Juho took part at interesting opening discussion at Socializing Friday. Ola said that he’s is still looking for the barber shop offering coffee while getting his hair cut and we were asked if Butterfly would finance in barber shop offering coffee also. Antti told other participants to look at us and guess if we would be interested in such business (we are almost bold and Juho is known to shave his own head). Juho said that we could consider investing in a new service business opportunity for somebody to serve coffee to all customers of any barber shop. So if not money from us, then at least new ideas. But more seriously we again had some very interesting conversations with potential tech investment targets. Thanks for the Socializing Friday team for the opportunity to be there. Oulu rocks!
It’s been frequently said that on going deacade is the decade of early stage venture financing. For instance according to Mark Suster the upcommign decade is “one of the best and most rational investment periods”. While there’s several factors contributing to this view, probably the most important reasons is the technological rupture that has made initial stages of startups cheaper and therefore investing into early stages more attractive.
Oulu is one of the leading technological hubs, especially when it comes to innovation. For instance, in 2011 the Foundation for Finnish Inventions received >1.2 submissions / 1000 people from Oulu region. That is about twice the ratio of Helsinki region. Overall Finland has a higher rate of annually granted patents to population than the US for instance, and Oulu, in terms of density, spots out like a Silicon Valley there. Indeed Fortune Magazine selected Oulu as one of the 7 best new global cities for startups. Still venture investments in the province of Oulu are <10 € per capita. This is significantly less than in Helsinki (>20 €) or primary competitors (Sweden >12 €, Great Britain >20 €, US >70 €), let alone in Israel (>150 €) or Silicon Valley (>1000 €)*. The same type of trend can be seen in the GDP venture investment ratio. In practice this means that startups in Oulu are somewhat underfunded and one gets to select better startups with reasonable valuations there.
At the same time there has been huge transformation in the employment markets of Oulu, which has improved the startups’ ability to recruit the best. Nokia and its subcontractors have released significant amount of talent and they don’t recruit full cohorts from university as they used to. A career as a founder of a startup is a very viable option right now. As Oulu is eligible for EU regional aid, for instance TEKES NIY funding maximum is 1.25M€ instead of normal 1M€. In addition Oulu has invested heavily into services and infrastructure required by the startups.
All these factors make the Oulu region a very attractive option for an early stage venture capital fund like ours right now.
Butterfly Ventures has completed the first closing of Northern Startup Fund and starts investing. Northern Startup Fund is the first asymmetric venture capital fund in Finland. It will focus on early stage startup companies that have at least some operations in the Oulu region.
“In addition to the obvious challenges, the structural changes of ICT industry in the Oulu region have also resulted in new opportunities. Especially from the startup companies’ point of view the times are good.” said Juha Ala-Mursula, director of Business Oulu “The structural changes have significantly improved the startups’ abilities to recruit talent. These changes have also forced us to find new solutions. Oulu has been the forerunner in creating structures that accelerate startup companies’ business growth, and Northern Startup Fund is central in these new structures. The growth and success of the Fund’s portfolio companies will have a significant impact on the employment and economy of Oulu.”, he added.
During the past few weeks, Butterfly Ventures has already prepared the deal flow and gone through over 100 companies, out of which roughly 20% have met the criteria for closer examination. The goal has been to analyze about 100 companies a year, but at the moment it seems that the quantity will be significantly larger, even well over 200 companies a year. In addition to companies originating from Oulu, there are also such that plan to have operations in the Oulu region.
“There are plenty of early stage startups and growth companies in Oulu region, but proportionally little venture capital activity, resulting in reasonable valuations, for the most part.” said Matti Kanninen, CEO of Butterfly Ventures “In addition, as founding of a startup company is less expensive these days, and there is plenty of talent available, a well-diversified portfolio of smaller investments can result in more simultaneous successes faster.”, he added.
A few investment proposals are already underway and the first investments are planned to be carried out already during October. The goal is to make ten investments in a year. This means that Northern Startup Fund will invest in 50 companies in the Oulu region during its first time investment period of five years.
Enquiries and additional information
Matti Kanninen, managing partner
Phone: +358 (40) 5455877
Butterfly Ventures is an early stage focused startup development and venture fund management company located in Oulu, Finland. Behind the company are Matti Kanninen, Antti Kosunen and Juho Risku as well as Board members Jukka Mäkinen and Jari Pasanen. Butterfly Ventures has offices in Oulu and Helsinki.
Northern Startup Fund
Northern Startup Fund is a venture capital fund managed by Butterfly Ventures that invest into early stage startups. It is the first asymmetric fund in Finland. In the case of Northern Startup Fund the asymmetry means that the public investor, which benefits also in a form of tax income, lowers the risk of a private investor by offering a possibility for returning the invested capital and profit share before the public investor. From the private investors’ point of view this improves the risk – return expectation ratio significantly. The investment capital of Northern Startup Fund will be 10 million €, half of which comes from the City of Oulu and the other half from private investors.
The City of Oulu has selected Butterfly Ventures to manage the Northern Startup Fund that will be established in Oulu. The fund will invest in startup companies that have operations within Oulu region. The goal is to gather approximately 35 million euro of investment capital. The Northern Startup Fund is the first so called asymmetric fund in Finland. The fund intends to make its first investments already before the end of 2012.
“Asymmetric model is particularly interesting from the private investors’ point of view.” said Matti Kanninen, managing partner of Butterfly Ventures “In asymmetric model the private investor has preference over the public financier, which benefits in any case in a form of tax income. The private investor is preferred both in return of the invested capital as well as in distribution of the profits”, he added.
The new fund will significantly improve the startup ecosystem in northern Finland. In addition to capital, Butterfly Ventures will bring in plenty of required knowledge and networks. The management company will also reshape some of the operation models in the industry. One of its goals is to bring the world famous “Techstars” –type of model into Finland.
“Our goal was to bring in the best possible team that can operate both in Oulu as well as internationally with ease.” said Ville Heikkinen from Business Oulu “We selected Butterfly Ventures because they combined the regional dimension with the first class IPO seen serial entrepreneur experience and deep understanding of venture capital industry”, he added.
The fund will start its active operations early fall. At first the fund capitalization will be roughly 10 million euro, half of which comes from the City of Oulu. The other half will be gathered from private investors. In second phase, during 2014, the fund capitalization will be expanded into 35 million euro. Negotiations with the private investors will be finalized during the summer and fall. Butterfly Ventures will also organize a fund related information event for the interested investors and startup companies by the end of August in Oulu.
Enquiries and more information:
Matti Kanninen, managing partner
Phone: +358 (40) 5455877
Butterfly Ventures is an early stage focused startup development and venture fund management company located in Oulu, Finland. Behind the company are Matti Kanninen, Antti Kosunen and Juho Risku as well as board members Jukka Mäkinen and Jari Pasanen. Butterfly Ventures has offices in Oulu and Helsinki.