If you’ve built businesses, led people, and achieved results, you have a solid foundation for success in the startup world as well. However, it’s important to note the differences highlighted by Vesa Lehtinen, a coach at Yritystehdas and a business angel (FiBAN, EBAN).
In his work, Lehtinen meets many experienced entrepreneurs who are considering breaking new ground in the startup arena. He has witnessed successes, but also setbacks, and has learned to recognize the underlying patterns behind them. These patterns are closely tied to a startup’s credibility and the conditions for its success—and, consequently, to its ability to secure funding.
1. Pace: A startup operates at an extraordinary pace
Experienced entrepreneurs often have a penchant for long-term planning. In the startup environment, however, it’s essential to move quickly. This requires a completely new way of thinking.
“In traditional business, you build steadily. In a startup, the pace is much faster. If the first prototype isn’t ready for customer testing within a couple of weeks, the pace might not be fast enough to capture the market,” Lehtinen explains.
It’s not about compromising on quality, but rather a continuous cycle of experimentation and learning. Once an experienced entrepreneur realizes this, they can address the demands for speed—for example, through their leadership experience: they can seek out team members who are energized by the rhythm of the startup world.
2. Startup Logic: Three Factors That Determine Success
Many experienced professionals view a startup as a rapidly growing small or medium-sized business. According to Lehtinen, however, there is a fundamental difference in logic. Success in a startup rests on three critical pillars:
- Product-market fit (PMF): Have we identified a real problem in the market for which we have a solution that someone is willing to pay for right away?
- Sufficient cash: Funding is the tool that keeps the machine running beyond the testing phase.
Team: Even if the product is a gem, the team must also include salespeople—and conversely, if the product is technical, the team cannot consist solely of salespeople. Together, the team must be able to drive the startup toward its growth goals.
“A common Finnish pitfall is refining technology behind closed doors. Investors, however, evaluate the team’s ability to commercialize and scale. Without strong sales expertise, even the best product won’t take off.”
3. A Strategic Approach to Raising Funds: Leverage and Expertise for the Team
Securing funding is vital for a startup, but it’s also an art form. Equity can be multiplied many times over if you play your cards right.
Lehtinen recommends building funding from three categories, which allows you to leverage the total amount many times over:
- Public grants (Elinvoimakeskus, Business Finland): A good way to fund initial prototypes and market research.
- Soft loans: For example, Business Finland’s product development loans and Finnvera’s startup loans offer support when the self-financing portion is in order.
- Angel investors and VC funds: They bring not only capital but also so-called “smart money”—that is, expertise and networks. These can open important doors for your company.
“A particularly effective tool is the co-investment fund managed by Innovestor, which can double the investment made by an angel syndicate.”
Example: How €50,000 in self-funding can grow to a million
Step 1. Seed Funding
First, you should prepare a cost estimate and familiarize yourself with the support programs offered by the Elinvoimakeskus and Business Finland. These will help you determine how much self-financing is needed. The grant could cover, for example, 50–70% of the costs, in which case 50–30% of the funding would need to come from equity. In this example, the equity requirement is €50,000
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What: The founders’ own savings, or investments from their inner circle (“Friends, Family & Fools”).
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Amount: 50,000 € (assumption: the investment comes from the founders = it is not doubled by a co-investment fund’s contribution)
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Goal: To build the first version of a market-ready product (MVP) and demonstrate that the entrepreneur has skin in the game. This is a prerequisite for any further progress and shows the investor that the founders believe in the business.
Phase 2: First public funding round
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What: For example, Business Finland’s Sprint grant.
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Amount: 100,000 €
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Impact: Cash on hand triples to 150,000 euros.
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Goal: To test market potential and secure letters of intent from customers. This provides evidence that investors value.
Phase 3: Business Angels and Smart Capital
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What: Through the FiBAN network, a syndicate of 3–10 angel investors is assembled, with a minimum investment of 15,000 € per angel.
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Amount: €150,000
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Impact: You gain not only capital but also experienced advisors. Your company’s cash flow and credibility increase significantly.
Step 4: Doubling Angel Investments
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What: Innovestor’s co-investment fund.
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Amount: 150,000 €
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Impact: Once the angel syndicate is in place, this fund doubles the amount the angels invest in the company.
Step 5: Loan
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What: Business Finland’s product development loan.
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Amount: e.g., 350,000* € (50% loan) – 816,000 € (70% loan) => Total R&D project cost: 700,000 € – €1,166,000
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Impact: Since the company now has strong equity (€350,000), it can apply to Business Finland for a substantial loan covering up to 50–70% of the development project’s costs.
*Business Finland does not count the grant it provides (assumption: Sprint) toward the company’s self-financing share. Therefore, 150 + 150 + 50 = 350 keur.
Funding Secured
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Initial risk borne by the entrepreneur and early investors: €50,000
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Total funding raised: €800,000 – €1,266,000 (and this figure does not yet include a potential grant from the Elinvoimakeskus)
“Funding must be considered strategically. This makes it possible to ensure the company gets off to a strong start.”
4. “Smart money” and its pitfalls
Experienced entrepreneurs often value independence, but in the startup world, partnerships can accelerate growth and open doors. “Smart money” refers to investors who bring with them, for example, networks of contacts, board expertise, and industry knowledge.
In addition to opportunities, “smart money” comes with pitfalls: “For example, an industrial investor might tie a startup to a specific technology. Furthermore, some public funding may be off the table if the company has corporate owners or founders.”
Another pitfall lies with sweat equity investors, who can bring important expertise to the table. This is a model in which work is rewarded with shares. “It’s important to realize that if the collaboration doesn’t work out, unwinding these arrangements can be costly.”
It’s therefore important to carefully weigh the opportunities and risks that smart financing opens up.
5. International Perspective: Dare to Think Big, and Keep the Exit Strategy in Mind
Lehtinen has viewed the investment world from an international perspective. He summarizes the difference between Finland and the U.S. in particular as follows:
“In Finland, we’re often modest when it comes to valuations. Globally, especially in the U.S. market, expectations are different. If you go to the U.S. market with a $1.5 million valuation to raise a half-million round, people will laugh at you. There, you need to have a zero at the end of both numbers.”
It’s important to understand right from the start who the potential buyer of your company might be in the future and to chart a path toward that goal.
Find out how we at Hautomo can help your startup grow!
