Is record-breaking start-up funding a silver lining to the corona cloud?

Looking at Finnish start-up successes in 2021, one easily forgets how quickly everything has changed. Our start-up and funding environment is entirely different now from what it was 10 years ago, and even very different from what it was 5 years ago. In 2010, we were still frazzled from the dotcom bubble in the early 2000s, and the promising entrepreneurial and funding developments of the 90s had faced a standstill. However, by the end of the ‘00s, many – to some degree, even traumatic – events caused a snowball effect, which now is starting to materialise. Nokia’s difficulties in 2009–2011 changed the career plans of many students, and the student-founded Aalto Entrepreneurship Society (AaltoES) offered them a home as entrepreneurs. The same entrepreneurial wave soon spread to all Finnish academic institutions and a cultural change was born.

In 2010, this was the world where FiBAN was born: a business angel network based on Finnvera and Sitra’s investor community. Today, ten years later, statistics show that Finland has become a surprisingly sophisticated angel investment market. Now, 20 000 € is the median investment; total annual angel investments have stabilised at a level of 35-50 MEUR; the number of FiBAN angel members have levelled off at around 700 people; and there are many investment companies that are jointly founded by groups of angel investors – all these things tell of a well-developed angel investment field in Finland.

The corona year made its mark also on angel investments. Although the investment volume was at the same level as before, the angels focused heavily on supporting their existing investments. The number of initial investments fell steeply, which surely also was felt by start-ups seeking their first investment funding. In addition, exists made by angel investors grew heavily in 2020, which most likely was due to two reasons: On the one hand, the corona year was too much for some companies, which went bankrupt. On the other hand, a very strong growth in the late-stage investor market pushed the angel’s companies forward to both large company and late-stage investor portfolios.

The link between angel investors and venture capital investors is strong by nature, and during the past five years, the VC field has developed quickly, above all because of the development in entrepreneurship that began earlier. The angels have midwifed this entrepreneurial development more and more together with early-stage VCs. The healthy diversification of the VC field has remarkably assisted this development. New VC investors have come about in both early-stage and late-stage investments, and with many different focus areas. Nowadays, there are VC investors within the creative industries, food technology, the educational sector, gaming companies, and many other industries.

The most dramatic change has happened in the funding of growth companies that are further along. Five years ago, a 10 MEUR investment round was still big news, but nowadays, it does not even make the top 12 list. We have come to this, because above all, the high-potential companies founded in the beginning of 2010 have succeeded so well that both domestic and foreign investors want in on the action. Moreover, domestic VCs have been able to convince their own investors that this is a market to believe in again. Domestic investors have also been able to raise new investment funds, create significant funds, albeit smaller than their international counterparts. These large international investors have found their way to the Finnish markets, and their investments have also grown heavily, particularly in late-stage companies.

Having a go at fortune-telling, one might have a guess at some of the phenomena of 2021 and onward. Firstly, globally there is plenty of money circulating, and this money is looking for investment targets, even with higher risks. This will continue, as long as interest rates are at zero, or even below zero, and the central banks continue with their stimulus policies. Secondly, investing in growth companies is gaining interest in yet wider circles. The growth companies with the most potential are, however, most often still out of reach for others than professional investors. Crowdfunding has brought some companies within the reach of a wider public, and funds gathered through it have levelled at the volume of angel investment funds.

Listing on the stock exchange will be an interesting option for increasingly many companies, and in its most radical form, this might mean setting up Special Purpose Acquisition Companies, which are increasingly common in the United States, also here in Finland. These SPAC companies list themselves on the stock exchange and use the generated funds to look for good objects to purchase, which they later list on the stock exchange.

One thing is for sure: More and more promising start-ups are founded in Finland, and these start-ups grow to the point where large investors become interested in them. This right here, is the engine, on which all other growth and development depends.

Jaakko Salminen
Partner, Grannenfelt Finance Oy