“You know the word kalsarikännit?,” asks Basemark Chairman Tero Sarkkinen, referring to the beautiful Finnish word for staying at home and drinking in your underwear with no intention of going outside. “This was a kalsari-closing.”
Just as smoothly as Finns can adapt new words to strange situations, Finnish entrepreneurs and VCs are adapting to the new normal of remote fundraising.
Sarkkinen is familiar with how the last two decades of funding rounds have run. Previous to founding Basemark, he was the founder of automotive UI startup Rightware, and before that Futuremark, which was born out of Finland’s famed demo scene in the late 90’s. Now at Basemark his profitable 50 person team is building real-time graphics and computational software for the automotive industry. In July they closed a €7 million round from London’s ETF Partners, who Sarkkinen met only in person once at a dinner in late 2019.
Today as Chairman of the Board of Basemark, Sarkkinen has a new board member that he’s never met in person. That’s the new normal as Europe’s border lockdowns have shifted every meeting remote.
For Finland to continue attracting Europe’s highest VC capital per GDP, Finnish entrepreneurs must keep up the work by building relationships and attracting funding remotely. According to the Finnish Venture Capital Association’s numbers, 2019 saw a record €293 million in VC investment, of which 61% came from funds outside of Finland. Early Pitchbook data (chart below) has shown that capital continues to find its way into Finnish startups, especially in high-dollar rounds. That said, it’s likely too early to draw conclusions on this data. The low Deal Count in July and August could be from incomplete data, or from COVID-19 impacting entrepreneurs’ and VCs’ funding negotiations over the summer.
We wanted to hear firsthand how Helsinki’s best entrepreneurs and investors have raised funding during the pandemic, so we called up a few of our contacts to see what we could learn from them. In addition to Sarkkinen, HBH spoke with Perttu Ojansuu, the CEO of Happeo, a collaboration platform that’s a mix between an intranet and an enterprise social network. And additionally Yes VC partner Jyri Engeström, who is currently leveraging his Finnish roots to get out of the Valley, where he’s normally based.
A new world for fundraising
Looking back on March of 2020 there was big uncertainty in the air from entrepreneurs and VCs alike. No one knew what impact the virus would have on our day-to-day life, let alone on startup fundraising.
Happeo’s CEO Perttu Ojansuu takes us back: “I was in the U.S. at the time because our target is to expand in that market this year. When Trump said ‘We’re closing the borders’ I realized it wasn’t only going to be a bigger health issue, but an economic issue,” said Ojansuu.
“We were in the middle of due diligence. Typically only 10-15% of the time funding rounds fail during due diligence, but I didn’t know what would happen.”
Despite the new variables, their A round closed successfully, bringing in €10.9 million from a number of investors across Europe and Finland including INKEF Capital, DN Capital, Maki.vc, and Vendep Capital.
Months later there’s no question about uncertainty for many consumer and B2B startups – now there’s blood in the water as VCs chase down startups and growth companies who are seeing a massive new demand in online services. You can see new growth everywhere- whether you’re a consumer buying groceries, a student being educated, a kid wanting to play a game with friends, an office worker now working from home, everyone is spending all day online (and spending money while they’re at it).
“There’s been a boost to the whole sector from companies that are just growing for 3-4x the rate they were predicting in the valley,” says Yes VC’s Engeström. “Everyone can’t believe their numbers. That, combined with all these new people coming up with new projects, and deal activities have become so much quicker.”
But while some sectors are seeing growth, not every startup in Helsinki is selling COVID-proof products like food delivery or online collaboration tools. Basemark’s OEM customers in the auto industry have tightened their belts as auto sales have dropped during the pandemic.
“Some parts of the business have slowed down, some have been cut, and we’ve lost revenue we thought we had for this year,” says Sarkkinen. “Now we have a year where we would stay flat or show modest growth, but we’re doing quite well… The stability [from the new funding] is great, and now no matter how difficult the crisis is, we can come out as a winner.”
If the amount of available capital were lower, we might be telling a more dire story during this pandemic. But the positive news for 2020 is that there’s a lot more capital in Europe that’s looking to be put to work in startups. Yes VC’s Engeström calls the amount of capital out there “bursting at the seams” and now Ojansuu predicts fundraising in the near future will look positive.
“All the investors’ funds are full of resources, so if I compare to 2 years back there’s a lot more funds with money available for seed and series A. I would say the market is going to be really good for the next 2 years.”
2020 will undoubtedly be a year that kicks off changes to Helsinki’s startup scene. Slush has moved online and launched an online meeting platform, offices are mostly closed, and startup hubs like Maria 01 aren’t buzzing with people like they used to.
But Finland has many strengths that should be taken advantage of going forward. First, there’s a huge next generation of talent at larger growth companies like Wolt, Smartly, and Supermetrics learning firsthand how businesses quickly scale. We’re hitting the part of the cycle where employees turn into founders and the flywheel spins faster. The coronavirus has given many future entrepreneurs a chance to sit down and focus on new projects, which is similar to how Nokia’s burning platform launched a new wave of Finnish startups in 2011.
What will be an interesting trend to watch for in 2020 is if Helsinki can capture talent from Silicon Valley instead of the other way around. According to Engeström, “The surprise asset is that Helsinki has managed to profile itself as a corona free environment. My last text message is from the founder of Groupon asking about schools in Finland. There is this opportunity for the Helsinki area to attract talent from entrepreneurs or investors who come from Silicon Valley because it has relatively low COVID, and it’s open.”