Doing a Consumer Internet Startup in Finland

An alternative and definitively unpopular take on

Doing a Consumer Internet Startup in Finland

www.toughloveangel.coma blog about the *&#% mistakes entrepreneurs make

2013 © The Tough Love Angel

http://www.toughloveangel.com/

Disclaimer!

There is absolutely no data or science behind any of the numbers used in this presentation

They are based on the writer’s expert opinion and used only for illustrative purposes in this presentation

If you have more accurate data, pls. send it to [email protected]

© All rights reserved. If you want to use the material, please contact the author for permission.

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Finnish Serial Entrepreneur Archetypes

A: 750

B: 200

C:50

rich and famous self-made

wife or inherited wealth providing decent Income stream

large mortgage, kids, limitedability to take risk


Tekes Grants & Risk Loans

leve

l of a

com

bine

d m

arke

t and

tech

nolo

gy ri

sk

Increasing risk of total investment failureLOW HIGH

HIGH

Finnish VCs

LOW

Large Majority of Finnish Business Angels

A Select Few Business AngelsLifeline Ventures

Friends & Family


big money is here, risk taking not, how come?


level of risk

LOW

HIGH

Like

lyho

od o

f ext

rem

e sc

alab

ility

and

succ

ess

HIGHLOW

High risk, high gainDigital marketing and distributionDisruptive

Low risk, high gain (rare …)

High risk, low/mid scalability, may be capital intensive; requires aphysical world component

IT service business,something incrementalthat is far from disruptive

Finnish Business Angel Archetypes

60 %

10 %

5 %

20 %

5 %

By Background

Non-IT family business background

Professional Managers

Financial industry background

IT angels w/o consumer internet understanding

IT angels with con-sumer internet un-derstanding

understands digital distributionaccepts high risk against unlikely high reward

typically quite risk adverseis more interested in not loosing money vs. scalability 2013 © The Tough Love Angel

Consumer Internet Startup Outcomes

Success

Acquihire

Fail

US Finland

2% 1%

10% 0%

88% 99%

ProbabilitiesKey assumption: seed-funded startups


Opportunity Cost of Doing a Consumer Internet Startup in Finland

Key assumption: Highly experienced and seasoned team; i.e. serial entreprenerus

Team size: 5Market salary / month: 10,000€Pre-seed salary: 0€Post-seed salary: 5,000€Pre-seed duration: 6 monthsSeed I+II duration: 18 monthsTime-to-fail: 2 years

Founding team investment 1,2m€Received as salaries 0,45m€

Realized opportunity cost 0,75m€

Other assumptions:


Doing a Consumer Internet Startup in Finland

Success

1%

Fail99%

It’s typically a fly or die – nothing in between. Most die.


The share of Finnish consumer internet startups with Tekes risk loan


95 %

5 %

Tekes risk loan leverageNo Tekes risk loan

Finnish business angels and VCs, by large, are risk averse and don’t invest in consumer internet startups. Tekes thus has a de facto monopoly in this area.

Winding Down A Consumer Internet Startup in Finland

Pay back Tekes loan

99%Fail

File for bankruptcy

Create a zombie

Exception

10%

60%

29%

0% - 1%There are no exceptions or they are few.


Winding Down A Consumer Internet Startup in USA

Orderly wind down

88%Fail

File for bankruptcy

95%

5%

No need for exceptions. The cash that remains in the bank is paid back to seed investors. The most common funding vehicle is convertible debt.


Expected Exit Values in Success Cases

Success

Acquihire

Finland USA

Expected value: 1b€ Expected value: 1b€Range: 100m€ - 5b€

Expected value: 20m€Range: 5m€ - 60m€

Expected value: 0,5m€Range: 0,1m€ - 10m€


Investing in 100 consumer startups …

Average seed investment (m€): 0,5 1,5Government share in funding (%) 60% 0%Total investment (m€) 50m€ 150m€

# of successes 1 2# of acquihires 0 10# of fails 99 88

# of bankruptcies 60 5# of zombies 29 0

Total exit value created (m€) 1000m€ 2200m€

Finland USA

One word: madness!


Should I do a Consumer Internet Startup in/from Finland?

Key assumption: A seasoned serial entrepreneur with a real opportunity cost

No! In 99% likelihood, you will fail, and the cost of failure is

150,000€ lost opportunity cost Lost time with family & friends Bankruptcy stigma

You can get rid of the stigma if youchoose to create a zombie


What are ways to reduce risk?

• Young first-time entrepreneurs have greatly reduced opportunity cost – start young

• Shorten time-to-failure – be lean• Do only consumer internet startups that have– working revenue model from the start (oxymoron)– core technology that can be pivoted– minimum viable product that is minimal enough– no need for physical world business development– can be acquired by a Finnish media company

• Avoid Tekes risk loans like plague


Final word (games excluded)

• Do consumer internet startups only if you are young• If you really want to go for it; increase your chances for

success and don’t do them from Finland, buy a ticket to San Francisco

• If you are not able to buy a ticket; avoid Tekes risk loans; take only grants

• If you are serious; you will not try to build these creatures from Finland unless you really know what you are doing …

• And: remember to avoid Tekes risk loans ….
