Disruptive.nu - Promoting Swedish Entrepreneurship
I had a chat on Skype today with Christian and Peter from Disruptive.nu about differences and similarities in the startup industry between Finland and Sweden. After a long chat, which I will post online later, we had to conclude that there aren't that many differences in the end - although Finland is admittedly slightly behind by a year or two.
I argued that there are two major weaknesses with the Finnish startup industry; the lack of second (and third) generation entrepreneurs with experience as well as a bridge to fill the gap between the public finance vehicles and venture money. The first part I find to be grown through successful attributes in society in general for startups. The entrepreneurs must have a reason to build a successful company in Finland again and not flee overseas with their exit money (something that you can't really argue against considering the current state of affairs). The second point is slightly more difficult, however even more important I believe. We need to limit the availability of public finance to a certain amount, something I don't know yet, to stop supporting unhealthy companies that fail to create their business on market demand.
Christian and Peter stated that the biggest problem in Sweden at the moment is finding talent and money to build succesful startups. I'd believe, though not undermining the shortcomings, these are somewhat universal problems in the startup industry. Talent is something that can be usually found more of in terms of poor macro economic perfomance as companies lay off talented people in hopes of saving a penny here and there. Yet another reason why starting a company in times recession is a good idea. Which brings me to another important point raised in the discussion - we all agreed that times of recession have less of an effect on startups as they're short on resources no matter what the economic climate is.
I'll be doing some editing on the video interview and releasing it in the near future. If you'd like to do a video interview with us, don't hesitate to contact me at antti (at) arcticstartup.com and we'll see what we can do.
Photo by flo_p
Thanks for another great article!
I agree that government should stop supporting unhealthy companies but I would also like to note that it is very easy to state something like that. I understand that it is extremely difficult job to do. I am not that convinced that limiting the amount of money they give to startups is the solution to the problem. I am afraid that they would just give money to wrong companies or not give enough money to right companies.
I hope Taneli is reading this post and comments...
Kaitsu - I believe the problem is in the incentive structure ie. people investing other people's money without having stake in the results. This has never worked since the beginning of history.
In Finland this has created a situation where there are many companies born and none dying since they are on government life support and have learned to game the system. The fault is not theirs since any sane person will start evolving his/her business towards what ever is measured, making sure all the right boxes are ticked. Thus the architects of the system should be very careful in what kind of behavior they encourage with the process.
Finnish government should stop investing directly and have the courage to invest indirectly for example creating very inviting tax incentives to Venture Capital Funds to locate their subsidiaries in Finland. This way the investment would be done by people who have a very strong vested investment to get the investment right. Yes, more companies would die, but since most times even the smartest entrepreneurs make mistakes (I believe the really brilliant ones make want to make mistakes so they know they're experiencing enough), this would give them a clear signal that their latest idea is not working with the current market conditions and it's time to try something else. A different kind of Creative Destruction from what Joseph Schumpeter meant, but equally important nonetheless. http://en.wikipedia.org/wiki/Creative_destruction
To make it clear, the above was my take on the Finnish system. I don't know how things are run over at Sweden, but I'm really looking forward to Antti's interview with the guys at Disruptive.nu to see what they think.
Antti: I agree, talent is a shortage for all companies in en economy.
But if you have a traditionall company, industrial, service its easier to find and identify talent. There a plenty of Schools with credibilty, grades. Goverment funded educatons and soforth.
But for these new companies, its diffrent. Let me give u an example, like the one we talked about. People knowing SEO. How do u know they know SEO. There are no Schools. No education. You have to learn yoruself.
The lack of education within the segment creates the shortage and if u find someone, you have no way of identify quality.
Also, say you have a startup, within a segment, how du u atract people from that segment working for your startup. In most cases, working for you is way out of their comfortzone. Haveing a normal company, you do not have to adress this issue.
People like us have no comfortzone, we do not think safty. We think, no guts, no glory. But its easy to think we are normal, we are the exception!
Nice, we have an agenda for our next talk!
I think the problem of government intervention lies in what is observable on a more general context when people talk about venture capital in Finland (and I suppose also in Sweden and other countries where the whole VC industry is sort of a government invention): venture capital is as much about advice as it is about capital. When a venture acquires VC money and sells board seats, it also acquires the right to advice from a professional venture capitalist (or a seasoned business angel). Advice can also be bought from consultants, but it is off the point of this mechanism, that of tying effort and investment together.
If the deal is made smartly with proper incentives in place, both parties benefit. It is therefore relevant to question the government-led funding models where money is given away for free without the incentive mechanism that a private placement brings (that Ville talked about).
Adding to the problems that Ville described, some talk about government venture capital "crowding out" private venture capital. This crowding out results into higher barriers to entry for venture capitalists, which should be a particular concern on countries with developing VC markets. Crowding out due to government interventions is of course an observable phenomenon on other areas of corporate finance too, such as banking.
These issues are discussed in many articles, and one excellent theoretical paper is by Gordon Murray: "Venture capital and government policy", In "Handbook of research on venture capital" (2007).