Finnish Taxpayers Gave Over 40M Euro To Publicly Traded Companies Through TEKES In 2010
Tekes, the Finnish Funding Agency for Technology and Innovation, published its figures for 2010 a few days ago. In the figures are listed all the companies who received government funding, aka tax payer money, to grow their businesses. All in all, there were over 2200 companies who received funding of more than 380 million euros.
The sad part of the equation is that Finnish tax payers funded publicly listed companies with more than 40 million euros last year. This is money, the companies should budget from their own assets or turn to the markets for more financing. For comparison, the Vigo accelerator programme received 42 million euros of funding for its full tenure of three years.
The government funding of publicly listed companies is very questionable and has been raised in many forums as inappropriate. The simple logic is that publicly listed companies should turn to the markets if they need the extra funding to resource their R&D efforts. If the investments would not be carried out without the Tekes funding, it's a clear sign that they aren't significant for the companies to begin with.
Below is a list of all the publicly listed companies that received Tekes funding and the amount in euros. The figures have been gathered from Tekes' figures released for 2010.
While many might say that 40 million euros is merely a rounding error on the government budget, startups and growing technology companies in general could do wonders with this amount of capital. Some of the more notable figures in the list belong to the paper industry, one that has been transferring production away from Finland so the government can't even defend the decisions with positive employment effects.
There is a lot of good happening in Tekes as well, but dinosaurs like funding to public companies still unfortunately exist. We'll be digging into the figures of this governmental agency in follow-up posts.
Yeah! More stuff like this. Take sides.
Thanks Sami, while there's certainly lot of work to be done in Tekes' way it hands out grants and there's a lot of good being done as well - this is one of those areas I can't really understand at all.
Why support publicly traded companies with tax payer money in the first place?
Why support privately traded companies with tax payer money? I don't see where the difference is here. Of course, it is really about small vs big company. But the question we should be asking is: where is the tax payers' money deployed most effectively? What are the returns of that 10m granted to Nokia versus 250k to 40 NIY companies? Should Tekes do more "seed grants" and drop those larger later stage grants (which, I suppose, go to research projects that may or may not operate as "internal startups").
Working in an early stage startup I'd naturally prefer Tekes to do more, but smaller, grants. Still, I feel that this "no money to public companies" argument is somewhat lacking analysis on the returns. Does the tax payer get good return on investment on all those euros granted to Nokia? Does Tekes do long-term follow-up of its grants and what does that say regarding the effectiveness of funding early/later stage companies?
Tuomas, valid points and I have to agree to a certain point.
I have the feeling that Tekes hasn't researched the results of their investments too much and thus its anyone's guess work to analyse what the returns on the investments are.
I guess what I tried to say in the post above is (what you argued in your comment too), that Tekes should increase the amount of grants, but in the same time make them smaller. It's more of the "diversify your investments" type of strategy in that case instead of having all the eggs in one basket.
Getting free money from the government is a fantastic thing for any company, but it really sucks to be the tax payer supporting this system.
Also, I'd really like to see stricter rules applied to Tekes funding, not in the way of more bureaucracy, but in the form of age and size of the company applying.
Just as teenagers and young people grow independent of their parents' financial support - so should companies grow independent of the government grants.
Yeah, company stage/size limits *might* make some sense, but then again Tekes does fund R&D, not only companies as such. I guess it is well within the Tekes mandate to fund R&D activity within established companies if that activity has high technology (and market) risk.
Any idea what the somewhat large chunks of funding for the paper industry are used for? If it is crypto structural adjustment funding, it's probably not so very desirable. On the other hand, I'm not that worried about production in "heavy industries" shifting away from Finland if we can keep replacing that with innovative production of related capital goods.
The folks I worked with in Syria used to ask me "how come you Finns are doing so well when you've got zero oil?" My reply of "we've got forests" left them somewhat nonplussed. But with all the inherent backward and forward linkages of all things forest, it's been the best thing we ever had. And I think there's still some life left in that. But I digress...
No idea what the larger payments regarding the paper industry are for. As Tekes supports R&D efforts, these ought to be linked to that but its hard to say.
Antti, thanks for covering the topic.
Tekes gives both grants and loans. The latter are to be paid back, but have very low interest rate. Grant vs loan and Tekes' share of funding (30-70%) depends on the type of the project (technological and market risk levels) as well as the type of the company (SMEs get higher levels than large companies). Tekes has a couple of charts and tables to decide on approriate funding.
No public support, no impact. If it was 10-25% support, very small impact on risk taking. If it was 75%-100% support, all kinds of business-wise non-viable R&D project would be started. Research presented in Tekes reports suggests that 50% is optimal level of public funding to encourage risk-taking.
A typical Finnish high-ambition tech start-up Tekes project is 50% grant or 70% loan for basic development (proof of concept or v1) followed by another project with 25% grant and 25% loan to finalize the product (or v2). The start-up has no restrictions on internal development vs out-sourcing.
Simplification: for every own euro invested in a Tekes approved R&D project, the start-up will get another euro from Tekes.
I believe that a typical Nokia R&D project with Tekes funding is for basic research 30-50% with a requirement to involve research labs or SMEs in the project.
Simplification: for every euro Nokia invests in a Tekes approved R&D project, Tekes will give from 50 cents to 1 euro but to be partly used to buy services from SMEs and research labs.
(the real hidden catch is that Nokia can get 50% overheads to project personnel salaries but a small start-up gets only 20% - why? - I guess Tekes encourages start-ups to stay lean :-)
I have heard that the logic is that (besides the effect on encouraging higher risk-taking) without Tekes euros, the large corporations would be inclined to do mostly internal research. With Tekes euros, there should be a spill of knowhow and human capital to start-ups and the overall ecosystem should benefit.
I'm not at all against funding large corporations, as Tuomas Toivonen pointed out, it's all about the impact. How could we measure this?
Overall the Finnish public grant system is pretty complex. If something good to say, it's far less complex than better than the Kela system.
(if you are interested in a 3h nutshell version of start-up funding incl Tekes R&D funding, join in for my practical training session on Tue Feb 8th 9-12 in Innopoli for Spinno clients).
Good to bring attention to the topic. Sadly nothing is going to change any time soon because there's so many stakeholders.
Great topic, interesting angle in the article.
I have been only slightly involved in some Tekes funding in my current position, but as a foreigner (Dutch) I am baffled by some of these funding schemes. Obviously I am not the only one, judging by the discussion.
Anyway, looking forward to follow up articles!
Actually, another thing:
I also wouldn't mind a similar kind of look at "FinPro". This organization also amazes and mystifies me, when it comes to their finances. From what I understand from their yearly report, their turnover consists of more than 60% of funding!