Nov. 19 (Bloomberg) -– Finland's technology startups, which long viewed Silicon Valley as a gateway to funding and global recognition, have found an alternative closer by: Russia.
The Eastern neighbor's venture-capital firms, which have gained expertise in technology investments from Facebook Inc. to Twitter Inc. and local companies such as Yandex NV, are now proving a valuable partner to Finland's entrepreneurs. Russians are snapping up Web, software and nanomaterials stakes, drawn to a market spurred by engineering talent freed from Nokia Oyj.
Finnish startups are seeking to build on the successes of "Angry Birds" maker Rovio Entertainment Oy and Supercell Oy, valued at $3 billion in a deal with Softbank Corp. A 5,400-mile (8,700-kilometer) distance to Silicon Valley and limited availability of local venture capital have hurt the startups' fundraising ability, opening an opportunity to Russian investors such as SBT Venture Capital and Almaz Capital Partners.
"We see much more activity in Russia coming from the Finnish startup scene than from any other country," said Pavel Bogdanov, a partner at Moscow-based Almaz, in an interview last week in Helsinki, where he was scouting for investment targets. "Finland can be a hub toward Russia."
More than 30,000 new companies have been created in Finland each year since 2006, partly because of the thousands of positions eliminated by the country's technology cornerstone Nokia amid mobile-phone market-share losses to Apple Inc. and Samsung Electronics Co. Still, many of the new companies have had to resort to bank loans or applying for public funding amid a lack of a sufficient local venture-capital industry.
Finnish retail-analytics provider Walkbase Oy said last week it raised 3 million euros ($4.1 million) from SBT, an investment vehicle of Russia's largest bank OAO Sberbank, and Olli-Pekka Kallasvuo, Nokia's former chief executive officer.
Walkbase, based in Turku, southern Finland, announced the deal at Slush, a Helsinki conference that has expanded into the Nordic region's biggest startup event. The annual gathering, which took place for the sixth time, is increasingly attracting Russian investors among its more than five thousand attendees. Investors participating had combined assets of more than 60 billion euros, double the amount last year, the organizers said in an statement.
"It really started at last year's Slush," Walkbase CEO Tuomas Wuoti said in an interview at this year's event between pitches to investors. "We met a couple of angel investors and through them we gained access to the right people in Russia."
Walkbase makes software for anonymously tracking customers' movements through their smartphones with an accuracy of about three meters. The aggregated and encrypted data is analyzed to help identify customer behavior, such as responses to marketing and time spent at specific sections of a store. Sberbank plans to adopt the technology across 18,000 branches.
Moscow-based OAO Rusnano, a state-controlled technology investor, last year invested 25 million euros in Beneq Oy, a thin-film coating company based in Vantaa.
"Finland is a perfect gateway for companies from Russia," Artem Skubenko, an investment manager at venture-capital firm Enso Ventures, said in an interview at Slush.
Enso Ventures, whose investors include wealthy individuals with Russian origins, has backed two Finnish nanomaterials makers. Picodeon Oy, based in Ii, makes thin-film coating solutions used in medical equipment to machinery molds and Vantaa-based Carbodeon Oy supplies nano diamonds.
The Finnish government is helping to deepen the ties with Russia to help spur an economy reeling from Europe's debt crisis and plunging sales at companies including Nokia. Following two wars between the countries, trade intensified after 1945 when trains, ships and machinery paid to Russia as reparations laid the foundations for Finland's metal industry.
"Historically, the economic cooperation between Finland and Russia happened on a governmental level," Prime Minister Jyrki Katainen said in an interview at Slush, wearing a blue hoodie in a nod to the traditional startup attire. "Now is really the first time that individual entrepreneurs, private-equity investors and researchers are cooperating. What we can do is make the environment favorable."
Tekes, the Finnish funding agency for technology and innovation, started working with Russia's answer to Silicon Valley, Skolkovo, in June. Last month, Tekes and Skolkovo announced public funding specifically for joint projects involving companies from both nations.
"The idea is to get companies from the startup scene to collaborate more effectively and lower the barrier for Finnish companies to enter Russia and find partners there," said Pekka Soini, director general of Tekes, which funded companies including Supercell and Rovio in the early stages.
Finnish technology startups are also targeting Russia as a market for their products. The country of about 143 million people dwarfs Finland, with a population of 5.4 million.
Web of Trust, a website-reputation tool from Helsinki-based WOT Services Oy, reached 100 million downloads this month. About a third of downloads came from Russia in the past year, during which the service doubled its users, CEO Markus Suomi said.
"Russia will be a test market for us in the future, we'll try out new ideas that require a sufficiently large relative user base," said Suomi, who worked at software development at Nokia until 2007. "This is certainly made easier by Russia's proximity and us having Russian citizens in our team."
Jolla Oy, a smartphone startup founded by ex-Nokia engineers, said this month its first handset will include the application store of Yandex, a Russian rival to Google Inc.
Russians are attracted to Helsinki as Supercell and Rovio's growth means the city has joined Europe's main technology clusters aside London, Berlin and Stockholm, according to John Lindfors, partner at DST Global, billionaire Yuri Milner's firm that invested in Twitter and Facebook before their initial public offerings. Lindfors previously ran Goldman Sachs Group Inc.'s Europe technology investment-banking team.
"Talented young engineers used to aim for Nokia as their first priority -- now interest in entrepreneurship is at a completely different level," he said in an interview at a hotel bar in Helsinki after an investor meeting with Prime Minister Katainen. "This has changed in the past three or four years. There are entrepreneurs who have had success and are reinvesting in the community and getting involved in the companies."