A new report by Technopolis Online, a for-pay information tool for all high-tech financing activities in Finland, states that Finnish high-tech growth companies raised almost €51 million in the first half of 2009, which is a 17% decrease from the first half of 2008. In addition, Q2 2009 decreased more than 50% compared to the prior year.
Let’s break down some of these figures. To put things in perspective the €51 million was raised by total of 29 Finnish high-tech companies from both, venture capital and angel investors. This was 17% below the amount raised by 34 companies in the first half of 2008, and 74% below the amount raised by 26 companies in the second half of 2008. For anyone who has followed the recent trends, not surprisingly the second quarter of 2009 was the lowest quarter recorded since 2007.
Early stage companies accounted for a majority of the number of investments totaling 27. They attracted 93% of all investments in H1 2009. The average overall investment size of €1.8 million was not significantly different from the average early stage investment, which was €1.7 million – ranging from €150k up to €11 million.
Technopolis Online further reports that in the first half of the year, 11 companies attracted more than €1 million each. Of these, three companies raised €5 to €10 million each: Eniram, Silecs, and EpiCrystals. Only one company raised over €10 million: Imbera Electronics (see our story here). The size of an average financing round was approximately €1.8 million, about the same as in the first half of 2008. Again, for anyone following the venture capital business, this is insignificant amount in US standards, where the venture capital industry hot spot is located. In fact, in US anything below $3 million is considered more suitable for an angel investment and real VC firms take it from there up.
When broken down by industry, not surprisingly given Finland’s strong track record in software, Software companies were able to attract more investments than any other industry (11), similar to the situation in H1 2008.
In total, software companies raised almost €12 million, a decrease from €15.5 million in the first half of 2008. Nanotechnology companies managed to raise more capital, with three companies closing deals worth €12.7 million, setting the average investment size at €4.2 million. Finally, the ICT Hardware & Semiconductor industry received slightly more than €12 million, almost completely due to Imbera Electronics´ €11.3m investment round. Overall, the average investment per company was €1.8 million in the first half.
Interestingly Will Cardwell, CEO of Technopolis Ventures says they see currently more than 50 companies seeking to raise funds in the Finnish market. We at ArcticStartup see about 50 to 75 companies seeking funds, but I am pretty confident our sets are not identical. Normally ArcticStartup hears about the startups when they are still in stealth mode and in much earlier stages compared to the ones that rise to the public radar through pitch competitions and what not. For example the already famous and very successful (at least from the employee point of view) ‘Nokia package‘ that many experienced Nokia employees took when the company wanted to reduce their head count has sprung up close to 20 startup projects that we know of and all of these operate still in stealth mode. Thus, I’d say that about half of the companies are different, which means there are close to 100 Finnish companies seeking to raise funds in the Finnish market, even if many of these looking at raising around €150k to €300k instead of millions of euros.
After closely observing the grass roots level developments of the Finnish risk capital investment ecosystem for over two years, the most interesting part of the survey for me was to see how the type and origin of the investor base has changed. The report states that domestic venture capitalists were the largest single category of investor in H1 2009, though the €24,5 million they contributed was only slightly above the €22m contributed by foreign venture investors. On the other hand, angel investors (nearly exclusively Finnish) were estimated to contribute €4 million. Reportedly, there were only 6 clear international investments in H1 2009 which made the average size of foreign investment much larger than domestic venture capitalists´ average investments (€3.7 vs. €1.3 million). In H1 2008, international venture capitalists invested €12.2 million and angel investors €6.2 million. Varying greatly from the H1 2009 figure, in H1 2008 domestic investors made as much as 70% of investment into Finnish high-tech companies.
There’s two 3 important observations here. Two clear cut and one indicative. 1) There are no exits let alone IPOs, but that should not be a surprise to anyone who has been awake in the past 12 months. 2) The sums invested are paltry compared to anything that’s going on in the West Coast of US. This brings home a brutally clear perspective on the perpetual debate on whether one should stick with Europe or pack up and move to US or at least to London if the business has potential to be really big. Unfortunately, the changes of getting money and more importantly smart money in Finland are exactly 7.6 times smaller compared to Israel (H1 2009 showed €388 million of venture capital investment in Israel, which is exactly 7.6 times the amount in Finland during the period) and much much lower than that compared to the US (National Venture Capital Association H1 2009 statistics reported a 55% decrease from H1 2008, having the invested amount decrease from $15.2 billion to $6,9 billion in H1 2009).
3) But, and this is possibly a very significant observation, foreign venture capital investment grow in a down market (even if slowly) in Finland measured by the amount invested. Similarly our own experience here at ArcticStartup is that the interest towards Finland in abroad is growing steadily as investors start to get a better idea of the opportunities here. For example, just recently I had a long discussion with a German venture capital fund manager who was under the impression that the English speaking UK had such a dominant position here in the Nordics that it was no use for them to expand their scope up here. This is completely untrue. There is very little competition in the region among venture capital funds and the opportunity for venture capital firms to enter the region is as good as its ever been. We, for one, would love to see more competition among the foreign and domestic funds, thus making the funds to work hard to get the best startups and making the Term Sheets more favorable to the entrepreneurs.
The Survey is based on both publicly-reported and proprietary information regarding 140 Finnish and foreign investors, and 1,500 Finnish high-tech firms.