Article 20 April 2006
Public-sector organisations offer a wide range of services for enterprises, but their benefits are under debate. The role of public-sector actors raises strong opinions for and against. Can they bring added value to private enterprises and contribute to their growth? “Yes, they can,” says Risto Kalske, Director of Sitra’s PreSeed service.
Companies seeking strong growth have to face a number of challenges on their way to success. Solid technological competence and a winning product by themselves do not guarantee triumph in the markets. They also need a competent and versatile team plus sufficient funding to generate growth. This often puts start-up companies, in particular, in a situation where finding the right partner is crucial.
Public services and consultancy are widely available for companies. The decision on how to proceed lies, however, always with the entrepreneur. In many cases, it is largely up to the entrepreneurs' own competencies and resources as to how well they can benefit from the know-how and venture capital available.
Sitra’s PreSeed service offers companies true added value through experienced resources and capital, as well as guidance on how to utilise these. The services aim at improving investment facilities in companies and closing the initial investment. The PreSeed service package contains three tools: LIKSA, INTRO and DIILI.
A viable environment for initial investments
The single most important channel for the PreSeed service is INTRO. It has built a national network of private investors, or business angels, representing assets of 40 million euro that they are prepared to invest in start-up companies. As co-owners, business angels are willing to offer their know-how, usually acquired over a long career in industry, and their contacts for the use of the company. In this way the companies have access to the kind of committed business know-how no fund could provide.
One of the companies that have raised venture capital for their growth through INTRO is Nordic Koivu Oy (former Aurinkolehto), which uses automated technology to produce birch sap. The investment came with the contribution of experienced business angels and an opportunity for a fast entry to the international market.
“Having business angels invest in our company allowed us to multiply our production and achieve real industrial volumes. The entire investment process, overseen by Sitra's PreSeed team, was quite enlightening,” says Arto Maaranen, Managing Director of Nordic Koivu.
To join the selection process in the INTRO market place, a company must be prepared to meet investors, including a viable business plan. The basic things must already be in place and growth targets sufficiently ambitious. “INTRO is approached by some 200 companies a year, and 40 are selected to present themselves to private investors. One-third of these will be able to raise the initial investment in the market place,” says Kalske.
The ever-important business plan
Companies whose business plan still requires more work before being presented to investors may be eligible for LIKSA funding, offered jointly by Sitra and Tekes. In the last five years, 150 companies have benefited from the LIKSA service and thereby improved their chances of raising venture capital.
The founders of Sumea Interactive Oy found it initially difficult to determine their desired direction of growth, but not for the lack of options. The competence level of these top experts in game development was, however, more than adequate, and particularly in Europe, the company was on a strong growth path.
“Thanks to LIKSA, we could focus more efficiently on the North American market and draw up a more professional business plan,” says Ilkka Paananen, one of the founding partners of Sumea Interactive.
Within a year from the end of the LIKSA project, Sumea made contact with an American company called Digital Chocolate and the merger was carried out in summer 2004. Now the company is going from strength to strength in the USA, where the company products are available through all major distribution channels. Meanwhile the success shows no sign of waning in Europe: the number of staff in Finland has tripled and new products are launched regularly.
More resources through sweat-equity
A key success factor for a growth company is a competent and committed team. No product development process alone is strong enough to take a company to the market. What is needed is sales power. Finding suitable sales skills may cost young entrepreneurs sleep. If growth funding is yet to be raised, it may be difficult to attract competent staff that know the market and have them commit to the target.
Sitra’s DIILI services may be a solution for companies’ resource shortage in this respect. DIILI has a register of a hundred sales professionals with international experience in different fields. These professionals are prepared to share their know-how on a sweat-equity basis. They take responsibility for sales in return for the possibly insecure income of an entrepreneur but are rewarded later by way of the increased the value of their investment.
Stockway Oy was among the first companies to test the effect of DIILI. The company creates value through visibility by tracking, tracing and sharing business critical information in real time and provides software for advanced RFID and auto-ID applications enabling real-time visibility in the value chain. Three young, ambitious entrepreneurs found a senior talent in Lion Benjamins, who was ready to join the team.
“Young people always seem to know it all, and these guys were good! My experience helped overcome the credibility issue that start-ups face,” says Benjamins, who carries the responsibility of sales and partner development at Stockway. He has also taught the team to think big and take a global view.
Stockway successfully completed their first fundraising round in the beginning of this year. Now the company has sufficient resources for realising their ambitious growth plans.
Risto Kalske, Director
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