Finnish Government Supporting Angel Activity
Ladies and gentlemen,
I have to say that I have been waiting for the ”Slush-feel” for a while. These few days are the highlight of the year for the minister of economic affairs. Unfortunately during the past few years there has been more bad news than the good in the area of business and economy. Finland is one of those countries facing a severe structural change. In our case, it is unfortunate that two important sectors of the economy, the ICT and the paper-forest industry, have lost a big share of their former strengths at the same time. This is obviously not good for economy of a small country such as Finland. One just cannot escape the consequences of changes of such magnitude. And to make the situation even harder, we are at the same time facing one of the most difficult and prolonged financial crises one can remember.
In the middle of dealing with these challenges, Slush is like a breath of fresh air and a good reminder that there are many good things happening. Finland has a booming start-up community where new and innovative ideas are waiting to be discovered by people like you. Only the sky is the limit, when right people and bright ideas meet at the right time.
I am particularly glad to see so many foreign angels present here today. For me, it is also a proof that something has been done right in Finland. I dare to say that the investments we made on education, research, development and innovation since the 90’s have paid up pretty well. The strategy we chose was to invest heavily in these, even if we had to save on almost everything else. This is also a valuable lesson for the future for us Finns. I believe that the recipe for success still lies in the same wisdom. The key is to encourage our businesses – big and small, to innovate and renew themselves.
When it comes to renewal, start-ups are important agents of the new growth. Start-ups are pioneers in using new technologies and bringing them quickly into the market. For a small, technology-driven country like Finland, start-ups and their impact on the national economy is very important. Over the past years, some 90 % of the new jobs in Finland have been created in small and medium-sized enterprises. In the face of global economic challenges, start-ups serve as the building blocks of future competitiveness in Finland and Europe.
When I received this invitation to give a speech to the business angel representatives, I could not help thinking about the basic concept of business angels. Being a politician and facing the media practically every day, I need to sincerely congratulate you, the angels, for being so smart to have the name angel describing you and your activity. We, the politicians, are criticized – mostly for the right reasons – but I cannot imagine anyone who would dare to have negative feelings about angels. Purely from the PR point of view, you have been able to illustrate your action in a perfect way by using only two words!
Seriously speaking your activity has become more and more important for young companies. To my knowledge, FIBAN has over 350 members and the Finnish network is among the most active ones in Europe. It is difficult to tell precise numbers, but it appears that Finnish business angels’ investments account for over 10 per cent of the overall investments in young companies last year. In total, it has been estimated that business angel investors have made some 50 million euro of investments in 2013. The role of the business angels is thereby increasing in Finland.
I am happy to say, that recently the venture capital community has developed quite well in Finland. Last year, Finland was the most active European country measured by VC investments in relation to the GDP. (European Venture Capital Association statistics) Over the past couple of years, international venture capitalists have found their way to Finland and recently Finnish technology firms have received significant venture capital investments. Some notorious success stories, like Rovio and Supercell have certainly led the way.
Ladies and gents,
As regard to the European venture capital market, the role of the state is constantly discussed. The variety of views is quite significant. Some people are asking the state to stay as far away as possible, some others are calling for much more sizeable public investments and support. At the governmental level, we need to find a suitable balance, which is ultimately reflecting the market needs. In the Finnish case, I can mention the following two measures, which are both designed to stimulate the market without any market distortion.
1) For the very first time, we are right now testing a special tax allowance for business angels’ investments. In effect, it makes possible to postpone personal income tax during a temporary time period. At a later stage, it is going to be interesting to review what has been the real-life impact on this tax action. Most likely this experience will be quite decisive, in view of the possible extension of this special allowance.
2) The Government also agreed to issue temporary provisions for 2013 and 2014 that have provided substantial tax breaks to small and medium-sized enterprises investing in research and development. These incentives, accounting for some 200 million euros per year, have reduced the corporate tax burden of small, innovative businesses based in Finland.
3) We have also re-shuffled the roles of governmental bodies. In the future, the seed stage VC financing is mainly organized through fund investment activity under the Finnish Funding Agency for Innovations, Tekes. Basically the idea is to catalyze private investments in privately managed funds, which in turn provide both financial and human capital to young companies. This activity has just started and the state will gradually stop making direct investments in these young companies. Tekes Venture Capital also aims to catalyze a co-investment fund that would invest alongside experienced angel investors. I certainly hope that together the state and private investors are able to collect a sizeable amount of funding for new Finnish success stories to grow. At the moment, the volume of annual investment commitments of Tekes Venture Capital is about 20M€.
The core activity of Tekes is to provide innovation funding for companies, research organizations and public sector. Tekes funding instruments are grants and loans without collateral. In 2013 Tekes invested approximately 130M€ in over 700 innovation projects of startups. I am happy to say, that in 2014 the number of funding applications has increased substantially. The funded projects span from business development and market analysis to developing scalable products and services that have a significant international market opportunity.
All in all, I believe these actions to be important, but still – the bigger role for the state to play is to take care of the larger framework – the overall attractiveness of the business atmosphere. Despite the fact, that you can do some instant magic with, for example different kind of tax allowances, I still believe that the overall attractiveness of the taxing system is even more important. We have actually done something with that as well, by lowering the corporate tax during this governmental period form 26,5 percent to 20 percent.
It might sound boring, but I believe the big moves are what count when creating a society where people want to work more, employ more, invest more and strive for success. Even if some things have been done right, with this big picture, we Finns still have a lot of work to do.
Even if the role of business angels is growing and there is a good reason to stress the importance of your financial investments, perhaps there are other elements of your involvement that are even more important.
Young companies need guidance, skills and advice. I trust that competent and experienced business angels are very capable of providing all these. It is undoubtedly challenging to sell new innovative products and services in international markets. Your value-added involvement makes it possible to increase the chances for success. And if you succeed, also our economy benefits.
I hope that the contacts you make here, will eventually lead to new global success stories.
I would like to thank you for the lovely lunch and all the good work that you do, and wish you all very nice conference and profitable days in Helsinki!