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Innovative investing

Finland’s new billion-euro growth package

By David J. Cord, April 2013

Photo: Pedacom/Rodeoinvestment money, Supercell, Finnish Venture Capital Association, Will Cardwell, small- and medium-sized businesses, public-private, FinlandFinland’s original public-private partnership idea involves a sum of one billion euros to nurture small companies and create thousands of jobs.

Economies around the world are slowing, but Finland has come up with an innovative way to boost growth without busting its budget.

Many developed nations are in a predicament. Their economies are slowing and need to be stimulated, but governments are under pressure to control their budgets. Finland is no different, but they have an innovative solution: get the private sector to help finance a growth package.

Finland plans a new growth financing programme that will last ten years and invest up to a billion euros in small companies. Private investors will contribute at least half of the money. As it is a public-private partnership, it has an inventive duality. The government views it as a stimulus package to create jobs. Private investors see it as a venture capital programme for investing in promising new companies.

Picture courtesy of Supercellinvestment money, Supercell, Finnish Venture Capital Association, Will Cardwell, small- and medium-sized businesses, public-private, Finland
Aiming to create more of these: Finnish company Supercell rocketed to the top with its game Clash of Clans.

“The majority of jobs are created in rapidly growing small- and medium-sized enterprises, which require sufficient venture capital to grow,” says Valtteri Vento, senior advisor to the Ministry of Employment and the Economy. “The government’s goal in this programme is to attract private investors to take more risk that will help boost economic growth and create jobs.”

Public-private partnerships in venture funding are not new. What is unusual, however, is the size and scale of the effort, as well as the explicit goal of job creation. Based upon studies by the Venture Capital Association, 6,000 new jobs should be created within five years.

“The debt crisis caused investors to withdraw from riskier startup funding,” continues Vento. “This programme represents one method of answering the dramatic structural changes in the information and communication technology industries in Finland. The state will do its best to ensure the financing programme will not disrupt the market. It will primarily be directed at areas where market failures exist.”

Asymmetric funds

Photo: Anni Hanén/Aalto Universityinvestment money, Supercell, Finnish Venture Capital Association, Will Cardwell, small- and medium-sized businesses, public-private, Finland
One billion euros is “a lot of money!” says Aalto University’s Will Cardwell, and we think he’s got a good point.

“It’s a lot of money!” says Aalto University’s Will Cardwell, one of the nation’s leading experts on entrepreneurship and venture capital. “So far it seems very positive, but the devil is in the details.”

One detail Cardwell is most excited about is that the funds will be asymmetric, meaning the terms will be different for public and private investors.

“Let’s say ten million euros of private money is invested in a company, and the matching funds from the state are five million,” he explains. “The state will want its capital back and a fixed return – let’s use 10 percent as an example. So if the rate of return is higher than 10 percent, that goes to the private investors.”

As the Finnish state is primarily interested in job creation and not profit generation, it will accept a lower rate of return.

“This asymmetry is very smart, and it is very good,” Cardwell continues. “This will increase the return for private investors, and so it will pull in even more private money.”

Cardwell believes the programme could have a synergistic effect. If companies grow quickly because of the programme’s early-stage investments, they will also become more noticeable to the large international investors. He terms this the “Supercell effect,” referencing the Finnish video game company. The great success of Supercell’s Gunshine and Clash of Clans caught the attention of investors around the world, who are now searching Finland’s high-tech industry for other companies with phenomenal growth potential.

“Entrepreneurs want more funds, more professionals, more and better teams in the venture capital market,” Cardwell says. “So my belief is that they like the idea, but they have a ‘show me’ attitude.”

See also on thisisFINLAND

Finland has Europe’s best workplace
Finns help startups reach New York

Links

Finnish Venture Capital Association
Aalto University Centre for Entrepreneurship

 

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