The Nordics and Baltics are still very much a wild west when it comes to venture capital and building startups into real growth companies and all the way to the IPO dreamland.

All the countries have their peculiar histories when it comes to VC landscape and so does Finland. Will Cardwell, the CEO of Techopolis Ventures, wrote a very enlightening post called “Reeling in the last decade in Finnish VC” (here) on how the scene has developed in Finland what factors have influenced it.

Will starts out by saying that while there certainly are a lot of colorful stories, the thing that bothers him is the number of “success stories that got away. When assessing history track record he goes on to say that he emphasizes exits, since they are the only relevant measure of success for both growth entrepreneurial businesses or venture capital investing, and this area (exits) is precisely where Finnish companies have had the biggest challenges Cardwell’s view. By looking at the figures one can’t but agree.

Cardwell outlines very interesting developments along the way, which are a must read for anybody who wants to understand who’s who and what’s what in Finnish venture capital. Among other things he points out that “Things could have been very different if Finnish limited partners could have foreseen the success of the MySQL exit and enabled a new fund a little earlier. The total lack of seed VC during the middle of the decade really hurt the market and led to the situation where there are very few ‘maturing’, well-funded companies in the market today. “

For me, the really interesting parts were these.

1) “There are a number of small but profitable exits (by international standards) that have given good payback to founders and VCs, but very few blockbusters.  And none in the last few years.  There is a great presentation/study by Creandum and Argentum published in 2008 highlighting how Sweden is the only Nordic market with real blockbuster exits, almost totally explained by their willingness to embrace the consumer internet).”

This is not Cardwell’s main point, but a very valuable insight nevertheless. This is something that I am not sure whether the Finnish VCs will ever learn, at least not before some of them are successful former entrepreneurs that have steered consumer internet companies themselves. Until that happens, it is very unlikely we’re going to see many ‘Finnish Spotify’s or Skypes’ (Regardless of Spotify’s fate, it’s already a success that has not sold to a US giant). Yes, startups can have foreign backed VCs but if that rare case would take place it would not contribute to the Finnish VC scene since they would not get part of the action. These success stories are not only schools for the entrepreneurs, but also for the VCs themselves, and if they don’t get to be part of those war stories, they can’t ‘learn at work’, let alone replicate them.

2) “In the mobility space, startups like Iobox, Smartner, BookIt, Firsthop and of course Nokia pioneered the mobile email/ messaging space, but have relatively little market value creation to show for it today.  RIMM and several others now dominate from mindshare (and stockmarket) perspective.  RIMM’s stock is up 850% over the decade.  Similarly, 10s of other Finnish innovations in mobility have come so early (i.e. Smarttrust, Valimo in mobile identity, MyOrego in rich browsing, etc), but value creation happens elsewhere – look at Apple and Google, both stocks up 1000’s of percent during the decade (especially when weighted with the US dollar’s depreciation).”

Amen!

3) “It is alarming that there was only one significant international VC investment in the second half of 2009.  Only 2 investments in 2009 came from out of the Nordic Region (Tempo Capital to SILECS and IndexVentures to Imbera).  The international syndication track record needs to improve quickly – international investors almost always require the certification effect of local investor interest.”

This is something I believe will get at least partly remedied in the future when more seed investors emerge and get settled, but again, if no local VC is willing to embrace the consumer internet then changes that an international one will do it alone is slim.

4) “Institutional investors, like pension funds and insurance companies must not be forgotten.  They rightfully only care about exits.  No exits, no new Finnish funds, that’s for sure!  In this light, the institutions are actually the backbone of the Finnish innovation system, and must be considered as such.  They should be educated to make sure that they help to realize the true potential of the Finnish innovation ecosystem by investing in both VC funds and in future public stock offering of tech companies.”

This is important and also on my list, and I will do my best to educate those institutions in my role as a member of the Finnish Industry Investment’s Investment Council.

Cardwell concludes that Finnish innovation tends to come VERY early in the value creation cycle, and outlines his top two New Year’s wishes. I have many times heard Cardwell talk about these and admire his passion in pushing the issues:

“Consolidation among Finnish tech startups: It is great to have many companies starting, but they should quickly combine into larger more diverse companies. VCs, as well as public entities, can affect this by monitoring global markets by investing larger sums into entrepreneurs who are willing to merge together (both nationally and internationally). These are always tough deals to pull off given the challenges in lining up everyone’s interest, but in my opinion it is the greatest opportunity for creating critical mass in a hurry. Entrepreneurs can obviously help by bringing prospective business combinations to investors very early. There are great stories out there ready to happen!

Speed and Action: the potential and barriers to growth are obvious right now, and there is no need for further study. The markets are moving at light speed, there is no opportunity to ‘wait and see’!”

Cardwell ends by calling on finding credible catalysts leading to more and better exits are very necessary. Further, his belief is that this is not just organic growth and company building – it is about getting more visibility into our high tech industry, and then having better strategic (and tactical) work to build key and robust industry pillars. “Fast growth, path to profitability, and industry networking are all critical elements.”

There’s much more valuable information in Cardwell’s post (including his VC-backed companies to watch for potential exits early in the 2000-teens!) so if you haven’t, make sure to go and read the whole piece. I for one, would not mind Cardwell getting his wishes come true before the decade it out. Read and weep!