Fintech growth funding in Finland

Fintech companies are breaking some of the highest funding records and are still going strong globally even during COVID-19. What does the situation look like in Finland?

To dig a bit deeper into this question, Helsinki Business Hub, ​Finnish Business Angels Network (FiBAN), Nordea and ROI Financial Technologies joined forces and organised a webinar focusing on the opportunities and landscape for fintech growth funding in Finland. The topic was discussed from four different angles: banking industry, angel investing, ecosystem development and a start-up’s view. The webinar was an official satellite event of Arctic15 and gave a good kick-start for the Fintech Track that took place the same day.

Investment decision-making goes online

Last year 2019 was quite a year: Finnish start-ups received more venture capital than any other European country (compared to GDP). It was also a record-year for Finland-based VCs that invested a total of 158 M€ into domestic and foreign companies. And this year we are already breaking the records despite the COVID-19 pandemic.

During the exceptional spring months, Helsinki Business Hub conducted a survey together with Arctic 15 to find out how likely the investors are to invest into companies online.

“Our survey resulted in two key findings. Firstly, both start-ups and investors said they were willing to participate in matchmaking events online. And even more importantly, most of the investors said they were open to closing an investment deal without meeting face-to-face,” said Teemu Seppälä, Senior Business Advisor at Helsinki Business Hub.

What comes to Finnish fintech companies, so far eight funding rounds have finalised in Finland this year. The largest round was 40M€+ while the average has been approximately 11M€. And the new players are emerging in the market; in 2020, so far 15 new fintech companies have been established in Finland and the number is expected to grow towards the end of the year.

Plan B helps to tackle some of the challenges

From Nordea’s point of view, one of the key roles for a bank in this field of fintech growth funding is to connect the relevant people – start-ups and investors – and thanks to its vast network, Nordea has excellent capabilities for doing that.

“Six out of top 10 global VCs are attending our closed matchmaking events,” told Vesa Riihimäki, Head of Startup & Growth Business at Nordea.

It goes without saying that there are also certain challenges when evaluating fintech start-ups as an investment opportunity. The most typical challenges include capital intensity, direct competition with the existing banking world, not fully automated user on-boarding, market-entry barriers, and the fact that fintech start-ups are usually in need of a huge number of partnerships as well as massive marketing which calls for capital.

CVCs and banks are the most obvious funding sources for start-ups, but there are also other alternatives available.

“It is wise to look for public funding, too. And in some cases, it’s actually good to start with a plan B first and get things going at least a little bit, so that you can prove that you are fit for a market entry, and after that, you can focus on the bigger cases that you have in mind,” Vesa advised.

What’s in it for business angels?

Fintech is an area that is of high interest also to the members of the Finnish Business Angels Network (FiBAN). The members of FiBAN have been involved in some of the most famous exits in the Finnish fintech field. However, fintech can also be quite difficult for an angel investor.

“In the field of fintech, you often have higher upside potential, but you also have a higher risk compared to other start-ups. In fintech, you need to work with regulation, you must have a user base that is big enough, and so on. And sometimes a company might not even have a minimum viable product yet and they are already asking for funding that might go over one million,” explained Reima Linnanvirta who acts as the Chair of the Board at FiBAN.

“These cases can be very difficult from an angel’s point of view, so it would be a very good idea to think if you could implement that plan B; if you can’t have an MVP with 24 features yet, could you make one with 1–2 features?”

All in all, Finland is an excellent fintech economy with lots of talent and great access to corporation partners, and we are also considered interesting from the perspective of international investors.

However, the biggest challenge is that we are not the most agile in terms of legislation and governance – and that is why e.g. Estonia, Latvia and Sweden are ranked so high as fintech ecosystems and they already have fintech unicorns. Could we learn from our neighbours?

“On the other hand, if you are able to pass the Finnish regulation process, it will ease your access to other markets when expanding your international business,” Teemu added.

Success stories pave the way for new start-ups

To get more start-ups in the market, it is extremely important to have success stories. One of these real-life examples is a fintech start-up called ROI Financial Technologies.

“ROI was established to solve the basic problem that emotional challenges keep people from saving and investing. One of the barriers is the very common perception that you need to have a lot of money in order to start investing,” says Ida Mänty, Founder and CEO of ROI Financial Technologies.

The statistics show that 38% of Finns don’t save or invest due to lack of money and knowledge, while there are 82 billion euros of “lazy money” in Finns’ bank accounts.

“There are also lots of consumers who are currently not served at all. According to a Bloomberg study from November 2019, ignoring for example women costs finance firms as much as $700 billion a year. Our goal is to unleash the buying and investing power of these under-served groups of consumers,” Ida said.

ROI is a holistic solution for people who want to learn how to invest and who want to have an easy-to-use tool for doing that. It removes barriers and encourages everyone to save and invest even with limited knowledge. At the same time, it contributes to the users’ overall wellbeing by reducing financial worries which have negative physical and mental effects.

Quantity is quality

The Finnish ecosystem has created a nice reputation globally and the perception is that we do have interesting companies here.

“However, the global competition is extremely tough, so we need to continue this work together to keep large investors interested and have them looking at our market also in the future,” Vesa said.

“In addition to companies, also universities and other schools have a very crucial role in building a vibrant fintech ecosystem,” Teemu said.

All in all, the situation seems to be that there would be funding available, but there are not enough start-ups in Finland. International investors are very keen on investing in Finnish companies, but we need a bigger pool of fintech start-ups in Finland.

“It’s not rocket science. You need only two things: good investment opportunities and a system that supports trusted investments. The second one we have in Finland, so if we have good start-ups, we do get investments. It all comes down to what is the quality of our deal flow, and after all, if you get quantity, you get quality,” Reima concluded.

Watch the webinar recording here.

Read ROI’s full story here.