What do angel investors have to consider when investing in defence startups and what are the growth companies’ key challenges? According to FiBAN CEO, many startup companies have to go international to acquire major investments.
This article is a summary of Unikie’s 15-minute technology podcast. In this episode, we talk to Tiina Laisi-Puheloinen, CEO of the Finnish Business Angels Network (FiBAN).
Finnish Business Angels Network (FiBAN) is one of the largest and most active business angel networks in the world, with over 600 angel investors and 450 million euros invested in 1,900 startups. The network helps startups find the right angel investors to accelerate the growth of the company.
Recent growth in the defense sector and dual-use product market is visible in FiBAN’s statistics, too.
“During last year, more than 120 defence and dual-use early stage companies sought financing. This is a clear indicator that more and more companies are being founded – which is a good thing, since we need a lot of volume to generate the startups that have potential for future growth,” says Tiina Laisi-Puheloinen, CEO of FiBAN.
According to Laisi-Puheloinen, most Finnish startups focus on technology, although there could be a need for traditional defense hardware, such as ammunition, too.
Investing in Defence Startups Requires Patience
According to Laisi-Puheloinen, many FiBAN members are interested in investing in defence and dual-use companies. However, investing in the defence sector companies requires a lot of patience.
“If you’re looking for the traditional hockey stick value growth, the defense sector might not be for you,” Laisi-Puheloinen says.
Due to the nature of the industry, business may grow slower as the companies have to build networks and ensure that their products meet strict requirements.
So, investors should avoid getting over-excited and instead carefully evaluate the potential of each startup. To help this, FiBAN provides its members with guidance and training on the intricacies of defence sector investments.
One of defence startup investment’s specialities is that politics may come into play. The nationalities in the founder team may result in red flags for customers and investors, and getting investments from the wrong country may become a liability for startups.
Challenge: Need for International Investments
According to Laisi-Puheloinen, the first-ticket investments by business angels are relatively small in Finland, typically in the range of 200,000 to 300,00 euros. Often, the initial investment is followed by another investment by an angel investor.
However, when it comes to acquiring funding from an investment company, the path becomes trickier.
“Unfortunately in Finland, we currently have very few funds that can make capital investments in defence startups. Many funds’ rules forbid investing in the defence sector,” Laisi-Puheloinen explains.
So, many startups have to look abroad for investment after they have completed their angel investor paths. While Laisi-Puheloinen thinks that heading to international markets is a good thing per se, this is in conflict with the EU’s strategy for investing in national defence and building national capabilities.
In fact, the US seems to invest in European startups more than Europe does. Laisi-Puheloinen thinks that this should be a wake-up call for Europeans.
Ideal Investment Path From Idea to Growth
Instead of focusing on investment instruments, Laisi-Puheloinen thinks that startups should start with the basics: what is their vision, where they want to be the best, what are the customer needs and what problems they solve. Once these things are solved, good companies always find a way, Laisi-Puheloinen believes.
She also outlines the ideal process for startups and their growth paths.
“Companies should carefully study the long-term plans that, for example, Finnish Defence Forces have. Ideally, startups are born to meet these needs, angel investors and accelerators give them the initial push and finally capital investors help them reach the next level.”
With this kind of process, Laisi-Puheloinen believes that the defence sector could become a much more important industry in Finland also from an export point of view.
Watch the full podcast with English subtitles below.
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