Finland is turning to venture capital financing as a way to kick-start its economy out of a recession without jeopardizing its AAA rating, according to an article published by Bloomberg on 5 April. Finland is currently the only euro member to enjoy a stable AAA rating at Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
The goal of the new venture capital program is to attract investment worth EUR 1 billion into startup and growth companies without adding to the country’s budget deficit. According to Finland’s Ministry of Employment and the Economy, the program consists of about 10 funds that will invest in about 100 companies, helping to create about 6,000 jobs over five years.
Most profits go to investors
According to Bloomberg’s article, investors who buy into the venture will take the lion’s share of potential profits. Losses and about 4 percent to 6 percent of the profit will be split equally by the state and private equity in the startup funds. Additional profits will go to private investors.
The state will reallocate 20 million euros each year of existing funds through Tekes, the financing agency for technology and innovation, into startup funds. About 30 million euros will be channeled annually through Suomen Teollisuussijoitus Oy into funds that help companies in a more advanced stage.
Investors will benefit as the government’s involvement will boost the funds’ size and potential profits for funding growth companies, according to Petri Peltonen, head of the enterprise and innovation department at the ministry. “Private capital will drive the actual funding choices to allow their business hunch to pick the target companies that gain financing,” he said.