Will US VCs come to the Nordics?

My thesis is ‘no’.

At least, not until small regions such as the Nordics can build a credible, sustainable number of exits.  Why the pessimism?

Let’s go back to last Wednesday, when I was having lunch with a friend from a top tier Silicon Valley venture fund.

Madera restaurant at The Rosewood was, as usual, alive with energy.  The Rosewood is a beautifully designed, recently built complex of offices, apartments and hotels tucked on the corner of Sand Hill road and Hwy 280.  Its lunch times are legendary for a super high concentration of Founders and VCs.  Its Thursday evenings are legendary for a super high octane night life.

My gaze was on the menu, but my mind was thinking about the meeting with Fred (not his real name).  After six months of living and working with startups in Finland, the most poignant question I hear is: “why aren’t the US VC funds establishing offices in the Nordics?”  Today, I would try to change that by convincing Fred his Partners were missing out on some extraordinary opportunities by not having a presence here.

Fred arrived on time, as usual.  We asked about our kids, reminisced about meeting Bonnie Raitt backstage, and then got down to the business of investing.  We ended up talking for nearly two hours, and it was going well until he made a thoughtful, but very painful point…

A little background on Fred: he is one of the sharpest and most successful VCs I know, yet with that rare sense of grace and humility.  He has remarkable insights and generously gives time for founders and friends alike.  Unfortunately today’s insight made me shiver for the Nordics.

Venture capital moves towards large numbers,” he explained.  “To high concentrations of startups, businesses, consumers – and exits.” 

“There are definitely some great startups in the Nordics”, he continued.  “And I would love you to send me any that you believe are outstanding.  However the really large numbers just aren’t there.  When I compare the Nordics to other regions such as  China, India and Brazil, it is difficult to make a case for investing heavily there right now.  We need to remain opportunistic.”

The words sank in.  I shifted my salad on my plate, searching for a thoughtful response.  This is the Nordics we are talking about, after all.  The region which is bursting with passionate founders, smart engineers and great startups.  The Nordics is becoming a global leader in sectors such as gaming, mobile business and healthcare.

Take Finland, for example.  It is ‘top of the charts’ in almost every global ranking:  Competitiveness, Education, Engineers per capita, Healthcare, Quality of life, the list goes on.  It has honest, hardworking people who do what they say, who under-promise and over-deliver.  What’s not to like about investing in Nordic startups?

Unfortunately, all four VCs I met on this particular visit to Silicon Valley shared Fred’s point of view.  I was beginning to see a pattern: it has little to do with having a great startup culture and more to do with fundamental economics.

Venture investing thrives in large numbers.  Think regions that have thousands of startups, millions of businesses and billions of consumers.

Venture investing also thrives in environments that foster risk:  entrepreneurs willing to move across their country (or the world) to restart their lives.  Flexible labor laws that allow companies to grow/shrink/adjust on a dime.  Tax rates that inspire – not punish – wealth creation.  And a drive, an insane hunger, for a better life.

These are not exactly the features of the Nordics – or Europe.  At least when compared to China, Malaysia, India, Brazil and the US.

European culture and labor laws do not foster flexible job growth, rapid downsizing, creative destruction or imaginative job-hopping.  The high European tax rates that create a high quality of life, also dis-incentivize entrepreneurs to make their first million.  Or billion.  It scares me how much Monsieur Holland seems to determined to go after successful, wealthy people with a hefty tax axe.  And the hunger for a better life?  Well, life is already pretty darn incredible in the Nordics.

I am sure Fred and his firm will miss some billion-Euro-size Nordic exits, and several multi-hundred ones too.  There have already been some good exits (Skype, MySQL) with more likely to come (Rovio, Supercell, Spotify). But if US VCs are really focusing on large markets, how do talented entrepreneurs in the ‘other markets’ secure access to quantity and quality of capital?  Should they continue to make the pilgrimage to Sand Hill Road, trying every angle to get a meeting with VCs like Fred?  What does this mean for startup centers in Helsinki, Oslo, Buenos Aires and Auckland?

I suggest a solution for these smaller regions is three-fold.  First, build success, one exit at a time.  Nothing speaks more strongly than that.  Prove to the VCs that world class companies sustainably exist here.  Two, build your own ecosystem from within.  Don’t wait for the ‘Silicon Valley ecosystem’ to come to you.  And three, find a category (or two) and dominate them.

Where is this happening in Finland?  Ilkka Paananen, CEO of Supercell, seems like he was beamed straight from Silicon Valley to Helsinki.  He is smart, fast, genuine – and correct.  Peter Vesterbacka of Angry Birds is a marketing machine.  And that silly red, Angry-bird sweater he wears everywhere is… really cool.

Risto Siilasmaa from F-Secure made a fortune from his company’s IPO, and is now giving much of it back by investing in dozens of startups in Finland.   Linus Torwalds (we all know Linux…) profoundly changed the world through sheer brilliance and today he is an tireless ambassador for Finnish innovation.  Marten Mickos from MySQL (now CEO of Eucalyptus) generously gives his time, insights and network to Nordic entrepreneurs.

These are just some of the foundations of a new ecosystem in Finland.   There are many more, and they are creating a new DNA.

Transforming a small region to having steady, large exits and large, local VC funds won’t happen in one year.  Or 3 years.  Think 10 or maybe 20 years.  Is it worth the wait?  Yes.  Silicon Valley began over 50 years ago and is now one of the anchors that will guarantee US global technology leadership for decades to come.

The visit wasn’t all doom-and-gloom:  each of the four VCs took an interest in, and agreed to meet one (different) startup from Finland that I carefully screened and shared.   Nice.

And, Fred promised he would visit Helsinki this Winter.  I am hoping that trip will inspire him to change his mind and hang a ‘Silicon Valley VC shingle’ in Helsinki.

Yes, I am a hopeless optimist.

Chris Vargas, Helsinki, Finland


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    • 13 generationsiliconvalley May 3, 2013 at 7:00 am

      Hello Matthew,

      Thank you for your feedback on the site.

      I developed this web site based on my experiences as an early stage investor, an early stage CEO of a couple of startups and a lot of travel internationally. Why? Because I genuinely want Founders to be successful. Yet it can be difficult for Founders to receive insights and advice to real world issues, particularly if they are located outside the ‘key markets’ of Silicon Valley, London, Shanghai, etc.. So I thought that if by sharing my own perspectives I could help just a few startup teams, it would be worth the effort.

      I never expected to receive so much feedback from entrepreneurs all over the world. This tells me there is a need for such advice, and I hope many others like me try to share their perspectives, too!


      Chris Vargas, Los Altos Hills, CA / Helsinki, Finland US (+1) 650-245-2209. Finland (+358) 40-163-0814 web: http://www.sv-investors.com; skype: covargas; blog: http://www.generationsiliconvalley.com; http://www.twitter.com/covargas;

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  16. 17 Nathan Millard March 24, 2013 at 6:54 pm

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  20. 21 Gandong December 28, 2012 at 12:11 pm

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  21. 22 Dreamz catcher December 28, 2012 at 4:48 am

    Nice article and perspective. There is also more to this than just having investments. Nordic companies have a tendency to follow the trends than to create them.

    There is an inherent feeling of superiority of technology in the Nordics than the focus on Business Models, Sales and Marketing, and making the first Euro. Most companies are expecting and demanding State sponsored funding in one manner or the other ( Almost every one of them except a few has got funding from TEKES, SITRA etc). This creates a very fundamental problem of complacency and diminishes the drive of entrepreneurship. Though The Likes of Steve Blank and others have indicated this as a basic issue, it largely is ignored and brushed away.

    Nordic companies are overtly focused on customers in the US and rarely pursue customers in EU/China/Japan/India/S.E.Asia ( Blaast is still struggling with Indonesia and Bangladesh, so not really a good example and is a rare exception). The chance of the Law of large numbers is then very limited. Check out Hans Rosling on where the customers are going to be ( markets are made in bedrooms and nor boardrooms video) and in 10-20 years the markets and customers are going to have a major shift that this is not going to help the Nordics at all. There is very little understanding of these markets in the Nordics and there is an inherent fear of understanding these markets and customers. So Companies tend to basically ignore them and flock to Silicon Alley.

    • 23 generationsiliconvalley January 3, 2013 at 1:58 am

      Agree. You clearly have experience working with Nordic startups.

      I also agree on the challenge of Government funding: Governments historically have not been good at identifying technology winners. They can, however, create leverage with their capital, that in-turn helps create healthy, sustainable investment ecosystems.

      Idea: TEKES allocates Government capital to private equity funds on a ‘value-creation’ or merit basis. Those funds that can systematically raise valuations receive more capital over time; those funds that do not are washed out. What do you think?

      This seems inherently more efficient than asking Government employees to become VCs. Few VCs, despite their incredible experience and intelligence, actually make good risk-adjusted returns for investors. How can one expect more from Government?

  22. 24 Christian kolster December 25, 2012 at 10:07 pm

    Thanks for your thoughts and efforts to promote Finnish startups and the Nordic region.


    An entusiastic startup supporter and networker 🙂

  23. 25 generationsiliconvalley December 25, 2012 at 4:54 pm

    Pema, thanks for your comments. Startup Monthly seems very interesting. I noted you had Steve Blank at one of your events. He is quite famous in Finland, having spent a long week here last year, sharing incredible insights. There is a new and growing angel community in Finland (www.fiban.org) you may want to connect with. Joined a few months ago and they are definitely on the right track: growing membership, deal flow, syndication activity, etc… Happy to introduce you to Jan and Claes, who are running the organization, if interested!

  24. 26 Pemo Theodore (@pemo) December 24, 2012 at 4:20 pm

    Thanks for your post. I duly shared it via social media. I was based in Europe for 11 years & know how hard it is to raise venture for a startup. I now organize an even SmartMoney in Silicon Valley to educate foreign investors accessing the talent & experience of professional investors here in the US http://www.startupmonthly.org/smart-program.html Would love to connect with you to determine the potential investors in Finland pemo at smartmoneysvdotcom After all the more educated & informed investors there are outside Silicon Valley, the more foreign startups that will be funded. Look forward to hearing from you.

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