IT Financing in Finland

Finland is pursuing a comprehensive strategy for financing companies in the ICT sector. Referred to as the "Innovation System", it attempts to leverage funding from all possible areas, including traditional borrowing, direct and indirect government financing, venture capital and foreign direct investment. While some of these areas are more developed and influential than others, the goal is to develop and exploit all sources to their potential.

Traditional Sources: In Finland, most enterprises (especially SMEs/family businesses) have traditionally relied on capital from the entrepreneur himself, family sources and traditional loans from banks. An explanation for why this approach is favored involves Finnish culture: Finnish entrepreneurs are loathe to cede some control over their businesses, which occurs when "non-traditional" means of financing are used. (14) Estimates for financing from Finnerva alone amount to $320 million Euros. (15) Indications are, however, that traditional financial sourcing is slowly declining as other methods enter wider use and become more accepted.

Venture Capital: Finland has a developing Venture Capital apparatus. While the recognition that full development is necessary to achieve its potential exists, there have been and remain significant cultural impediments, the biggest is the general unwillingness (mentioned above) by Finnish entrepreneurs to surrender some control of their business. However, VC is definitely growing as a source of financing: while more recent data was not readily available, in 1997 VC investments in high-tech companies grew 180 percent, with the The average size of first rounds increasing to $850,000. This represents an increase of 67% from only three years before. (16) The Finnish Venture Capital Association figures for venture capital in 1999, showed a total of 325 investments made in Finland, totaling 1.7 billion FIM. (17)

Recent data from Tekes (see graphic below) shows venture capital investments for both government (Tesi and Sitra) and private sources at approximately 495 million Euros. On top of this is additional data showing investment from "business angels" - individual investors - at approximately 320 million Euros. (15)

Corporate R&D: Finland has a strong corporate R&D financing apparatus, amounting to approximately 3.1 billion Euros in annual IT funding. This is by far the single largest source of IT financing in Finland.

Universities and Other Research Organizations: While exact figures are difficult to arrive at, universities contribute approximately 790 million Euros to IT R&D efforts. Additionally, other research organizations such as the Academy of Finland, Finpro and VTT contribute a total of approximately 430 million Euros.

Governmental Direct Financing: This amounts to approximately 670 million Euros, with Tekes contributing 57% and other governmental entities contributing the remaining 43%. Note; this does not include government-sponsored VC entities, as mentioned above.

FDI: In recent years, Finland has become more open and welcoming of foreign direct investment, a trend that while not yet complete, is projected to continue into the future. Overall, there are approximately 2000 foreign-owned companies operating in Finland, which represents a significant growth over the past decade and has helped the inward FDI stock increase about sixfold. By the late 1990s, foreign-owned firms employed about 130,000 employees, or about 10% of private sector employment. (18). Tekes (see graphic below) shows IT financing from abroad to amount to approximately 120 million Euros.

Image Courtesy of Tekes