New ways to support the success of growth companies must be considered in Finland

The number of Finnish growth companies is beginning to fall sharply. This is what a survey conducted by EY early in the year shows. In practice, the result indicates that the outlook for growth companies has deteriorated so sharply that they will not meet the criteria for growth companies in the future. Companies cite three clear reasons for the weakening of growth: uncertain economic prospects, a shortage of skilled labour and a fierce competitive situation. The message is concerning in many ways.

We need new growth in Finland, and it will not occur without growth-oriented companies that invest in new things. For example, we lag significantly behind Sweden in intangible investments. According to ETLA Economic Research, Sweden has four times the capital base related to data, software and databases. Growth companies play a key role in making these investments and increasing service exports. Investing in intangible innovation is the key to new recipes for success and also to the economically significant increase in the productivity of work.

More incentives to take risks and invest

Growth companies do not develop in a vacuum; the social atmosphere and the prerequisites for entrepreneurship affect the types of companies emerge in Finland. Open-mindedness, optimism, a culture of experimentation and the ability to take risks are factors that are often found behind growth companies. The key question is how to boost courage, entrepreneurship and the right people’s belief in themselves. Many successful growth entrepreneurs state that self-confidence is where the cultural change is needed.
Besides hunger for success and a unique idea, growth companies also need capital. Finland is a capital-poor country, which is why eyes are often on international investors. We need professional investors that seek returns. This drives investment and innovation. In the best case, it motivates companies and the people behind them to pursue higher profits, creating incentives to take risks and grow the company.

Other support also plays a major role. Angel investors are important key persons for companies in the growth phase, not only in terms of capital, but also in terms of advice and mentoring. Often, companies need support in marketing products, establishing contacts and sometimes also in running the company. We still have something to learn about working together and sharing our expertise.

The role of the state in seed financing must be examined

Elo is one of the most active asset owners of growth companies when comparing the activities of institutional investors in this field. We have invested in more than 400 growth-phase companies (mainly through funds), of which more than 350 are Finnish. Finnish pension companies have the potential to be more active in the field of growth companies and thus invest more concretely in Finnish growth and the creation and development of a critical growth entrepreneur ecosystem.

The state’s role as a funder of growth companies is not entirely without problems, but the state’s opportunities to act as a provider of seed financing should also be examined. How innovative is government money in listed companies compared to growth companies? In general, we should ask where the money invested by the state is effective and, in the long term, in use that reforms the Finnish corporate structure and creates high value added. In recent years, there has been discussion on the meaningfulness of large state holdings, and there is a widely shared view that there are problems with high state holdings. From the point of view of future growth, it would make sense to start a discussion about the greater role of the state as a funder of growth companies. In this regulatory environment, traditional bank financing cannot bear the risk associated with growth companies to the extent required by the needs of the Finnish economy. Great ideas will find international private equity investors for financing, as we have often seen in Finland. However, these investors do not provide the same perseverance and patriotism as state ownership.

New methods for attracting labour

A shortage of skilled labour is a major obstacle to growth, and there is competition for the specialists needed by growth companies in particular. It is essential that Finland is seen as a society that is open to the world and has a positive attitude towards immigrants. In addition to perceptions, we should also look at other concrete ways of attracting labour. Portugal and Spain, for example, have had tax incentives in place for professionals immigrating from other countries for some time. The outlook is that the competition for top talent will become even tougher. We will thrive in this game by joining forces with growth companies to find new, open-minded ways to attract employees and their families.
We must pay special attention to foreign students who complete their degrees in Finnish higher education institutions. Currently, about one in two of these students leave the country. It is a big waste not to make use of the expertise of these professionals. They must be integrated into Finnish working life, and we must ensure that a relationship is established with companies operating in Finland already during their studies, for example when they do their thesis. The Finnish labour market should not lose a single university graduate from Finland.