03.10.2023 | Insight
Finland has one of the most dynamic startup ecosystems in Europe. Many Finnish growth companies have scalable green solutions and solid business plans, which is exactly what Nefco – the Nordic Green Bank looks to finance.
Nefco’s role in Finland and elsewhere in the Nordics is to accelerate the green transition by providing growth financing for SMEs with green solutions. In Finland, growth companies with sustainable business models and environment-friendly technologies come to Nefco for funding to explore new markets or scale up their innovations.
“Some of the innovative ideas we see coming from Finland are in the circular economy sector, which currently forms close to 20 per cent of our Nordic SME portfolio” says Vivi Avikainen, Investment Manager at Nefco.
From clothes to lasers
A circular economy is one in which existing materials remain in use for as long as possible. For example, Pure Waste Textiles makes new textiles from waste material, Sulapac creates biodegradable and circular materials to replace conventional plastics, and Tracegrow extracts and purifies metals from industrial side streams so they can be reused in agriculture. These companies have received Nefco financing to scale up their innovations.
By reusing resources, a circular economy can fight the triple planetary crises of climate change, pollution and biodiversity loss. Many circular solutions also have great business potential, as reusing materials that are already in circulation can be more profitable than producing new ones. When it comes to biodiversity, Nefco has started a pioneering collaboration with its clients: a two-year pilot programme launched in 2022 will test concrete biodiversity solutions. Among the participating companies are Norsepower, Sulapac and Pure Waste Textiles, which during the programme will map the biodiversity impacts of their business and create a biodiversity management plan.
Right image: Tracegrow offers a sustainable solution for recycling valuable materials back into circulation for various industries. Photo: Tracegrow. Left image: Products made of Sulapac. Photo: Sulapac
While the circular economy is one of the hottest growth sectors, there are many other industries in Finland that promise green growth.
“Earlier this year, we financed Heliostorage, a company that uses solar-thermal and waste heat for heating purposes,” Avikainen continues. “Heating and cooling require a great deal of energy, so seasonal storage is a great solution. They can store heat in boreholes in the earth to be reused in the winter when needed.”
Financiers such as Nefco are critical to fund green innovations and encourage private capital involvement
Finland has traditional strengths in the maritime sector, an area in which Nefco has financed companies such as Skipperi, a company offering shared-use boating service, and Norsepower, which harnesses wind energy for ships’ auxiliary propulsion. Yet, the modern Finnish economy is diverse, and Nefco financing covers a broad range of sectors: circular economy; energy and energy efficiency; food, agriculture and forest; manufacturing and materials; transportation and e-mobility; and water, seas and oceans.
Other Finnish companies that have received Nefco funding include geothermal heating specialist QHeat, laser marking firm Cajo Technologies, water purification company Solar Water Solutions, and a company called Solar Fire Concentration that develops solar concentrator technology for cooking and other energy intensive processes.
Growth funding for green solutions
McKinsey has estimated that the Nordic countries must invest about 5% of GDP to achieve net-zero emissions, which means Finland needs to invest EUR 14.8 billion annually. The largest investments are needed in big industries, public services and infrastructure.
SMEs have a significant impact on Finland’s economy: SMEs generate more than half of the EUR 445 billion in total turnover for companies in Finland, and their share of the GDP is slightly more than 40%. Currently SMEs receive about EUR 1.8 billion in total venture funding. The Finnish startup ecosystem relies heavily on public funding: the public sector is the largest venture investor in the country, representing 30 % of total funding. Financiers such as Nefco are critical to fund green innovations and encourage private capital involvement.
“Our financial requirements differ somewhat from commercial banks because our role as a financier is to take higher financial risks when providing growth financing for green innovations,” says Avikainen. “Additionally, Nefco has a broad range of financing options suitable for different growth stages. We offer financial support, secured and unsecured loans on market terms and equity-type financing.”
“Our role as a financier is to take higher financial risks when providing growth financing for green innovations”Vivi Avikainen, Investment Manager, Nefco
Nefco can provide financial support for new market feasibility studies, fast-track loans for operational growth or loans and equity-type financing for scale-up investments. It has provided about EUR 32 million for approximately 20 active portfolio companies in Finland, not including the financial support for feasibility studies. When co-financing a company, it is common for Nefco to work with partners that also have a focus on green funding.
Right image: Solar Water Solutions has found a solution for turning seawater into drinking water with purely renewable energy. Photo: Solar Water Solutions. Left image: Cajo’s lasers and flexible software solutions are available for all industrial marking purposes. Photo: Cajo Technologies
Investing with partners
“Impact investing is investing to achieve more than financial returns, such as positive environmental or social benefits. This type of investing is increasing in Finland,” Avikainen continues. According to Finnish Industries EK, investment plans relating to the green transition in Finland have reached the level of 140 billion euros and more than 200 investment projects are in the pipeline around Finland*.
Nefco has provided about EUR 32 million for approximately 20 active portfolio companies in Finland
“Co-financiers vary depending on the case. We might co-finance with existing or new owners and with public organisations such as Business Finland, Tesi, Finnish Climate Fund or Finnvera. Nefco and these financiers complement each other.”
Each of these investors tend to have a specific role to play, so they work together instead of competing for investments. Avikainen explains that Nefco normally acts as a bridge between venture capitalists and commercial banks for companies that have already commercialised a solution but need financing to scale it up or explore new international markets.
“The market is tough right now with high inflation, high interest rates, low economic growth and fears of recession. It can be difficult to raise funding in this environment,” says Avikainen. “We say we are ‘ready to risk for green’, so I hope if a company has a good environmental and business case they get in touch with us.”
*Finnish Industries EK: Data Dashboard, 28 June 2023
Vivi Avikainen, Investment Manager
+358 10 6180 661, firstname.lastname@example.org
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