Saana Volanen was pictured building a piece of conceptual art for Slush 2015 in the Expo and Convention Centre Helsinki on Monday.The significance of start-ups for the national economy may remain limited, but without them the economy would be in an even worse state.

Start-ups bring foreign investments – and gradually jobs – to Finland while encouraging larger companies to modernise their functions and products by developing new ideas. They are the centre of attention this week as Slush, the self-proclaimed most important event for start-ups in Europe, brings 1,700 start-ups and 700 investors to Helsinki.

The buzz around start-ups is yet again high, but has the excitement really turned into growth and jobs?

How big a phenomenon are start-ups in Finland?
It is practically impossible to calculate the number of start-ups because the term is used to refer to a wide variety of companies – most commonly to newly-established companies seeking to create a business model that can be duplicated across the world.

A total of 28,806 new businesses were founded in Finland in 2014.

The number of start-ups is considerably lower, says Petri Malinen, an economist at the Federation of Finnish Enterprises. “We're talking about hundreds rather than thousands, but the group is growing,” he says.

The start-ups are also showing a lot more promise than five years ago, estimates Marika af Enehjelm, the managing director at the Finnish Venture Capital Association. “Most of the firms that enquired about funding [five years ago] were only tinkering, but today's firms are consistently solid,” she describes.

How many people do start-ups employ?
Start-ups pose a conundrum from the viewpoint of employment: they typically seek to take advantage of digital technologies to enable a small group of people to operate a large business. Whatsapp, a popular instant messaging application, provided employment only to 55 people when it was acquired by Facebook for over 20 billion euros last year.

Start-ups can even contribute to job destruction by shaking up the industrial structures – but if the business ideas were not developed in Finland, they would be developed somewhere else.

It is possible to see both positives and negatives in the development, admits af Enehjelm. Change, however, is inevitable. “It's better to try and keep up and develop start-ups with high-productivity jobs,” she believes.

Malinen estimates that more than one-half of the jobs created in Finland have been created by roughly one thousand rapidly growing companies. It is likely that some of the companies are start-ups with a high potential to provide employment to a substantial group of people in the future.

How do start-ups benefit the national economy?
The hundreds or thousands of start-ups in Finland may only account for a negligible share of the national output, but they are important drivers of economic reform.

Large companies have recently developed an interest in taking over start-ups also in Finland, according to af Enehjelm. “Large firms have also recognised that start-ups are making technological advances and that they can't fall behind the development,” she analyses.

Start-ups with a high potential also attract foreign investments into Finland. The amount of capital investments raised by early-stage start-ups has risen from an annual 10–20 euros in the years following the financial crisis to roughly 50 million euros in 2014.

“It shows that we as a national economy have competences that stir up interest abroad,” views Malinen.

Slush is a key reason for the growing interest. Its organisers have estimated that the event has helped start-ups across the world raise roughly 350 million euros in funding in no more than a couple of years.

“Slush has brought one of the United States' best capital funds here. That's about the only time they come to Europe,” says af Enehjelm.

As labour costs account for a lion's share of the costs of start-ups, a cash injection of one million euros can allow a start-up to employ 15 people for a one-year duration. Not all of the jobs created by home-grown start-ups are necessarily based in Finland, however.

Have attitudes towards entrepreneurship changed?
The success enjoyed by some home-grown companies has encouraged many to establish their own start-up. Supercell, the creator of the popular mobile games Clash of Clans and Hay Day, has not only generated hundreds of millions of euros in tax revenues but also served as an example to aspiring entrepreneurs.

The Massachusetts Institute of Technology (MIT) named Aalto University as one of the five rising stars in its assessment of the innovation and enterprise activities of the world's leading 200 universities last year.

Entrepreneurship has also become a viable career option among students. “It's evident from a certain freedom of activity and thinking,” says Marika Paakkala, the head of the Start-up Centre of Aalto University.

Juhani Saarinen – HS
Aleksi Teivainen – HT
Photo: Mika Ranta / HS