Money problems
Antti Vilpponen
I had lunch today with Juha Huttunen and Leo Koivulehto of Vailoma.com. We discussed entrepreneurship in Finland and how it differs from the rest of the world.
The conversations pretty much rolled around the difficulty of raising funds in Finland, compared to availability of funds in Europe and the US. The problem was again tied to the post I blogged some time ago: scale or revenue. The Finnish VCs usually wanted to see revenue and a potentially profitable business model compared to their European counterparts who are willing to take more risks. I believe this has got to do with two main points: (1) No previous success in internet companies, ie. no culture and knowledge in these sort of investments and (2) lack of funds.
The reason why I see this a problem is that as foreign VCs keep investing in Finnish startups, we won’t see a culture evolve here nor do we see any growth in capital as those successful investments pay off. This further creates problems in starting born global, growth companies in Finland.
Would it make sense to start a government owned fund to help companies grow in this stage of their lifecycle? We have TEKES, who helps with financing startups in their birth stage - what about helping startups more aggressively in their growth phase?
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January 15th, 2008 at 4:54 pm
For me the problem isn’t a lack of funding per se, it is a lack of funding for the lower end of tech and a lack of garages. If you have a tech idea that is hard to replicate it is not so difficult to find money in Finland. What makes people investors nervous is the idea of competition and so they go for realy high tech.
Web technology rarely falls into this category. Companies like Amazon, Google, Paypal, Youtube and so on are easily cloned. We know because they were easily cloned. The technology is simply not that high and it is hard to imagine them having got funding in Finland.
In the web arena I do not think the major barrier is a lack of money. A lot of Valley firms began in garages but here we don’t have very cheap office space. When I think of Jaiku, if money was an issue then why be located in Katajanokka?
What is needed in my opinion is a super low cost incubator. A big warehouse with internet, some old second hand furniture, maybe even some sleeping rooms, a meeting room and social space. That way, you could work full-time on your business with the money you get from Kela (about €600 a month I think). Plus, if enough web start-ups were there it would really help dissemination of knowledge.
January 15th, 2008 at 10:20 pm
Tekes actually does fund starting technology companies, especially starting in February this year. Check out http://www.tekes.fi/rahoitus/yritys/nuoret_yritykset.html (in Finnish only). Likewise Vera Venture is funding seed stage companies (http://www.veraventure.fi/index.asp?language=2). That’s not a lot of course but it’s still something. You can get a consumer internet started in Finland too.
You don’t need tons of money to build an internet startup and perhaps as an entrepreneur you might be willing to work for free but your employees surely can’t do that. Therefore funding is needed eventually, usually sooner than later, if you want to grow.
I agree with Jon that the biggest problem is not the lack of money as such, it’s more about the lack of experience in doing consumer internet companies what scares the VCs. They understand technology and if something is really really difficult to copy, then they think it has a better chance of success. Often the companies that are the big successes such as Google or Ebay are not based on technology alone. It’s more about scaling the business fast enough so that you have a large userbase to get revenues out of. Today it is quite clear that the next Google or Facebook is not going to be Finnish (or at least not funded by Finns) but hopefully over the years that will change.
January 16th, 2008 at 2:44 pm
I really like the idea that Jon Martin had about a super low cost incubator which could take the form of a big warehouse with internet connection etc. I’ve been playing with an idea of doing a http://www.sellaband.com/ type of a VC fund (model adjusted accordingly of course) + but nothing would be better than start with a big warehouse (an idea very close to what I had when I arrived in Finland last summer). Would need some ‘market research’ to see if there’s a real demand + some kind of subsidies to get in running from our stellar Finnish institutions, but could be worth a try, no?
January 17th, 2008 at 10:18 am
As a VC having turned down some Finnish consumer Internet companies, I must add that the whole environment and culture for creating consumer Internet companies in Finland is still pretty young. I challenge you to think of a list of credible consumer Internet start-ups with solid management teams in Finland - can you name more than ten? That’s a pretty thin deal flow and therefore we should not rush into conclusions yet, but as Juha Huttunen said hopefully this will change soon.
January 17th, 2008 at 11:04 am
Good discussion going on here!
My point was not so much to provoke people, but to start discussion around this topic. I agree that the main reason is the lack of know how in this area, both on the side of VCs and entrepreneurs. As there aren’t that many successful or well managed web startups to talk about, VCs have not had the possibility to learn from these investments - just like Juha Lehtola.
But I think we can all agree on the issue that we need some change in this and it’s bound to happen as we all grow in this sector.
January 17th, 2008 at 2:08 pm
I think Juha’s post is telling in that it reflects the preoccupations of VCs in Finland - which is with the management team rather than the idea. I recall reading a post on Marc Andreassen’s blog (he of Netscape and Ning) where he argues that a great idea (i.e. an idea for which there is a big untapped market) is by far the most important thing (http://blog.pmarca.com/2007/06/the-pmarca-gu-2.html). If the idea is great then th management team need just to be competent and the company will be a success.
There was also an interview on Venture Voice with Tom Perkins of Kleiner Perkins (http://www.venturevoice.com/), who argues that they always look for the great ideas and then build the team. It’s much easier to build a great team if you already have funding.
Obviously when you’re managing other people’s money, it takes a lot of balls to invest in a obody with a big idea. But if they can do it in the Valley…
January 18th, 2008 at 9:33 am
Gotta continue this discussion…
Obviously the team is of great importance. An idea, technology or patent isn’t worth much without execution and execution is about the people. However, having a great team isn’t always something you can measure by their CVs. We’re the CVs of the founders of Google or Facebook awesome? What about Sulake to take a Finnish example? Starting a company is not about years of management expertise, it’s about passion and having the “get things done” attitude. That is something you can’t tell looking only at a person’s CV. The working environment in large corporations is very much different than a startup. In fact I can’t think of any environment that resembles a startup. The skill-set and personality needed in a startup is very much different from the ones that make you successful in corporations. I’m now talking about the very early stage of the company. Once your business is established and you need to scale it and have the resources to do that (money, people) then the game changes from the early stage venture to more “business-like”.
That said the team of course needs to have experience but the most important thing is still passion and the right attitude. The same goes for hiring new people to a startup. Attitude, ability to learn quickly and passion for what ever you’re building by far the most important basis for recruitment. Experience is a just bonus. Good and passionate people will learn and grow to what ever challenges the must face. Experienced people might not always have the same fire within them.
One could say that the “get things done” attitude, ability to learn and adapt quickly and passion for what you do are an entrepreneurial mindset. Every entrepreneur I know has those characteristics. I know quite many Finnish entrepreurs (of the younger generation) in the technology sector. Most haven’t been too experienced when starting their companies. They are not afraid of trying things out or failing and they are confident that they will succeed. If they don’t, they’ll try again. This mindset is something I believe we in Finland (and perhaps Europe as a whole compared to the US) should endorse. My feeling is that this “entrepreneurial attitude” is not perhaps always valued enough compared to experience. You need both but as said the attitude is more important, not the other way around as it often seems to be considered here in Finland. Likewise trying and failing is not a sin as it is a very good way to learn. That too we sometimes forget in Finland.
January 18th, 2008 at 10:03 am
I agree 100% with Juha’s post about what makes a good management. Entrepreneurship, passion and attitude are most important especially in consumer Internet start-ups where there is no failure-proof formula that you can apply based on previous experience. Also the value of high-level industry contacts is probably not that critical compared to e.g. telecom technology start-ups.