Why does Helsinki, Finland, a relatively small Scandinavian city, have such a vibrant startup ecosystem?

With a metro population of 1.4 million, the region is one of the smallest that we analyzed in our Global Startup Ecosystem Report. Yet as a startup ecosystem, Helsinki outperforms many larger places. According to our Lifecycle Model, it has already progressed to the Globalization phase:

The city has a rich entrepreneurial legacy, of course. Nokia, based in the suburb of Espoo, grew into a multinational company and a telecommunications pioneer. Likewise, Linux was first developed at the University of Helsinki. Today, the area hosts a leading technology event — Slush — and is home to some of the premier gaming companies in the world, including Rovio and Supercell. The latter, maker of Clash of Clans, sold an 84 percent stake in itself last year to the Chinese company, Tencent, for $8.6 billion.

But why? What explains Helsinki’s startup vibrancy? And what can be done to sustain it?

Recently, our Head of Policy, Dane Stangler, had the pleasure of traveling to Helsinki and participating in an event about the strengths and gaps of the startup ecosystem there. In a former hospital building, now the Maria 01 startup space, and in partnership with the Helsinki Business Hub, Dane presented highlights from our assessment of the region. This was followed by a panel discussion of local investors and entrepreneurs, and roundtables focused on specific topics.

The strongest feature of the Helsinki startup ecosystem is its Global Connectedness, which has helped open up global markets for local startups (see chart). In our analysis, Global Connectedness is not measured by airport flights or LinkedIn connections. Rather, with our survey, we try to uncover significant and meaningful relationships between founders in different ecosystems. In particular, connections to the top ecosystems are important. Overall, Global Connectedness is strongly correlated with other performance factors, and this helps explain Helsinki’s advancement to the Globalization phase.

Source: Startup Genome

Venture funding has increased in recent years, and Helsinki has a relatively high level of early-stage funding per startup. According to those who served on the event’s panel, more non-Finnish VCs are investing in the ecosystem (and more Finnish VCs are investing outside the country).

Despite its entrepreneurial heritage, several people noted that culture change was still important in Finland. When the panel discussed the need for more exits in the city and country, one investor observed that it was the first panel he’d been on in years in which “exits are a positive subject.” For years, he said, exits have been treated as a bad thing in Finland. Now, that seems to be changing.

Source: author photo.

The strength of relationships within the startup community was also cited as a major asset for Helsinki. One founder said that, at least among gaming startups, there is a high degree of information sharing. Because the gaming cluster started as friends playing and then making games, the culture of sharing has persisted and created a close-knit community. (This is precisely the type of Local Connectedness that is currently not well measured in startup ecosystems — we at Startup Genome are working on developing it into a performance factor in our model.)

Finally, several people mentioned sisu, the Finnish concept of grit or perseverance, as helping explain why such a vibrant startup ecosystem has developed in a city on the geographic fringe of Europe.