Kuva: Sami Heiskanen /Slush 2013

Published July 23, 2014

6.5 million to Mendor, 7.3 million to BetterDoctor... A cause for celebration?

In July 2014, two health technology firms with their origins in Finland were granted a financial boost to the tune of millions of euros by international investors. Investment rounds of this magnitude are such a rarity in Finnish venture capital investment markets that the news was also broadcast by the mass media. Why is this such a positive thing for the whole health technology sector?

During July 2014, those keeping their eye on the goings-on of the health technology sector have been indulging in two sweet pieces of news. Firstly, a Finnish growth company committed to the development of diabetes management technology, Mendor, was provided with EUR 6.5 million in debt financing by the Luxemburg-based IPF Partners.  This investment round is particularly noteworthy on account of the fact that only six months ago, the company managed to raise nearly five million in financing from its current and new owners.

In mid-July, the media announced that a Finnish company formed by former Nokia employees, BetterDoctor, had received EUR 7.3 million in financing. The parties to this investment round include the American venture capital fund New Enterprise Associates (NEA), which is well-known around the world, and two previous investors, Lifeline Ventures from Finland and SofTechVC from the US. The California-based BetterDoctor also made it into the headlines in 2013, when it won the Slush Demo Showcase at that year’s conference. Why are these investments a cause for celebration for the whole health technology sector?

A pessimist might think that this is all very well, but the investors’ venture capital is not the same as cash flow from paying customers. It’s like blowing air into a bubble of wishes that will probably burst at any moment. In all honesty, the pessimistic viewpoint has got a grain of truth in it, as can be inferred from the choice of words: ‘venture’. Investing in start-up companies always includes huge uncertainty factors, and investors often lose a large proportion of their money – sometimes even all of it. However, financing is a way of showing that the investors believe that the company has a chance, and that they are willing to make that leap of faith, so to speak. If the company takes off and its product is successful on the markets, those benefiting the most from the company’s growth are its founders and early-stage investors.

Investment rounds that are extensive enough represent a lifeline for start-up companies. When a business is backed with sufficient financing, the owner can concentrate on developing the company, with a focus on sales work or fine-tuning the product, for example. I can clearly remember my time as a junior hockey player and the advice that my coach gave me: ”If you want to win, you have to throw yourself after the puck – and be ready to eat the puck, if necessary”. Well, I never ate the puck, but I did make a habit of throwing myself after it. The same kind of readiness to throw oneself into the game is required from owners of growth companies who are trying to succeed. They will not make it unless financing is secured for a sufficient period of time.

Especially in the health technology industry, getting your product onto the market can take a long time. Investors need to be patient and knowledgeable about how the industry works. Individual small drizzles of financing drive many companies into a rat race in which a large percentage of working hours is spent on applying for and securing financing, again and again. I do not mean to belittle those small-scale angel investments vital to start-ups, but what a company aiming to go international often needs is the involvement of some bigger players.

Capital investors do not only play a role in providing injections of capital. If an investor is ready to throw more into the game and commit to a company, there is also a bigger chance that they are willing to participate in the development of the company’s business activities and networks. Quite often, larger-scale capital investment providers have substantial networking resources, which can be as valuable as gold and may tip the scales in favour of internationalisation. Although we have already taken some promising steps in the right direction here in Finland, and our business angles especially have become more active in their health-related capital investment activities, we are a small country that has a lot of catching up to do. We need new capital flows from sources that have an understanding of the industry, from both here in Finland and abroad, to facilitate the growth of up-and-coming start-ups. For this reason, our competencies need to be sold and marketed. We need to boost Finland’s attractiveness. This especially applies to health technologies, which is an area that lacks companies that act as our ambassadors around the world, as is the case with Supercell or Rovio. What Teemu Selänne has done for ice hockey, as a role model, can also be done in business life.

The Finnish health technology field has every reason to be happy about the news of major investment rounds. They are clear signs of the expertise and talent that exist in Finland, and that attract international attention. Companies like Mendor and BetterDoctor serve as encouraging examples. If we do not dare to aim high, we will not achieve much, either. On the other hand, whether the target is big or small, failure will feel exactly the same.

There may not be a “new Nokia” in sight yet, but health technology could turn out to be one of the new pillars of our national economy. To prepare ourselves for the next giant leaps on our growth path, we must forget the corporate boundaries and learn to rejoice at our successes. Yet again, Finnish expertise and fearlessness in the face of adversity (“sisu”) have gone far – hopefully, many more Finnish companies will do the same!

P.S. Google Ventures has just recently announced that it will launch a new venture fund in Europe. 100 million US dollars has been reserved for initial funding, in addition to which the company is willing to contribute its expertise to support growth companies. It will be interesting to see to which countries and business sectors Google’s investment flows will be allocated.