After Nokia, Can Angry Birds Propel Finland?

A game featuring egg-stealing pigs under attack by irate birds may not seem like enough to stake a country's economic future on, but it plays a big role in Finland's plans. As the national tech star, Nokia (NOK), starts to fade, the government is hoping its future prosperity will be brightened by companies such as Rovio Mobile, the maker of a hit cell phone game called Angry Birds. The game has been downloaded more than 36 million times for as much as $1 a pop.

Rovio and other startups such as Web micropayment company APE Payment could go a long way toward filling the gap left by Nokia, which at its peak accounted for 4 percent of the country's gross domestic product. "We won't get another Nokia," says Risto Siilasmaa, a Nokia board member who founded successful antivirus software house F-Secure as a student in 1988. "But we should definitely get 10 or 100 F-Secures and a lot of Angry Birds and APE Payments."

As Nokia has struggled to compete with Apple's (AAPL) iPhone and devices using Google's (GOOG) Android software, analysts estimate the company's profit will shrink to €1.6 billion ($2.1 billion) this year from €7.2 billion in 2007. Nokia's share of Finland's economy slipped to 1.6 percent of GDP last year, according to Helsinki-based economic research institute ETLA.

To help compensate, the government is boosting support for young innovators. The national research funding agency, Tekes, doubled financing for promising ventures, to €30 million a year through 2014. Other programs supply an additional €30 million to support startups.

This year the government sponsored a "Summer of Startups" at Aalto University, the nation's flagship technology campus just down the road from Nokia's headquarters. Ten teams of young entrepreneurs attended the two-month event, participating in workshops and other activities designed to help them build stronger companies. "This grassroots student stuff is what's going to create the 10 to 20 companies we need," says Will Cardwell, who directs the university's Center for Entrepreneurship.

Attending the camp were Timo Herttua, 23, and Tuomo Riekki, 22, co-founders of a sales-force software company called Deal Machine. The two, who met while serving in Finland's army, had each set up Web design businesses as teenagers. Launched this year, Deal Machine now has nearly 600 customers. The duo received a €30,000 grant from Tekes to develop their company.

Finland hasn't always given startups a warm embrace. High taxes, a lack of incentives for investors, and the country's distance from major markets have prompted entrepreneurs to leave or sell out to bigger firms. The founders of Jaiku, a micro-blog site like Twitter, sold their company to Google in 2007, and the following year database company MySQL was bought by Sun Microsystems. Linus Torvalds, the Finn who fathered the Linux open-source software movement as a student, moved to California in 1997. The Deal Machine founders plan to move to Silicon Valley next year to get closer to other techies and funding. "Young entrepreneurs need to go learn from the best in the world," says Kristo Ovaska, 27, who in October led a group of startups to Silicon Valley, where they practiced pitching their projects.

Finnish startups are hobbled by a lack of venture funding. Fruugo, which started a multinational European shopping website in 2009, got less than half the capital it had hoped for in Finland and in September merged with Britain's Directory Technologies. Finnish high-tech companies raised about €50 million in venture capital in the first half of 2010, according to Technopolis, a firm that incubates tech companies and helps them find funding. The Israel Venture Capital Research Center says Israeli companies received $577 million. "There are only a handful of venture capitalists in Finland, and to get the attention of foreign venture capitalists has been quite challenging," says Rovio Chief Executive Officer Mikael Hed.

He acknowledges that Rovio has been luckier than most. The founders, who met at a hacking contest in 2003, received backing from family members. The company will celebrate the first anniversary of Angry Birds on Dec. 10 and is branching out into ancillary products such as stuffed birds and pigs. The 30-plus employees are rolling out special editions of the game for the holiday season as well as versions for game consoles and Facebook.

Rovio's experience illustrates how Finnish tech companies are being weaned from a dependence on Nokia. In its early days the company produced many games for Nokia devices, but it was the iPhone that gave wing to its biggest hit. "Angry Birds is the perfect example of the challenge that has faced Finland in the last five years," says Ben Holmes, a partner at Geneva venture capital firm Index Ventures. After making little progress with games for Nokia handsets, "along comes iPhone and they have that breakaway success."

The bottom line: With national champion Nokia in decline, Finland is counting on a new wave of tech startups to power economic growth.

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