want - security instead risktaking and we are taught to focus that way. I could say it is already in our genes

Unfortunately institutions and corporations are not going to be the nr 1 employers anymore in the near future. We need to create a new business climate, we need to rethink innovation (BTW Schumpeter died 70 years ago!), Innovation as it is now is nothing more than a relic from the production era! We need co-creation and ubi-effects. The change is happening while we Finns desperately hold on to our rotten moorings without seeing that in the other end there is no ship.