Tomi Luostarinen

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Update on Growth Forum ‘08

by Tomi Luostarinen, July 11, 2008 — Leave a Comment

Growth Forum 08 (in Finnish, Kasvufoorumi08) is an initiative that started on January this year (see the previous post). The forum is an initiative lead by Microsoft Finland and Association of Software Entrepreneurs. The second seminar of the forum was held in June and now when the thematic group I’ve been involved in is on holiday it’s time for a little recap of the first half of the year.

First of all both seminars have been successes from my perspective as they have attracted a mixed audience of entrepreneurs, seasoned professionals and representatives of public organizations. For example, in the second seminar Jyrki Katainen, the current Minister of Finance of Finland, held a passionate speech on how important it is to cultivate innovation and intellectual property for Finland to succeed in the future. Furthermore, as the national innovation strategy was also published in June, the government is definitely taking steps to ensure that Finland stays competitive even when the number of employed people decreases as a result of aging of the population.

The findings of the second seminar (and the interim project report delivered to Mr. Katainen) and our small thematic group were surprisingly similar. The group’s focus was the question whether Finnish startups should make exits or grow themselves. Based on several discussions seems that Finland does not lack technology, skills or education to succeed in the Internet era. Rather the obstacles on road to success are financing and attitude. The early stage financing of startups is largely made by TEKES, which in general does a good job, but would require more support from private venture capitalists. There are some ongoing public initiatives to provide tax benefits early stage VCs and business angels. However, it is too early to tell whether these legislation changes will happen.

The attitude issue is much harder to address, but I believe solving it (even partially) would have much wider implications than improvements on financing. Some of arguments for not to start new companies are reasonable, such as heavy penalties and social stigma of going bankrupt. Most growth-oriented startups fail and they should be allowed to do so without personal consequences such as not getting housing mortgages after companies go bankrupt. However, the other arguments are frequently not based on facts. The public discussion revolves around on how hard the taxation in Finland is or how entrepreneurs must constantly work and get stressed because of that. Furthermore, I have heard many people say “I really would like to start a company, but I lack a good idea”. Very very rarely anyone can up with an idea that truly is unique (no-one has thought of it) and can be turned into a profitable business. I believe everyone can come up with good ideas from their everyday life (“isn’t there really a better way to do this?”). A good way to launch a startup is to pick a decent idea, found a company and then figure out the next idea or iterate the existing idea. A good article on ideas can be found in favorite blog onstartups.com.

Moreover, we need stories (from successful entrepreneurs) how working as an entrepreneur can be both fun and rewarding. This was one of conclusions of our thematic group. In addition, we agreed that startups need teams that have a varied cultural and knowledge background, not just the “four Finnish engineers”. Finnish startup scene would also benefit from a Finnish Y-Combinator that would give a needed boost in the early stages. I would be very interested to know if there already is some Finnish VC (or other party) that has plans like that.

In conclusion, we need positive buzz on startups, being an entrepreneur and really aiming for growth.  I think we are going to the right direction on those issues. What are your thoughts on these subjects?

IVA conference: the aftermath

by Tomi Luostarinen, May 28, 2008 — Leave a Comment

As you probably know from our earlier posts the IVA conference was held last week in Tel Aviv, Israel. Now it’s time for a recap. I had an opportunity to interview Jussi Harvela, Pekka Roine and Kristian Järnefelt from Concilio Networks who all participated in the event. They all agreed that the whole trip was a success.

The Finnish delegation of fifteen people attended the conference (with total of 1700 attendees) itself and the companies also pitched for a selected VC audience just after the conference. Furthermore, all eight companies had private meetings with potential investors and partners. The advice from the experts (check the video) was clearly followed by the companies as the quality of pitches was described as “very good” or “excellent”. The Finnish companies were pretty unknown for Israeli VCs who were anyhow impressed by the absence of “me-too” startups among the pitchers.

Mr. Järnefelt also provided some personal insights on Israeli business as well. He said that Israel resembles Silicon Valley a great deal and many of leading US VCs are also present in Israel. There are quite a lot early stage capital available and a bubbling startup scene as well. One notable thing is the amount of serial entrepreneurs who yet are rare (at least in software business) in Finland. According to Mr. Järnefelt Israeli startups have a strong level of ambition in general and the incubators (that acccept only 3-5% of applicants) encourage such behavior. However, one thing the Israeli ICT segment yet lacks is “a Nokia”, so that gives the Finns something to chat about.

One the trip’s goals was to deepen the co-operation between Finland and Israel. Thus, representatives from Finnish Ministry of Employment and the Economy, TEKES, Finnvera and Technopolis Ventures got a first-hand look on, for example, the Israeli VC industry and the incubator system. After the Finnish delegation returns we hope the co-operation gradually deepens and gains momentum. The signs seem promising in any case.

There were discussions that an Israeli delegation consisting of VCs and government officials would visit Finland sometime during the Autumn. It would be great if Estonian and Russian startups could attend such an event along with Finnish companies. We will keep you posted if and when we hear more of this kind of plans.

In conclusion, an excellent event and we hope to see a more deeper interaction between Israel and Finland in the future.

Pitching to (Israeli) VCs

by Tomi Luostarinen, May 18, 2008 — Leave a Comment

As Antti reported earlier we are closely following the Finnish companies that will be pitching to Israeli VCs at the IVA conference. Last Wednesday we had a chance to witness the final preparations of these companies for the event. Concilio Networks, Eniram, EpiCrystals, SenseG, and Whatamap did a dry-run of their pitches, which were then commented by seasoned professionals (incl. Jussi Harvela, Moaffak Ahmed, Pekka Roine).

Pitching is hard, if you want to do it properly. You have to keep your pitch length at eight minutes, you face a VC audience that sees thousands of pitches every year and you only have about ten to fifteen seconds to get everyone’s attentition. So what can you do? Here are some advice from the experts:

1) Focus, focus (never say “..and here’s a few more things you can do with our product”)

2) Reveal your value proposition first, then a concrete use case

3) Focus on a single benefit, provide ROI

4) Tell a story, but use a format (like news broadcasters do)

All the above-mentioned Finnish companies are in Israel at the moment. They will pitch on Wednesday, May the 21th and have many pre-scheduled meetings and events prior to that. We try to get a word from the field so keep an eye on our future coverage.

Web 2.0 goes sailing

by Tomi Luostarinen, April 18, 2008 — Leave a Comment

Logo of sailingregister.comAre you aware that sailing enthusiasts earn annually almost double the income compared to amateur golfers in the US? That was news to me when I chatted with the co-founder of sailingregister.com (later abbreviated as SR), Vesa Lindqvist. They have tackled a tightly defined, but potentially lucrative, niche of sailing races.

SR offers something for all parties that include spectators, sailors and race officials. SR’s key service is a secure sign-up system for sailors and race organizers. Sailing event organizers also lack proper services for providing race coverage for sailing spectators ashore and home. SR proposes to provide a reliable, secure and feature-rich alternative.

Their initial business model is to charge a premium from fees collected from race participants. However, the founders have a strong background of mobile business and we can expect the service to offer a range of premium rate mobile services for spectators in the future. Furthermore, they plan to offer social network driven marketing services to advertisers targeting this high-networth customer segment.

With many vertical social networks currently popping up this space is also contested with players such as Regatta Network and Compete-at-sailing. However, I believe SR is on the right track as they target enterprise customers as well with their marketing services. One has to bear in mind that according to Mr. Lindqvist, the total size of the sports industry internet spending in the US alone is circa $239 million.

SR is currently self-funded. They continue their negotiations with lead customers so that they will be ready for sailing season 2008.

I wish the SR guys all the best and good sailing.

How to grow Finnish software industry out of puberty

by Tomi Luostarinen, February 2, 2008 — 1 Comment

Growth Forum 08Finnish software cluster needs growth. That much was evident as the first seminar of Growth Forum 08 (in Finnish, Kasvufoorumi08) kicked off last week. The forum is an initiative lead by Microsoft Finland and Association of Software Entrepreneurs. The software industry has more than doubled its share of Finland’s GDP over the last ten years. Yet there are few Finnish software (or strongly software-related) companies that have grown beyond 100 M€ in annual revenues.

 

The organizing parties had been able to gather influential backers from governmental level as well. Matti Vanhanen, prime minister of Finland, delivered the keynote speech. He had recently been to United States and had met top executives from Cisco, Google and Microsoft. Mr. Vanhanen said that Finnish government is taking steps to create a fertile environment for software businesses. For example, we can expect possible tax benefits on VC investments to growth companies. In addition, the whole public funding sector needs simplifying. Many panelists agreed that public funding should be concentrated on growth companies, not on entrepreneurs who are reluctant or incapable to grow.

 

Key problems of the Finnish software industry are: lack of mid-sized internationally competitive software companies and growth difficulties of companies that employ 50 to 100 people. Those companies find themselves in a very competitive global landscape while the domestic market in Finland no longer supports their growth. In addition, according to panelists too many companies still believe that “our product sells itself”. When going international many companies would need a so-called “Finnsoftbroker”, which would basically be a bridge between the local markets and Finnish companies. According to general opinion no organization yet fills that role.

 

Ok, so the software industry grows, but not fast enough. What to do? Panelists strongly believed that off-shoring is a strong opportunity, not a threat, to Finland. Finnish economy can never compete with Asian countries on sheer production force. Rather all Finnish software companies planning to go global or international should practice off-shoring from the start. Finland also has relatively few business angels, but currently there are increasingly more people with strong international expertise. These experts should be much more active in aiding startups and other growth companies by investing not money, but sweat equity. Naturally entrepreneurs themselves must aggressively seek out this kind of help and form at least an advisory board shortly after establishing their companies.

 

Furthermore, forum participants emphasized the need for patents, especially in the US. Mergers and acquisitions is a difficult way to grow and few Finnish companies have yet mastered it. Perhaps too many Finnish software companies get acquired. To build “new F-Secures” they should rather grow organically or do acquisitions themselves.

 

The forum continues throughout the year 2008. The next seminar is scheduled on June. In the meantime three theme groups (internalization, growth paths and financing) gather and try to come up with recommendations for the future of Finnish software. I participate in the “growth” group and I will be reporting its progress later on.

 

What do think, where is Finnish software cluster heading to? What needs to be done? Please share your views.