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Proposal to renew startup financing
Today me and Lasse Männistö published a finnish language proposal about renewing the growth company / startup financing in Finland.
As any experienced startup entrepreneur in Finland knows; the state is heavily involved in giving grants and loans etc various kind of direct and indirect support to companies. All together there are about 100 different instances, giving out over 1000 separate instruments of support, that total over 2 billion EUR annually. This is quite complex and quite confusing.
One interesting stat from the "support jungle" is that there are approximately 4-5 thousand government officials involved in this machinery (by a wide definition) - and arguably Finland has less than 4-5 thousand strong growth companies; so in essence we have a system that has more than one person working it for each growth company we have.. Doesn't sound very efficient, now does it?
Our finnish language proposal can be downloaded from here.
And the associated press release from here.
What we are proposing is just a good start - something to get things moving. Naturally there would be more action following these initial steps. We formulated our proposal to be politically easy to accept and realistic. It is designed as an expense neutral program: meaning that it would not increase government expenditure; in fact there's a rather high chance that it would produce money instead of drain it.
In brief, we propose:
1) Tax breaks for innovative R&D activities. Finland is just about the only western country in the world that doesn't use these kind of tax breaks. Even Germany started using them recently. Many others like Norway and the Netherlands use them extensively and with very good results.
2) Incentives for angel funding and other seed funding. This kind of model has been successfully implemented by Singapore, Israel and to some extent (with very heavy tax breaks) by Canada as well. We would need incentives for business angels, and for grass roots level funding from the groundswell. The state needs to get into market driven asymmetric funds and let commercial free market mechanisms decide what kind of innovations to fund - encourage growth by other means than government official decisions.
3) The support jungle machinery needs a reform. It is too inefficient and too massive for its own good = there are not enough good results coming out of it per cost of running it.
The job creating power of startups is amazing; when it comes to new jobs they are not the major thing; they are pretty much the ONLY thing. They drive job creation and growth more than anything else out there. They drive prosperity and wealth. We don't need another monolithic Nokia in Finland; we need a thousand Angry Birds and a lot of things we can't even predict yet - that will raise up from the mists of creation to conquer the world!
If you agree with this proposal; expand on it, champion it, talk about it to political decision makers and make noise about it in general! With the elections at our doorstep there is a genuine chance to get positive things done in this very vital and important field as well!
I'm also very interested to hear how the proposal could be even better?
Edit (20.3.2011 18:48) Petteri Koponen has good commentary on this, here:
http://serialtrier.wordpress.com/2011/03/20/on-improving-finlands-startu...
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Hi. My name is Taneli Tikka. This is where I preach what I practice. I'm a
serial entrepreneur and a startup activist of sorts. People usually know me
from my past and present consumer Internet service projects: IRC-Galleria,
Dopplr, Muxlim, StarDoll, RunToShop, Vakuutuskone.com, and a bunch of other stuff. My
"proper" bio is behind this link. Glad to see you here, thanks for browsing
around.
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Typo
Sun, 2011-03-20 12:20 — Olli Sulopuisto (not verified)You probably meant tax breaks, not tax brakes.
What if I don't agree with this proposal?
Sun, 2011-03-20 13:31 — Nyymi (not verified)What should I do then? I mean you have many good observations but what you propose, is not a very sustainable direction for Finland in the long run.
From invention to innovation is what is needed
Sun, 2011-03-20 16:21 — Victor Donselaar (not verified)We were just talking about this today when running with my friends so funny to see this post now. I completely agree with 1 and 2. If you look in Finland, two of the largest Tech VC's just pulled out so this shows that there is no tech money left in Finland, which is why Rovio also went outside.
One of the main points, as an outsider living here for 10 years, I see is that Finland has great inventions but not so many innovations. Finns are excellent engineers and technical skills are all around but the main thing is how do you take a great invention to the market to become a true innovation. Any money, such as from TEKES, should spend much more on that rather the actual invention itself!
Reply to the 3 comments so far
Sun, 2011-3-20 18:56 – taneliOlli: thanks, that was a solid typo. Now fixed.
Nyymi: If you don't agree; then propose an alternative solution, or argue the case. "sustainable direction for Finland" can also be understood that you don't believe in entrepreneurship at all, and don't believe fast growing companies would be good for society. So, what ever the case; solid prepared alternate views are always very much welcomed.
Victor: By definition the word "Innovation" means something that has been commercialized or at the very least the great commercial and tangible potential. Innovation doesn't really exists outside application. Invention perhaps, ideas perhaps, but true innovation always have the assumption in there that they will become a part of reality - or at least they have great potential in becoming a part of it.
Often Finns think that innovation only equals technology and technical products. Naturally this is a childish view to the whole topic.
I like this Ten Types of Innovation framework quite a bit:
http://www.doblin.com/AboutInno/innotypes.html
Innovation can be in finance, processes, offering (also service offering), and in delivery. Also it could be in the entire business model; the firm's unique way of conducting transactions, segmenting its customers, and delivering value.
Since innovation is so wide, divergent, diverse and unpredictable; why do we even think that government officials would be able to recognize it and make decisions to support it when they see it? They are not competent to do so; just about nobody is. We should focus on creating the kind of environment that allows unexpected innovation to come forth and flourish without any rigid bureaucratic categorization and jumping through hoops to gain official favors.
This is a good start
Mon, 2011-03-21 15:36 — Tapio Heikkilä (not verified)And there are many other improvements one could relatively easily implement. As an example: capital gain taxed only when you get capital gain. Now the tax authorities impose tax also on virtual gain. For instace if the owners change the ownership to a new company where a new investor invests, the owners are taxed according to the investment valuation, although they receive nothing.
Please continue !
Would look the grassroot as base
Mon, 2011-05-02 10:04 — Kimmo Rouhiainen (not verified)Hi,
I came here from Promoto pages (Thanks Ville).
I can see the logic of your proposals but I feel them like fighting wind mills with small stones. In ideal world goverment would change their 4-5k people but what happened with ELY-center change...:-) Or taxation issues when Finnish Goverment is filled with uneducated populists...
I see much more focus needed on the ground level and motivational environment. They are schools / places to gather in every level and young people ready to hear inspiring stories and how to change the world or young enterpreneurs societies or networks talking with others around the world. Here we should be involved and let the radical innovations to be developed. Not sure if there is so much money needed, more it is knowledge and mentoring to find best networks and customers.
Good luck in your ventures!
- Kimmor
"ground level work"
Mon, 2011-5-02 22:37 – taneliHi Kimmo,
Thanks for the comment! Ground level work, supporting entrepreneurship where ever you see it - is indeed valuable and required.
I feel that both are needed: ground level work, as well as longer term incremental political change, and trying to clear out the thick jungles of bureaucracy..
Funding isn't necessarily the most important problem in all the cases; however it certainly plays a role. Inefficient, or outright stupid, government policies can indeed hinder a lot of very valuable economic activity to be far less useful and far less beneficial.
I'm in fact speaking tomorrow at the Aalto Venture Garage, AaltoES event; Startup Sauna - and doing just the kind of ground level work as you describe there.
Ground level indeed
Tue, 2011-05-03 10:23 — Kimmo Rouhiainen (not verified)Hi,
I am also having a lecture in ProAcademy this Friday in Tampere for structuring business model and calculations to keep focus on simple things, not burocracy. So indeed as you said both levels of political and ground level are needed.
How these levels could meet? Coming to your idea of changing goverment structure could it maybe like:
- public workers have to organize a minumum set of events for their customers (much more than before)
- maybe they can even "rent" their work places to have possibilities for their clients to work for a short period of time OR they are encouraged to rent places from incubators etc
- there is a work switch programme where public sector is 2 weeks in companies and vice versa
And so on...I hope those ideas were concerete enough even it may be crazy to think like that.
Kimmor
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