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Startups look for €250m boost as crisis dries up investments

An investors' association survey suggests that one-third of startups will run out of cash in less than six months.

Aalto-yliopiston osasto Slushissa.
The Aalto University stand at the Slush startup convention in November 2019. Image: Tiina Jutila / Yle

Finnish startups say they want government to set up a 250-million-euro investment fund as the administration begins talks on a new round of funding for the business sector.

The Finnish Venture Capital Association (FVCA) has proposed two separate financing schemes to Finnish Industry Investment Ltd, Tesi, a state-owned equity investor. One of the proposals would create a 100-million-euro investment fund that would apply to roughly 100 to 150 early-stage startups.

The second would establish a 150-million-euro fund that would target about 60 startups that have advanced to the international growth stage.

The proposals are being finalised by the Ministry of Economic Affairs and Employment and the funds would be managed by Finnish Industry Limited. The scheme was first reported by daily Helsingin Sanomat.

Investment, not support

Economic Affairs Minister Mika Lintilä has reportedly greenlighted the planned investment programme. Tesi has stressed that the investment project is not a grant scheme but an investment proposal subject to market conditions. However it is awaiting a political decision before moving forward.

One prerequisite for an investment decision for example, would be the involvement of a private investor willing to put up 50 percent of the equity required by a startup.

"Companies with a private equity investor have already gone through strict screening and experienced investors believe in the potential of companies like this to grow and internationalise," FVCA chief executive Pia Santavirta said.

According to fresh data from the umbrella European equity investment organisation Invest Europe, Finnish startups attract the lion's share of equity investment in Europe. FVCA figures suggest that startups have been able to quadruple investments in under 10 years.

"During the corona crisis we now have to hold on tight to foreign investor contacts. If foreign investors disappear, it will mean a huge dent in the financing available for startups and Finland’s ability to compete as a technology leader in the future," Santavirta noted.

Money running low

According to the FVCA, local startups have been able to attract large sums of money from foreign as well as domestic investors. Foreign investors account for more than 60 percent of venture capital investments, or 180 million out of a total of 293 million euros.

"However because of the coronavirus crisis many promising startups are in difficult situations. According to an FVCA survey, one-third of startups will run out of money in less than six months and another third will run out in six to 12 months," the association chair pointed out.

"We need innovations now more than ever, for example in medicine, [and] to solve problems related to urbanisation, energy and services. We must also find new and safer ways to collaborate, meet and create networks without physical contact," she noted.

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