Domestic and foreign investors are demonstrating their growing faith in the Finnish start-up sector by pouring more money into fledgling enterprises looking for growth or new markets.
Foreign investors in particular appear to have finally found Finland on the map of global investment opportunities. Back in 2012 Finnish enterprises attracted some 68 million euros in foreign private equity – last year that amount more than doubled to reach 159 million euros.
“The funding round for the gaming company Supercell accounted for most of that growth. But otherwise foreign private investment grew by five percent,” noted Marika af Enehjelm, chief executive of the Finnish Venture Capital Association FCVA.
af Enehjelm added that the growing season isn’t necessarily over either. In Sweden growth enterprises benefited from a doubling of equity injections in terms of the country’s gross domestic product, or national output.
The Finnish Business Angels Network (Fiban) also expects the growth in equity investment to continue. Fiban board chair Riku Asikainen noted that in addition to the growth of a new class of young entrepreneurs, their business ideas are also more appealing.
“Now we have 26-year old graduates thinking of setting up a start-up. It wasn’t like this before,” he added.
Business angels typically invest during a business’s start-up phase. Angels try to help their protégés to grow so they can make a return on their investments.
Private equity firms also point out that growth enterprises are the key to generating new jobs in Finland. Companies that have obtained this kind of funding have created five percentage points more jobs than others.
Investors pulling out of businesses at a record rate
Last year equity investors disassociated from business at a record rate – altogether 99 investors pulled out of business investments in 2013, compared to 83 one year earlier. Nearly one-third of the departures occurred in the industrial sector. According to af Enehjelm the timing was right.
“About five years ago we saw a remarkable number of investments. Now the time has come to disengage from these businesses,”
On average business angels aim to see a return on their investments in eight years. However not all investments bear fruit. The data show that close to 40 percent of investors lose their outlay altogether.
According to Fiban’s Asikainen investing in start-ups is fraught with risk.
“This demonstrates that business angels have to invest in several targets,” he pointed out.
By hedging their bets investors can therefore cover their losses in struggling companies with big wins in thriving start-ups.