In tough times, Finland toys with tax breaks for angels investing in start-ups

Summary:Finnish prime minister Jyrki Katainen hopes recession-hit Finland can become northern Europe's Silicon Valley, but is €7m-a-year angel tax break enough?

Finland is hammering out the details of proposed tax breaks for angel investors with the hope it will stimulate investment in the country's start-ups and help shake off recession.

Speaking to a mix of 3,000 attendees from European start-ups, angels and VCs at Helsinki's Slush conference last week, Finland's young prime minister Jyrki Katainen reflected on the "structural changes" the recession-hit country is undergoing. 

Katainen made no mention of Finland's best-known company, Nokia, whose difficulties are just part of the trouble besetting Finland's technology exports; instead he stressed the importance of start-ups to employment and Finland's future. 

"We want to become the largest hub of start-ups in northern Europe and this our surrounding area," said Jyrki. 

Finnish PM, Jyrki Katainen
Finnish PM, Jyrki Katainen, talking up angels to Finnish start-ups. Image: Liam Tung

To support such a development, he said Finland would introduce tax breaks for angel investors under a broader €300m package aimed at helping out small, innovative businesses. (A move that follows two years of austerity measures worth €5bn.)

"Given the current economic circumstances, a €300m tax break scheme to small businesses and start-ups may be considered a significant investment," he said. 

"A €300m tax break scheme to small businesses and start-ups may be considered a significant investment" — Jyrki Katainen, Finnish PM

The angel tax breaks would be designed to fill the gap between self-funding for very early stage start-ups and the venture capital funds in pursuit of start-ups that are already flourishing, such as Finnish games makers Rovio and Super Cell.

Finland's angel proposal hit a small snag last week. Unlike the UK's Seed Enterprise Investment Scheme introduced in April this year, which caps investments at £100,000, the Finnish proposal contains a minimum threshold of 20 percent of the firm's value and a maximum of 50 percent. 

Democrat MP Mikael Jungner, a long time proponent of supporting start-ups by supporting angel funds, is gunning to remove the threshold.  

"I want to reduce the 20-percent minimum and I'm sure it will be reduced," he told ZDNet. 

Jungner's other problem with the angel incentive is that at present, it will be only a €7m sliver of the €300m package.

"The €7m is only estimation but it's way too small," said Jungner. 

Where's the investment?

But perhaps Finland's caution is wise.

In the US, where angel tax breaks have emerged as a popular stimulus tool, some argue it doesn't create investment and does little for jobs.  

But what does create investment - networking events? 

At a venture capitalist panel at Slush, four investors from international VC firms were asked "Why don't these events lead to investments?" 

Nenad Marovac from VC fund DN Capital disagreed, pointing out he'd met one early stage company he was "pretty hot about, and might invest in".

"So that's one company out of 500," the moderator replied.

Maximilian Niederhofer, an investor from Accel Partners, had a solution: start-ups can attract investors if they hire Harvard-educated management and engineers with experience at other successful start-ups. 

Nabbing Spotify's top engineers and Rovio's CFO probably would catch the eye of investors but, without seed funding, it's hardly an option for most companies.

Topics: EU, Start-Ups, Tech Industry

About

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, s... Full Bio

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