Some folks may have seen that Lifeline Ventures, i.e. Timo, Ilkka (our EIR and games expert) and I, raised a new seed fund of EUR 20 million. ArcticStartup wrote a nice article on the fund.

For Timo and I this means that we have transformed from entrepreneurs who invest in startups to “entrepreneurial investors”. Semantically this is a small change, but in practice this means that we are now all in with investing, and this is what we do for the next years.

For us the alternative to being investors has always been founding a startup. Roughly a year ago, however, Timo and I realized that we were tremendously enjoying investing in startups and working with founders and their teams. We were also quite happy with our model, getting positive feedback from the founders, our investors and even many established VCs. In addition, Finland had become an attractive startup hub: we had serial entrepreneurs, founding or working for a startup had finally become a viable alternative for top talent, and society at large began to understand the importance of growth entrepreneurship. In the end, the decision to move to the next level, starting to put together a VC fund, felt both easy* and obvious.

*) Raising the fund was a big effort, but luckily we managed to attract very experienced and supportive LPs.

Regarding our model, we continue being first and foremost early stage guys, investing in categories that we know well. We love to invest in angel (i.e. pre-seed) rounds, although we now have the capability to do follow on investments in existing portfolio companies, in addition to making new investments in seed and sometimes A rounds. Furthermore, our experience is that syndication pays off big time, so expect us to continue co-investing with kick-ass individuals and VCs. We have learned a lot from our co-investors, and exposing capable founders to these super-smart folks tends to produce awesome results.

These sure are exciting times.


Cash footprint is good

Posted: May 20, 2011 in Ecosystem

For a few years, I’ve been occasionally thinking about how to measure the economic effect of a startup. This was sparked off by a realization that even though the first company I founded hadn’t been profitable in several years, it was still contributing millions of euros to the national economy, mostly in terms of salaries and different taxes. In addition, almost all revenues and investments came from abroad, which created a strong net positive cash flow to Finland.


I believe that this (discounted) net cash flow over the lifetime of a company could be used to measure and compare very different startups, independent of their specific industry, business model, etc. For the national economy, what matters the most is how much money the company leaves in its home country over its lifetime.

I’ve used the term cash footprint (“rahajalanjälki” in Finnish) for this concept. Its analogy to carbon footprint is obvious, except that a large cash footprint should be a positive thing or even the key goal of, for example, governmental decision makers.

I’ve talked about this idea with various folks, but the first time I mentioned it in public was at an Aalto Entrepreneurship Society panel discussion at Finlandia Hall. (The panel was held in Finnish and the longish recording is here.) After the event, there has been a lot of interest towards the concept and I finally decided to blog about it.

As the next step, I’d like to “formalize” the concept. For this, I’d need help from somebody who understands both growth company dynamics and economics; for example, I think this would be a good topic for a master’s thesis. A few government organizations have indicated that they could be willing to support such a  project with both funding and data. Please get in touch with me if you’re interested (firstname AT

Finally, an executive summary for busy business people: carbon footprint is bad, cash footprint is good.

Earlier today, Taneli Tikka and Lasse Männistö published a proposal to renew startup financing in Finland. Please find below my quick comments on this proposal.

First, I fully agree on creating “market-driven” incentives for angel and seed funding and simplifying the public system.

Regarding incentives for private investments, I would prefer a model where early-stage private (angel, seed and even corporate) investments in growth companies are matched by public money with a certain multiplier (e.g. 3-5x as in many of the countries you mentioned), and the private parties could later buy the public shares with e.g. the original purchase price + a good interest, generating a good ROI for public money.

The advantages of this model would be as follows:

  • Private investors could make significant returns from successful early-stage investments and the government would make a decent profit from them as well, as opposed to e.g. a grant that is “money lost”.
  • Public money wouldn’t skew the valuations of the startups or prefer any investors, assuming that this vehicle would be open for all the domestic and foreign investors.
  • If the company is sold or goes bankrupt, investors don’t get any returns unless the government gets them as well (it would have the same shares and associated preferences as private investors).
  • Managing this system wouldn’t require that much public resources, because the private investor could represent the government in “monthly decision making” and their incentives would be quite nicely aligned.

I’m intentionally limiting this mechanism to early-stage investments to growth companies, because I think the market works well in later-stage deals. In addition, matching later-stage investments would require much more capital. Seed and especially angel investments, on the other hand, are relatively local and, unfortunately, it will take time – as it did e.g. in Israel and even in the Valley (DARPA projects etc) – before the ecosystem matures and the government can selectively withdraw its support. I believe the biggest problem with this approach is defining an “early-stage growth company”, but this is still easier than trying to allocate public subsidies to the best companies. (We all know how hard it is to forecast which startup is going to succeed.)

Regarding R&D-related tax breaks, I’m not sure whether they would be very helpful. True growth companies are rarely profitable at the time the tax breaks would make a difference and, at a later stage, one shouldn’t encourage them to invest in unnecessary R&D activities, compared to investing in, let’s say, customer acquisition.

Although the discussion around the public financing system is important, it’s way too often used as an easy excuse for us having too few growth companies. In fact, I think most of the people focused on bashing the current public system are missing the key point:

We don’t need to renew startup financing in order to create more growth companies: instead, we need to found and fund more growth companies.

Good entrepreneurs don’t depend on public financing. If it is available, they naturally use it as their advantage, but in the end it is just a bonus that doesn’t make or break a startup. In addition, currently, all the decent (in terms of the team and business idea) growth companies can get at least a Tekes R&D loan/grant by filling a few forms, which should enable most companies to prove themselves in order to attract private investments. Actually, despite of its obvious weaknesses, our public financing system performs relatively well. It’s true that it should be improved, and Taneli and Lasse summarize well the discussion within the startup community, but it’s not the core problem we need to work on.

What we need to do is to create a culture that encourages founding ambitious, born global startups: we need public discussion on the importance of growth companies and the joys of being an entrepreneur or working at the startup; we need experienced entrepreneurs to mentor the younger ones; we need to “expose” students to startups, like the AaltoES Enternship program is doing; we need, and we will have(!), an increasing number of success cases similar to MySQL, F-Secure or Rovio; we need more angel and seed investors; and, most importantly, we need a huge number of new startups to reach a critical mass that attracts VCs, international media and partners to Finland.

So, if you want to improve the Finnish growth company ecosystem (and save the welfare state as a by-product), found a startup, apply to work for one or invest in one. It’s that simple, really.

Everyone knows that games, especially social ones, are the new black, but not necessarily the fact that Finland has super-strong games startups. My company Lifeline Ventures (our new site is at has worked on this sector for several months, resulting in three investments.

Earlier today, my colleague Timo had the pleasure of announcing that Ilkka Paananen, the co-founder of Sumea, ex-President of Digital Chocolate and all in all a very cool chap, has joined our team. Read more about this in Timo’s blog.

We’ve already worked together with Ilkka on various projects during the last months, enjoying every moment, and therefore having him officially join the team feels just awesome!

Product manager – the unsung hero

Posted: September 3, 2010 in Product

Marcus the Product managerTo a startup, a great product manager (PM) is worth her weight in gold.

Unfortunately, the skill list for a kick-ass PM is longer than War and Peace: He needs to have solid understanding on users, usability and design, in addition to being able to discuss, or even challenge, engineering decisions at least on the feature level. Prioritizing requirements, tuning the product roadmap, and resolving various conflicts (between users, sales, engineering, etc) are vital skills of a good PM. And that is not enough: he needs to have deep understanding of the industry, competitors and business in general. Basically, the PM really is “the CEO of her product”, even thought in many companies he has CEO-level responsibilities with intern-level empowerment.

For instance, at Google, PMs are an elite group of lovable scoundrels*, tirelessly pushing their products and ideas against the natural resistance of a large organization. This is very close to a startup CEO pushing his agenda against the status quo that incumbents try to maintain. Therefore, it’s no surprise that many of my former PM colleagues have been recruited as CEOs, and at least as many of them have founded their own companies.

*) My ex-colleagues would probably agree?

I believe that only companies that are truly product-centric can really value product managers. The reason for PMs being unsung heroes is that most of the companies are not truly product-centric, focusing instead on management, engineering, marketing, sales or even logistics; products are only things that need to be built to feed the awesome, revenue-generating management/marketing/logistics behemoth.

My last post was about JavaScript hackers and the near-desperate search for them. The same applies to PMs: most startups would kill for a great PM.

Speaking about PMs and startups**), Applifier, the World’s largest cross-promotion network for Facebook games, is looking for a rockstar PM to shuttle between Helsinki and San Francisco. Considering the incredible growth of the company, its backers, and the challenges success always creates, this is a unique opportunity for a passionate product person. If you’re one, please contact jussi ÄT or me (petteri ÄT and let’s chat.

**) I guess I can advertise on my own blog 🙂

Product managers, product managers, product managers, …”

Get your PhD in JavaScript

Posted: August 1, 2010 in Technology, Web
Tags: , , ,

JavaScript must be the most undervalued programming language ever. Considering that it powers almost all of the Web sites out there, “professional developers” are still taking it way too lightly, not bothering to thoroughly learn either the language or its most common execution environment i.e. the browser. At least outside the Bay Area, the general view seems to be that hard-core server hackers should focus on hard stuff and leave the trivial and unimportant HTML, CSS and JavaScript (JS) coding to some kind of a lowly group of front-end dudes.

Ironically, most of the Web startups I know are desperately trying to recruit, or even find, an all-around front-end hacker, that is, a software engineer with solid computer science (CS) background who excels in (X)HTML, CSS , JS and user interface/interaction design. However, because CS and JS have been mutually exclusive terms in the Finnish tech universities (“This thing called Web, is it already gone?”), there seems to be only a handful of true all-around front-end experts out there: in most of the cases the CS part is missing or the person doesn’t know/care about design or usability.

The modern Web apps can have 10,000s of lines of client code and very complex architectures. Combined with the need to launch often and iterate, this calls for very strong software engineering skills from the front-end programmer(s). On the other hand, if a startup need to hire a separate graphical designer, interaction designer and HTML/CSS/JS developer, this both slows down the team and ads costs.

I believe that the role of the front-end hacker will be even more central in the future. Programming, scaling and monitoring Web apps is becoming easier due to platforms such as Google App Engine and Amazon’s AWS, which means that apps need to compete with user experience, fast development process and client-side innovations. In addition, an all-round front-end hacker can basically build a Web startup by herself or at least be the only technical employee during the first critical months when the company is looking for the product-market fit and typically has little cash in the bank.

I urge people with strong CS background and hacker mentality to thoroughly learn/experiment with HTML, CSS and JS, taking the browser to its limits. Achieving superior user experience in terms of user interface design and implementation is a very hard problem that requires deep skills, but we absolutely need people like you to build the next generation of Web startups.

I believe that figuring out the right category as early as possible is critically important for startups.

Timo, Jarkko and I founded Lifeline Ventures on October 2009*. Since then we’ve taken a closer look at 100+ typically very early stage startups. When I meet the founders I always ask them to describe their category in one sentence. Somewhat surprisingly, only a handful of teams has been able to do this; typically, the category is way too broad and vague.

*) When reading my posts, keep in mind that I’m not exactly an industry veteran.

I ask the question because one of our key investment criteria is whether the company has the potential to become a category leader.

This isn’t as megalomanic as it may sound, because the category can be, and almost always needs to be, very specific. It could be as narrowly defined as, for example, “adenovirus-based gene therapy for metastatic cancer” or “social TV for sports fans”.

A well-defined category enables answering two questions:

  1. is the category relevant-enough today or in the near-future, and
  2. who are the current and potential competitors.

I tend to get excited if the answer to the first question is positive and the team has, or they can credibly build, sustainable advantage over competitors. In the case of pre-launch, pre-revenue, pre-almost-anything company, there just isn’t that much other relevant data to base the investment decision on.

The main advantage of being a category leader is that it has a lot of strategic options, including the expansion by taking over other categories. Also, it’s just so much easier to operate (sell, recruit, partner, …) when you are not standing in the shadow of an 800 pound gorilla. Almost always you’d rather be, as Brad Feld suggested, the 12 pound gorilla of a more specific category. If your solution is both global and scalable, surprisingly narrow categories are big-enough for creating a serious business.


Actually, I hereby promise to buy a tall cappuccino (one per team, tax excluded) for every entrepreneur who comes to the meeting with a relevant, specific category. See you over a cup of java!