Nov. 29 (Bloomberg) -- At the Virtual Goods Summit at London’s Chelsea Football Club this month, Peter Vesterbacka told the gathered cyber geeks to prepare for a surprise follow-up to “Angry Birds,” the Finnish megahit mobile-phone game.
With its arsenal of birds fired from slingshots at fortresses of pigs who’ve stolen their eggs, the game raced up the charts on Apple Inc.’s iPhone to become the bestselling app in 61 countries. The more than 10 million paid iPhone downloads at about $1 a pop have raked in profits for Espoo, Finland-based Rovio Mobile Oy, where Vesterbacka, dubbed the “Mighty Eagle,” is chief marketing officer.
“No one has told the story from the pigs’ point of view,” Vesterbacka told the summit attendees.
Rovio is a star Finnish start-up in a country struggling to fill the gap left by the declining value of its best-known company, Nokia Oyj. Finland’s Act II to put the northernmost euro-area nation back on the global technology map may result in several small wins like Angry Birds and Web payment-tools developer APE Payment Oy rather than a Nokia-sized triumph.
“We won’t get another Nokia,” said Risto Siilasmaa, a Nokia board member who founded software company F-Secure Oyj as an engineering student in 1988. “But we should definitely get 10 or 100 F-Secures and a lot of Angry Birds and APE Payments.”
At its peak in 2000, Nokia accounted for 4 percent of Finland’s gross domestic product. With advances by iPhones and devices using Google Inc.’s Android software, analysts estimate Nokia’s profit will shrink to 1.6 billion euros ($2.1 billion) this year from 7.2 billion in 2007. Nokia’s share of Finland’s economy diminished to 1.6 percent of GDP last year, according to Helsinki-based economic research institute ETLA.
The Finnish government, faced with Europe’s fastest-aging population, needs to create jobs to pay for the growing costs of pensions and healthcare. By 2015, three working Finns will be supporting every pensioner, down from about four now. In Europe as a whole, the change will take 10 years longer, according to Eurostat, the European Union’s statistics agency. Finland’s economy shrank 8 percent last year.
To compensate for Nokia’s fading fortunes, the government is boosting support for young innovators. The national research funding agency, Tekes, doubled financing to promising ventures to 30 million euros a year through 2014. Other programs put total state funding at more than 60 million euros.
The first government-sponsored “Summer of Start-ups” bootcamp was in full swing this year at Aalto University, the nation’s flagship technology campus just down the road from Nokia, drawing the likes of Timo Herttua, a 23-year-old with a sales-force software company called Deal Machine.
“This grassroots student stuff is what’s going to create the 10 to 20 companies we need to replace the huge growth that’s not going to happen from Nokia and other Finnish companies that will primarily grow elsewhere,” says Will Cardwell, who directs the entrepreneurship center at the university. “Finland needs to create multiple 100 million-euro-plus growth companies to make the demographic math of the future work.”
U.S. companies like Apple, Intel Corp. and Hewlett-Packard Co. were founded by people with an average age of about 26, he said. Herttua and Tuomo Riekki, 22, who met in the army, had both set up their own Web design businesses as teenagers. After a few months of sales, they have a 30,000-euro grant from Tekes and more than 560 customers for Deal Machine, which uses game mechanics to push sales reps toward their goals.
The Finnish environment isn’t always conducive to nurturing and keeping start-ups, said Siilasmaa. High taxes, a lack of incentives for investors and remote major markets have hampered them, prompting entrepreneurs to leave or sell out.
The founders of software start-ups Jaiku, a Twitter twin, and MySQL, a database system, sold to Google and Sun Microsystems Inc. in 2007 and 2008, respectively. Finland’s Linus Torvalds, who wrote the Linux open software as a student, moved to California in 1997.
Kristo Ovaska, the co-founder of the Aalto Entrepreneurship Society, last month took a group including Riekki and Herttua to California, where they practiced pitching their projects to tech bloggers and investors.
“Young entrepreneurs need to go learn from the best in the world,” Ovaska, 27, said. “Even if they leave, eventually some of them would come back and help other young start-ups.”
The Deal Machine founders plan to move to Silicon Valley next year to be closer to emerging technological developments.
“Traditionally in Finland entrepreneurs were considered misfits who couldn’t get a job with the government or a big company,” Siilasmaa said. “That’s changing, but we still lack incentives that would encourage successful business people to invest time and money in start-ups.”
Raising money for the start-ups won’t be easy. Finland’s venture funding is meager. Finnish high-tech companies raised about 50 million euros, or $70 million, in venture funding in the first half, according to Technopolis Oyj, a firm that “incubates” tech companies and helps them raise funds. That compares with $577 million in Israel.
Fruugo Oy, which started a multinational European shopping site in 2009, raised less than half the capital it aimed for in Finland. It merged with Britain’s Directory Technology Ltd., in September, taking over its partner’s ShoppingBank.com website.
Software is a popular choice for Finnish start-ups. Among companies that may eventually help plug the Nokia deficit are Sulake Corp. Oy, a profitable game company that runs the virtual “Habbo Hotel”; Grey Area Oy Ab, whose “Shadow Cities” game has soared on apps lists, and APE Payment, whose software allows users to make payments of a fraction of a cent, to buy a letter in a crossword puzzle, for example.
Nokia “has been a very important source of new innovative companies in Finland” through spinoffs and as its engineers started their own companies, said Esko Aho, a former Finnish prime minister and now a Nokia executive vice president for corporate relations and responsibility.
Although Finland hasn’t yet produced an iconic consumer software product like Swedish-Danish-Estonian developed Skype SARL or Sweden’s Spotify Ltd., Angry Birds comes close.
The Rovio team produced 51 other games, many for Nokia handsets, before Angry Birds took flight with more than 36 million free and paid downloads.
“There are only a handful of venture capitalists in Finland and to get the attention of foreign venture capitalists has been quite challenging from here,” says Chief Executive Officer Mikael Hed.
Rovio, whose founders met at a local hacking contest in 2003, funded itself with family help, including from Hed’s father. Hed’s brand empire for Angry Birds, which already has stuffed toys and Youtube videos, is taking the company farther away from its roots as a maker of games orbiting Nokia.
Rovio plans to announce versions for the holiday season, for multiplayer game consoles and for Facebook. The company, which celebrates the first year of Angry Birds on Dec. 10, today said it will soon demonstrate “a brand new Angry Birds experience.”
“Angry Birds is the perfect example of the challenge that has faced Finland in the last five years,” says Ben Holmes, a London-based partner at Geneva venture capitalists Index Ventures. “It was porting game software to phones manufactured by traditional manufacturers like Nokia and Motorola and then along comes iPhone and they have that breakaway success.”
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