In this episode in conversation with Pauli Noronen from Business Finland we discuss the different offerings of Business Finland and how they support entrepreneurs and the various funding options.
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Length of the recording: 22 minutes
I: Hello and welcome to Finnish your business. In our podcast we leave no business unfinnished. I am your host Namrata Sethi. This podcast is brought to you by MEGE, which is a joint project of Haaga-Helia University of Applied Sciences, Helsinki Business College, Aalto University and the Shortcut. Funded by Uudenmaan Liitto, the project aimed at promoting entrepreneurship with international talent. Today we have a guest joining us from Business Finland Pauli Noronen. Welcome to the show Pauli.
R: Thank you Namrata.
I: Thank you for joining us.
R: Pauli, if you could please introduce yourself?
I: Okay thank you very much. Now when we are talking about startups, I have been looking, I’d say in startups, or we are the startups, or for startups, for 20 years. Beginning of 2000 I joined the startup and then worked in 4 startups in a row. Then 2007 I joined (Tekes), the pre Business Finland and then from that I have been working with startups in this public organization, in supporting the Finnish startups.
R: If you could tell us that, what does entrepreneurship mean to you and why is it important?
I: That’s a quite wide question I would say and depends on the point of view you look at it. How I see that, entrepreneurship is very much about (-) and developing something new and getting sort of old things better or totally tossing them out, out to the pitch and developing something new instead. Of course from the society point of view, it means new jobs, new business, new revenues, taxes for the governments and so forth, but it’s really about renewal and also for young people who start to work on their startup. It’s a great growth process for them and a place to grow, to do something else. It’s a great thing.
I: And if you could tell us, how does your organization help entrepreneurs?
R: Well Business Finland helps entrepreneurs in many ways actually. Of course Business Finland is the government organization in Finland to help entrepreneurs and also other companies but we help the entrepreneurs as they grow with the company so that we help them to first for example to evaluate their business idea. Maybe develop the business idea further and then when they already have some sort of product available or MVP or whatever initial state product or service, we help them to evaluate their business idea in international markets. So that they can really get the feedback from the right customers, not just in Finland but outside Finnish borders so that they know if their idea is really rock-n-roll condition or not. That is pretty much the initial phase of the startup with entrepreneurs and then they have evaluated the business idea, maybe polish it a bit and they decide to continue. Companies or startups need to develop R and D and there we have a very important role to help, help them to develop their products or services or business idea, in several phases possibly and it takes years and never ends so to speak, the R and D. We can help at least the best of the best startups, we can provide them support for sales in the marketing so that they can really go to international markets and press the sells button and sell and grow in the international markets. Also what we can do for the startups and other companies is that, I don’t remember the exact number but we have Business Finland people in maybe 40 -50 countries around the globe and their sole purpose is to help our customers to find markets, to find partners there. This is quite a wide set of services that we can provide to entrepreneurs and their startups and (-) actually little more to than that so that we help them to network with each other and so forth. There’s a whole lot of services that we provide to entrepreneurs.
I: That’s really great. At what stage can the entrepreneurs come to you?
R: Well, the first condition is that there needs to be a company. Then it needs to be a Finnish legal entity, so Finnish oy or LC company needs to be in place. When we are talking about the startups, so I have seen, maybe 100-200 startups in this work and what we expect from the startups when they first come is, there needs to be first of all a team. A team means more than one person, a single person is not enough, there needs to be a minimum of two persons. Usually it’s like from two to three, four persons because they start from small and that then grows later. There needs to be a team and the team needs to have sort of versatile compitances, so that maybe one of them is good in business development and looking in the markets, another one is good at developing the product and fitting the market demands to the product. When we are talking about competences, even more important is that they understand what competences they have and what competences they need in the next phase so that they don’t just collect software developers but they need to collect different kinds of people but of course slowly because there’s not so much money. And of course the team needs to have an innovative product idea or service idea, or business idea because we only want to support those teams who seem to be competitive in the markets. Otherwise it could be a waste of anybody’s money, (–) [0:07:59] not be competitive and capable to sort of protect their innovation also. That’s basically it, what you need is team, team is always most important, there’s nothing if there’s no team. They need to be hungry, they need to be hungry for the international markets and sort of brave enough to make this move because again if a team comes to Business Finland and they say that they have this pretty nice idea and are going to make this big in Finland. We say that, okay you can do that but we wouldn’t be with you because we want to support all the companies who go outside Finland and the reason is quite clear for that. It is this small Finnish market, so it’s no use to invest in services or products that only are sold in Finland. I think that’s pretty much the basic requirements there. With those you can start and then you develop further.
I: And whom should they reach out to for this? Which department is looking/taking care of this?
R: You mean how to contact?
R: Okay, basically at this point I’d say that if there’s a totally new team in Business Finland website, we have a certain link or way to approach Business Finland so that you describe your initial idea, what are you planning to do, what are you planning to reach and what you already have. That’s a good point. Then we have a group of specialists who look into this and evaluate what is the status the team is at the moment and whom they should discuss next. Later on when they possibly would become our funding customers, they could then have their own contact to discuss in the future with them but that link is the first one to look into and file your information where it starts.
I: Can you tell us a little more about startup visa tempo and R and D loans?
R: Absolutely, now when you mention startup (visum), we can start from that. There are so many ways to describe what a startup visa is in Finland. The long term is residence permit for startup entrepreneurs and which is set in the law actually. The idea behind this, this is really in the law at the moment. The idea is that using certain processes the international startup teams can more easily get the residence permit to come to Finland and establish their company here. This is actually meant for startup teams and entrepreneurs or founders outside the EU or European Economic Area because the people living in these areas, they can come to Finland and establish their company, there is no problem with that but if you are outside the EU, outside European Economic Area, you need to apply for a Residence permit. If you plan to establish a startup, you apply for a residence permit for a startup entrepreneur. This residence permit is applied from Finnish immigration service but today it happens so that in order to apply for this specific residence permit from immigration service or migri as you call, you would need an opinion or statement from Business Finland to be attached to that application to migri. So when you plan to come outside (-) EU to Finland to establish a startup, you approach business Finland first, again we have a website where you can find this mechanism. You apply for, sorry about these long (test) but, what can I do about this. [laughs] So you have to apply for this eligibility statement for this startup residence permit. For that, you need to do something and if you get these positive statements from us then you can contact migri and apply for the residence permit itself. It’s quite straightforward to apply for this. Our statement is the first step, there is full documentation on our website and it’s quite straightforward. There’s one work template you fill in, provide some CVs of the founders and passport copies of the founders and file it for the application and within a week, maximum two, you get our reply, either (VC), with team and their business idea (–) [0:14:33] our statement or not. Then if you have got the statement, you can proceed to the migri. So we have had this process for 3 years now and we have received maybe, I’d say about 400-500 applications. It’s quite a lot, from 50 countries at least. I don’t love statistics so much but I have calculated that more than 50 Finnish companies have been established by these teams who have come from outside Finland, so far. Many are in the process, it’s a great process. This is just a startup visa or startup permit as we call it in Business Finland. Do you have any more questions about that or can we go to the tempo?
I: Yes, let’s go to tempo and R and D.
R: When you are asking about these services that we provide to our customers, I mentioned that there’s this phase where we help startups to go to international markets and evaluate their business idea. Tempo is just a name but it’s the name of this funding tool that we use to provide funding for companies to do this evaluation of business ideas. Now, I have to remind one thing, this is important, it just came to my mind that funding is surely an important part of our services, especially to startups because money is always needed but our funding is project funding. This means that there needs to be a company who applies for it but they have to provide a project plan and all that and project costs and we can then fund part of the cost of the project. We don’t invest in companies, we never invest in companies, we never take share of the company which is very important for the founders but it’s also very important for the investors because we don’t take any share of the startup. In tempo it’s all about going outside Finland and evaluating your business idea there. In practice it means that, for example you have a software product, you need to find some customers outside Finland, whatever country is best for you or the market is best for you. You find some good pilot customers there and have them try your solution so that you get real feedback, is this good or not, what needs to be done to make it better. That’s what tempo is all about. You can use the cost money for salaries, to make some development and you can make use of the salaries, for example for purchasing market studies or whatever. There are also details related to that. It’s pretty good money, it’s a 50000 euro grant. But the company needs to have 30000 euro equity because that shows that, of course, Business Finland never can fund 100% on anybody’s project. Also this 30000 euro proves to us that somebody else is believing you in this, then Business Finland. So the team possibly also (-), but anyway, this is the rule. So this is tempo. We have so many tempos annually, must be 1000, 2000 tempo projects happen every year and I also had lots of tens of tempo customers earlier. Now I’m working with this startup, (-) 100% at the moment. And then there’s this sort of roadmap of startup fundings, so evaluating your business idea outside then developing the product because it always needs (developing). So typically after tempo, it comes the phase, R and D which means that we provide funding for the R and D project and this is a little different than tempo. Tempo was a grant, which means that you spend the money, you don’t need to pay it back but for R and D our offering is actually low and that typically needs to be paid back also. Only in very rare cases the funding for R and D can be a grant. And when it can be a grant is rather when you are not developing an end product to be sold but you develop a technology which will be used in next phase in the (-) project to make a products or it’s (–) [0:20:38] little complicated but it’s not so complicated. For some people loan may sound like a dangerous thing, okay government is providing loan, what does that mean? But I can assure you that the Business Finland loan is a very soft loan. It’s real money, it doesn’t mean that it wouldn’t be real money. It’s real money. [laughs] You can pay services and pay salaries with it. It is soft in that sense that at the moment the interest of the loan is only 1% and because it’s provided for this R and D purposes, so the interest is very low. The payback day comes one day but if for example the product that you developed fails and you don’t get commercial markets rapidly, we can be very flexible in providing more time to payback. So it’s really a soft loan and it’s also soft loan in that sense I would say that, today and already sometime investors, also international investors are not afraid of this that Finnish government provides loans to startups because it’s their benefit also that the support the team to grow their company and then somebody comes and questions. But okay, that’s R and D. Next step, you said if we don’t have any more time but, but about this funding, we have this one tool left. I mentioned that there’s this evaluation of the business idea, R and D. The next step typically is that when your product or service is good enough, scalable enough and really competitive on the markets, you’ll need to go out (-) and push the sales button and start to grow the business and for that purpose we have a funding tool also which is called young innovative company funding. That’s a very interesting tool, the criteria to get it is quite tight so maybe 40-50 companies, maximum get annually into that program. It’s half a million euro grant, good money and 750,000 euro loan and it’s not exactly so soft loan as the R and D loan but this is also quite soft. But anyway, you can decide how much you take but altogether more than one million euros, then you can really spend it for sales and the marketing which is not allowed to do when you are doing R and D or tempo. You are not allowed to sell or marketing with that money. But in this particular funding case, you should use all this money to (save) some marketing. So that’s what I told my customers who are in that program (–) [0:24:18] can be used this for the R and D. By the rule you can but I deny you, you need to go to sale and market because this money is for that purpose (-) to it. That’s about this funding, maybe there are some other options also but the (-) some details that could be then if you start your company with Business Finland but these are main tools that we are using in the funding case. Then we can really provide access to our global network outside Finland in 40 – 50 countries so they can help you to find the markets and partners and so forth there. I would say that we have a quite good offering for startups really. All you need is to have a good story and I mean a real story. You can bluff but you need to have a good business story and resources to do it.
I: What kind of companies and projects are eligible for tempo and R and D loans?
R: Well, for tempo it’s fairly what you need to get tempo is that, as I mentioned in the beginning already that you need have good team with a versatile competencies, minimum 2 persons, a single person is not a team and definitely not eligible for any funding from us but this team, this business idea and resources in general so that they have a R and D resources available either their own or they can hire some outsiders and so forth. (Sorry) they are really capable of reaching the international markets. That’s it, that’s what it takes really. And this needs to be this Finnish legal entity otherwise it’s a (-) And for the R and D, it’s the same, then when the company has this tempo funding, we agree about certain goals for this project, the goals can be for example that during this tempo project you have 2 or 3 pilot customers in these countries that we agree about. During this project you raise like, i don’t know how much, example 50,000euros or 100,000euros, it depends on the case. Or the goal is to hire a new marketing guy or something like that and when this tempo project goes well, then the company can come and apply for R and D funding. Of course they need to have a good plan, what are they going to do, what are they going to reach with this project but they also need to have resources. Personal resources but also some funding available because again we don’t fund 100% of the project but let’s say roughly that in R and D case, the team or the company should have about 50% of the project budget available by themselves from their own bank account or investors or something like that. Then they can go to this R and D. For the young innovative company funding, that’s quite strict because then they need some track record of markets (–) [0:28:29] they have been capable to sell their product or service and they have sort of proved that their business really scales. So that it’s a scalable business they are running and when they have enough proof which may mean like, for example it could be like, I don’t remember the numbers because they are just examples okay, but it could be like 300,000 euro revenues a year and then you are ready for this young innovative company funding but that’s always case by case. 300,000 euro is not something you should remember but get the idea.
I: What kind of co-investments Business Finland requires?
R: In case of tempo, it’s still quite simple. I mentioned this 30000 equity and it can come from the founders themselves or their friends or some businesses or whatever sources, it’s still quite a limited amount of funding. In the R and D, then the requirement is roughly 50% of the budget roughly, then it depends how big is this R and D project because they can also be like from 150000 euros to millions of euros. The requirement can be really big if you have a 2 million euro R and D project you would need to show that you have resources for 1 million funds from elsewhere. So it depends, the bigger the project, the more you need funding from your own sources or other sources and Finnish (-), Finnish businesses pretty much support our startups and they are familiar to Business Finland. Finland is so small that we all know each other, at least in business environments so that we have constant discussion with them. Also then the company is more mature, it’s like 4 years, 5 years and maybe it’s already in this young innovative company funding. Also it’s possible that they have raised our funds several hundreds or thousands or maybe 1 million euro or something like that. At that point or maybe even when they have raised only half million from Business Finland, we start to look into the balance between public and private funding. So we may require that okay, if you want this project funding from us now we have put so much money in this company from Business Finland that you need to raise this much private funding, it depends on case again but we can require, you need to raise 250k from private investors or 500k or whatever. They just need to find this money because for us it is not allowed to be the sole funding agency for the company. They need to find private funds or so and today we had the luck that the Finnish startups as we have seen in the news, get quite easily good money from the private markets.
I: Thank you for sharing these tips that’s good for our listeners and one last question would be, what advice would you give to entrepreneurs in 5 words?
R: 5 words? I did not prepare for that. I don’t know, Be open, Be brave. I don’t know, it’s too few words. I have had the joy to be working with so many great startup teams and I have seen so many startup teams that have already sold their business once and then after months they come back to me and they say, okay now we have a new business idea and we want to start it. So it’s a great time in life when people can start their own businesses and really Finland is a great place to do that and our startup ecosystem is really great and flexible and supportive and also Business Finland and the (universities). I don’t know, enjoy life. [laughs]
I: Thank you so much for joining us Pauli Noronen and sharing all the important views and thank you for joining us.
R: Thank you very much for this opportunity. I hope that I could give something to the audience with these humble words. I love to work with startups and I know they love to work, the entrepreneurs love to work their startup also. So it’s great.