Category Archives: Legal

Why Will Finland Fail?

“To understand your customers, get out of the building says Steve Blank. Mika Marjalaakso says that to find a big problem and understand customers, get out of Finland.wink

A week ago or so I had a really good discussion thread on my personal Facebook page about why Helsinki and Finland as a whole suck as a location for most startups, and what should be done to increase our chances for success. Don’t get me wrong. I LOVE startups but I “HATE” the hype. I do get it that to drive things forward and inspire people hype is a vital element.

I personally think – may be I am old or something – that it is better to say MY AIM IS to become the King of Norway instead of saying I AM the King of Norway. So, whenever anyone says (i.e. claims) that Finland or Helsinki is something that it clearly is not – that doesn’t inspire me because it is not a fact but a reality distortion of grand scale.

This is my list of three reasons why I believe Helsinki will never become the #1 startup hub in the world.

There are A,B, and C startups. A will be successful without any accelerators. They are the best of the best. B are good guys that some coaching in some cases might help a bit. C will fail anyway no matter what you do.

1. A good place to set up a business is a place where you have lot of customers who can buy your products, and you can be close to them to make sure that you are solving THEIR problems.

2. A good place for a startup is place where you are close to an epicenter of an existing or emerging ecosystem and its dominant players … and the cutting-edge, close to guys who will buy your company unless it becomes a really big.

3. A good place for a startup is a place with enthusiastic consumers and companies that are more looking at the positive side what a new product can bring to their lives and businesses and less worried about what can go wrong.

Abundance of capital is not that harmful either.

The above three reasons are not that important if your product can fully be distributed digitally, i.e. games. Many big problems, however, are far away and it is difficult to fully grasp them from Finland – you got to be there, not here.

So, I do believe that Finland can become one of the leading locations for startups in Europe for the B class, but it is extremely difficult to find reasoning why the A class would come here. We are still only five million people, far from big markets and the whole EU is a declining continent. Finland always do well in all kinds of nonsense competitions – and politicians just love that – but still nobody does direct investments here – if it would make sense, they probably would.

Is there anything we could and should do?

To summarize the three big ideas from my Facebook post comments:

  1. Finland can’t copy the Israeli model which is working due to very unique history and close ties.
  2. There are hundreds of wannabe Silicon Valleys, but there is only one Silicon Valley.
  3. Our neighborhood is pretty amazing, three neighboring countries, Finland, Russia and China.

So, instead of west we should look into east. Politicians should take immediate and drastic measures to build strong ties with China and Russia, and make it ridiculously easy for the best minds in Russia and China to relocate to Finland, enjoy our excellent infrastructure and thousands of lakes. For Finland’s future, this is more important than investing in those unemployed people that don’t like to work.

Finns are traditionally at their best when put against the wall. The world is at war. Nations are fighting over scarce natural resources and control over various ecosystems that control value creation, and most importantly value capture for a nation. Our Welfare State in its current form is unsustainable. I have coined up a new term – the Entrepreneurial State – which means a dream state where majority of citizens understands how value at the national level is created, and the underlying legal and moral framework that offers strong incentives for each citizen to create value. This doesn’t mean there wouldn’t be social security at all but too much social security seems to kill motivation for a way too many.

To summarize the primary ways how value at the national level is created:

  1. You sell your unique resources (e.g. oil, salmon) to other nations.
  2. You steal from other nations or borrow money but never pay back.
  3. You have competitive companies that export products to other nations.

Clearly Finns can’t create value through the first two options. So, our only and last hope is to build companies that are globally competitive. That’s our only option. We have a great infrastucture, skilled and educated workforce, beautiful nature etc. – these, however, itself don’t create any f***ing value. But, they can be leveraged to build great companies, to lure tens of thousands of Chinese and Russian people to move over here, and perhaps with the value arising from these companies we can better support our aging people.

Let’s open our borders for skilled Chinese, Russian, Brasilian immigrants to help us understand what are the big problems out there and build great companies here to address these problems, and win rather in direct investments and lose on these plethora of non-meaningful statistic competitions.

I believe Finland could prevail but there are too few smart politicians who could quickly drive through the required unpopular changes, many of which go against the social democratic agenda. Why not to start right away from simple, concrete things.  Things like making it easier for skilled foreigners to come over, get a working visa and set up a business. Things like making it easy for our expats to move back and get a citizenship for their spouses. Little things, every day, right now.

Guest Post: Top Four Things To Consider In Shareholders’ Agreement

Editor’s note: This is a guest post by Jukka Kallio, the CEO of KallioLaw (www.kalliolaw.fi) and ranked in 2011 top 100 M&A lawyers in the world, an angel investor and startup advisor.

If you are looking the latest post in the Nokia Startups Mistakes series, you can find it from here.  

Below are few key points that I would like to address when you are drafting a Shareholders’ Agreement (“SHA”). These things may not apply to all companies, but for sure to the start-ups:

1)      In general, big mistakes can be avoided if you do not build wrong incentives in the SHA, such as granting one stockholder a right to block something important or allowing a group of stockholders to use such provisions only for their own benefit. I have seen many times that provisions that were initially intended for some specific scenario, are used in other context for the benefit of one or several stockholders.

2)      Working obligation: for start-ups the human resources are vital and that is why the working obligation of the founders and possible other key employees are agreed in the SHA. Think about how long you want to require others to work for the company and how long you are willing to be committed yourself. And of course, the working obligation should be in line with the company’s business objectives. Many times I have seen provisions that do not really specify the working obligations, e.g. whether it should be full time based, require meeting certain milestones or raising funds, etc. The more detailed you discuss on these things the less problems you typically face in the future.

Also – as always when setting obligations –, it is important to agree what are the penalties if one does not comply with his/her working obligations. Think about what should happen if one is not complying with it? If nothing is agreed the breaching stockholder should compensate damages but it is not easy to prove such damages. In the worst case scenario, the breaching stockholder will have the right to keep his/her shares and no damages can be proven! The vesting of the shares will resolve these kinds of things easily and it is discussed in the next bullet.

3)      Vesting: in the SHA of a start-up in which working commitments are required, i.e. in all start-ups in fact, the circumstances may change in the company or in the family of stockholder, etc. This means that we need to answer to a question “what happens to such stockholder’s shares in a start-up who agreed to work for the start-up but is not doing it? Typically it is agreed in the SHA’s of start-ups that there is a time period during which one will “earn” his/her shares. But, it is important to avoid wrong incentives – as discussed above – which would allow the leaving stockholder the right to keep all his/her shares. It would be very demotivating to the remaining stockholders and would be a typical “free rider” issue.

So, if you agree on working obligations, set also vesting for the shares that are aligned with the set time frames, milestones or reaching other targets. A good vesting provision will make sure that all working stockholders are treated reasonably and fairly but also prevents “free rider” issue.

4)      Decision-making: many times in the SHA’s there are provisions on what qualified majority is required for fund raising (issuing new shares to investors or others). However, that will not mean that the start-up can in practice raise funds. Even if your start-up can issue shares to an investor, you may not be able to complete it because a shareholder will not agree to sign the new SHA required by an investor thus blocking the fund raising. You should always think what actions are needed to be able to execute things that are agreed in higher levels in the SHA’s. I have seen cases where a start-up has raised funds and investor requires new SHA but there are one or more minority stockholders who refuse doing so and, thus, block the start-up getting funded. Not an optimal situation! It should be discussed and agreed in the SHA when the start-up and stockholders may force other stockholders to execute and be bound with the same contracts than the others – however, being fair and avoiding wrong incentives in the SHA.

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