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Wednesday, June 29, 2022

Why are no Finnish Startups targeting only Finland? Follow the Money.

Here at ArcticStartup, our priority is to write about startups from the Nordic and Baltic region that going after international markets. We have this editorial focus because we write in English, and it makes sense to lead our international readers to startups they can use for themselves, or are at least going places. Day-to-day this means following Twitter feeds and seeing what the buzz is across the region, and an interesting trend has appeared.

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In Finland, basically every single startup we come across is building their product to target international markets. It’s really hard to find web startups targeting only Finland. But if you look around to the rest of the region, it’s easy to bump into web companies that are doing a web or mobile app that is somewhat innovative, but are focused inward onto only their own country and are operating in their native language.

Not to pick on anyone, but one example that comes to mind is Rabble, a Swedish mobile coupon app that’s been around since 2010 and has 20 employees. I made a mental note of them when I first started writing for ArcticStartup, thinking I would eventually cover them when they would soon expand into international markets, but they seem content on focusing on Sweden. Rabble far from alone if you look around the region. If you come across an accounting app in Sweden, it will likely be in Swedish, but if you would find the same in Finland, it would be targeting Finland and showing a clear path to somewhere else.

There’s nothing wrong with this, per say, entrepreneurs can still make a good living focusing on only their home market. It doesn’t need to be said the Nordic and Baltic countries are tiny; Sweden boasts the highest population with only 9.5 million, but clients and customers here have some spending money, good smartphone penetration, and are somewhat willing to try new services. I suppose the argument for these entrepreneurs isn’t a lack of ambition, but the question of whether you would you rather be the king of your own country or fight a long battle to maybe make it to the top.

Rather than it being a lack of global ambition, these entrepreneurs could have more of a delayed ambition. Small markets do have their benefits; they can be considered good test markets while you pivot around your idea, and keeping your startup hidden in a relatively unspoken language can give you the time to figure everything out before your international expansion, if that’s a strategy that makes sense to you.

To find out why there are basically no Finnish startups operating only in Finnish, or are targeting only the Finnish market, you need to follow the money.

For better or worse (better, I would argue), Finnish startups either get funded by Tekes or pivot until they can get funded by Tekes, the Finnish Funding Agency for Technology and Innovation. It’s a good deal for entrepreneurs, and according to the startups I speak to, it’s somewhat easy to get funding as long as you stick to their rules and criteria.

Most early stage startups raising funding these days start with the Tekes Tempo program, which provides non-dilutive €50,000 grants for projects within startups designed to build and test their MVP on international markets. In order to be eligible, entrepreneurs first need to find an investor to put a relatively small amount of money into the company.

A simple example of the criteria needed to get funding comes down to a little less than €17,000 coming from an angel if two startup founders also put in about €9,000 each, proving to Tempo that the concept has some outside validation by the market, and that the entrepreneurs have some skin in the game. This isn’t the only equation to get Tempo financing, but it’s basically their ideal.

With this minimum example, from an angel’s perspective, this quadruples their money, giving their investment a longer runway, and due to Tekes’ reporting procedures, it means that the startup can’t blow their investment on booze and cars.

Thanks to all this “free” money lying around, Tekes a massive player in Finnish startup financing scene, and they influence the level of ambition through their criteria. From talking and consulting with Tuomas Henttonen, one of the managers of the Tempo program, what they need to see is both a unique idea (as in not a sightly better mousetrap) and a strong desire to become a global market leader in their sector, preferably by creating new markets.

The same criteria apply as a startup moves down the road to cheap Tekes R&D loans (in the 100,000+ range), or to their Young and Innovative Companies program (a €1 million grant for the last huge marketing push into internationalization), so a Finnish entrepreneur is leaving a lot of money on the table by not falling into this international criteria.

Despite this trend, there are still plenty of international winners coming out of the Nordic countries with more inwardly focused startups, and they seem to have no problem finding talent that’s looking to take on the world. But today, it finally clicked why whenever I look outside of Finland I bump into beautiful looking web and mobile companies that I can’t write about.

Do you think this effects Finland positively or negatively? Have any theories on the side effects to this? Let us know in the comments.

Globe image CC licensed by Greg Robins on Flickr.

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