Desire to do good evident in investment activity in Finland
Maria 01, the largest startup hub in the Nordics, has reported that its startups raised a record-breaking 219 million euros in funding in 2022.Maria 01 / Wasim Al-Nasser
Responsibility and sustainability considerations are increasingly steering investment decisions for both companies and investors, suggests recent news from Finland.
“Although globally startup funding has dropped by half, in Finland interest in new companies has clearly revived after the pandemic,” states Kim Väisänen, chairperson of the board at the Finnish Business Angels Network (FiBAN).
FiBAN revealed that Finnish angel investors invested more than 37 million euros in 248 growth companies last year, according to a survey that drew responses from 450 of its 670 members. While the total was around 30 per cent, or 15 million euros, lower than in both 2021 and 2019, it was noticeably higher than the 33 and 27 million euros reported in 2018 and 2017, respectively.
Less than 10 per cent of the angel investors accounted for more than half of all investments made through the network.
Altogether angel investors chipped in to 791 investment rounds with a median size of 290 000 euros, a rise of 40 000 euros from the previous year, with new companies accounting for almost half of the rounds. The median investment, though, stayed unchanged at roughly 20 000 euros.
Seven per cent of the investments were made outside Finland, most commonly in Estonia, Sweden and the UK.
Angel investors are in it for the long haul, says Annukka Mickelsson, the interim managing director at FiBAN.FiBAN
The number of exits by angel investors decreased by over a quarter from 168 in 2021 to 122 in 2022. With acquisitions accounting for half and bankruptcies a third of the exits, the range of returns on startup investments remained broad compared to stock market investments. Annukka Mickelsson, interim managing director at FiBAN, told that startup investments rarely yield high returns, but, when they do, the return can be over hundred times higher than investment.
“Usually about a third of angel investments drop to zero, but in some cases the value of the investment can multiply drastically. After taxes, the profits are often reinvested in startups,” she said.
Angel investments, she added, are commitments that should be evaluated over a longer period of time. “Angels stand by entrepreneurs even in difficult times. We are with the startup for up to a decade.”
FiBAN also told that angel investors are increasingly conscious of the societal impact of investments.
Pia Santavirta underlined that startups and growth companies must be prepared to address the sustainability aspects of their own business far more widely than previously done.Tesi
Sustainable push for startups
Finnish Industry Investment (Tesi) estimated at the beginning of the year that startups pursuing growth financing are faced with additional requirements given that virtually all venture capital and private equity investors have started considering the responsibility of the target company when weighing up their investment decisions.
“There is growing openness and transparency regarding sustainability, and its evaluation will become more systematic during ownership, as well,” it stated in its first review of sustainability among venture capital and private equity investors.
The review is based on the results of a questionnaire that was distributed to 33 general partners at venture and private equity funds in Finland, representing roughly 90 per cent of the entire market.
The questionnaire revealed that 97 per cent of investors have adopted sustainability targets, 94 per cent have integrated sustainability into their strategy, and 61 per cent conduct an environmental, social and governmental (ESG) evaluation for all and 88 per cent for some of their investments. There is still much work to do, though, as only 18 per cent of investors monitor sustainability development for all their investments and 58 per cent for some of their investments during ownership.
“Startups and growth companies must be prepared to address the sustainability aspects of their own business far more widely than earlier. At stake, also, is which companies will receive follow-on financing in the future,” said Pia Santavirta, CEO of Tesi.
Maria 01 welcomed 59 new startups to its campus at the heart of Helsinki in 2022.Tapio Auvinen / Maria 01
Nordics’ largest startup hub on a high
Investments in startups are, of course, important also culturally and economically.
Maria 01, the largest startup hub in the Nordics, in March reported that its startups raised a record-breaking 219 million euros in funding in 2022, an almost 850 per cent increase from its first year in operation, 2016.
Its current and former members have therefore raised more than 700 million euros in the past seven years. They had also generated a total of 766 million euros in revenue, created almost 7 000 jobs and paid out over 300 million euros in wages by the end of 2021. No data are yet available for last year on the revenue, jobs and wage income created by the startup hub.
The hub consists of 178 active startups after welcoming 59 new ones in 2022, boasting a combined staff of 1 500 representing over 45 nationalities.
“I’m very confident that the impact of startups and other ecosystem stakeholders will grow more significant year by year,” affirmed Ville Simola, CEO of Maria 01. “I see no other trend and possibility than startups becoming the driving force for improvements and […] positive impact creation in societies and the economy.”
The community, however, is not immune to recent changes in the financial landscape, he acknowledged by predicting that the startup ecosystem will experience a temporary decline in some key areas in the coming year.
Led by CEO Ville Simola, Maria 01 has doubled down on its effort to support its members to grow and scale their businessesTapio Auvinen
“We have already witnessed a drop in the number of funding rounds, it has become harder to raise new [venture capital] funding and companies are not hiring at the same [pace] as before,” he said.
Maria 01 has doubled down on its effort to support its members to grow and scale their businesses by entering into a partnership with Google Cloud. Announced in March, the partnership provides startups not only the leading analytics tools and products, but also access to a startup programme offering support, mentoring, and cloud and firebase cost coverage.
“Through our partners, we are able to offer startups valuable expertise on various topics, as well as one-on-one mentoring and connections to established corporations,” said Simola.
VTT Technical Research Centre of Finland has received positive initial feedback for its cellulose-based film, developed to replace the difficult-to-recycle plastic films used widely in food packaging today.VTT
Investments in greener production
Sustainability also undergirds a handful of recent investments by companies and research organisations.
VTT Technical Research Centre of Finland has invested 1.5 million euros in scaling up a pilot facility that is developing recyclable cellulose-based film-like materials for food packaging and bio-based barrier materials for films, paper and containerboard.
The investment, it stated, enables the facility to start testing and developing processes suitable for mass production.
While see-through plastic films have been used in food packaging for decades to protect from contamination, they are notoriously difficult to recycle due to their multilayered structure, meaning they tend to end up in landfills after use. Single-use plastic bags, bottles, food containers and food wrappers are the four most common types of waste in oceans, accounting for almost half of human-made waste.
“Polypropylene film is one of the world’s most used polymers and the market is expected to grow by 15 billion euros by 2035. It’s so useful in keeping food fresh that the world can’t do without it,” said Ali Harlin, research professor at VTT.
A better alternative is well overdue, he believes.
Harlin revealed that the cellulose-based films developed by the research centre have been well received by the industry: “We have received feedback from our customers that they can’t tell the difference between our cellulose-based films and traditional plastic wraps.”
Kuusakoski, a Finnish metals recycling company, announced last week it is investing 25 million euros in building a completely carbon-free ferrous and stainless scrap processing facility in Veistiluoto, an industrial site located in the northern part of the Gulf of Bothnia, Finland.
“We are seeing the steel industry beginning to move towards carbon-free production. Our new plant will bring with it carbon-free processing, which will enable our customers to further reduce their climate impact throughout the value chain,” envisaged Mikko Kuusilehto, CEO of Kuusakoski.
The new facility is set to emphasise low-carbon scrap processing techniques.Kuusakoski
The recycling company said the plant – “a market-first” to operate fully carbon free – will increase the annual recycling capacity of the site by 25 per cent, or 150 000 tonnes, to respond to growing demand for recycled metals in Finland and Sweden.
The plant is conveniently located to serve, for example, Outokumpu, a Finnish stainless steel producer that operates a steel mill some 50 kilometres away from Veitsiluoto, in Tornio.
“Kuusakoski’s new steel recycling plant is being built in a logistically ideal location from the perspective of our Tornio steel mill. In addition to carbon-free operations and their proximity, the quality of materials and the traceability of the entire supply chain are key to us as a responsible operator,” stated Juha Erkkilä, vice president at Outokumpu.
Tax incentive spurs innovative investment
Innovative foreign companies are also being encouraged to invest in Finland via a tax incentive for research and development-related expenses incurred in Finland.
The incentive consists of a general additional deduction based on research and development-related wage and service purchase costs and a supplementary additional deduction based on the growth of such research and development costs. The former amounts to 50 per cent of deductible costs and is available as of this year, and the latter to 45 per cent of the actual increase in deductible costs and is available as of next year. Each deduction is capped at 500 000 euros per year.
The scheme is part of an ongoing effort to raise research and development spending to four per cent of GDP by 2030.
The FDI Barometer, produced every other year by Amcham Finland and Invest in Finland, indicates that foreign-owned companies are more likely to invest in research and development in Finland, with 12 per cent of foreign and five per cent of domestic companies weighing up such investments.