Money for Investments in Startups Is Still Available, But More Accountability Is Required

The current economic environment is making many companies face difficult times. At the same time startups seem to have matured, understanding the importance of more sustainable business models, making it easier for a bank to support their growth. 

This article was written by Heili Klandorf-Järvsoo from Swedbank.

A few years ago, startups operated as if in a video game, where bonus points and money accumulated in the bank account even if all the funds were wasted. Now, the situation has changed – the generous investors have become more skeptical, paying meticulous attention to each euro spent. This too can be a positive problem if we choose to look at it that way.   

The startup sector plays an important role in the Estonian economy both as an employer and taxpayer, as well as for its leadership role in innovation. The current economic environment is making many companies face difficult times. Some startups are running out of money, and it’s much more difficult to raise new funds now than it was a few years ago. Of course, a more stable and healthier economic environment is a positive thing, but unfortunately it also means that some startups cease to exist. You can only expect to survive, if you know how to manage finances responsibly, and if your product or service really solves an important problem for the customers.

"We’ve noticed an interesting shift in the market ever since money started to have a value and a price. Startups seem to have matured all the sudden, and they understand the importance of more sustainable business models. We find it a positive change, because the more responsible entrepreneurs are, the more securely the bank can offer its support for growth. The bank's financing is cheaper compared to investors’ funds, and you don't have to give up your stake either," says Triin Preem, Head of Startup Segment at Swedbank.

Clear Ownership Structure Enhances Transparency

Sufficient cash flow of the company that enables it to repay loans plays a significant role in the bank's financial decisions. Since startups grow faster than other companies, and hence, it’s more difficult to forecast the finances, the bank needs to analyze the company more to understand the market and business model. "Cooperating hand in hand, we’ve also managed to finance even some larger startups. Last year, we issued Bolt Drive a €80M loan to increase their fleet. The Bolt Drive business model was completely new to us. But we’re happy to learn and develop together with the market and companies, and we’re also ready to undertake complex transactions," Preem encourages entrepreneurs to approach the bank with their ideas.

One of the criteria that the bank bases its financing decision on, is the company's clear ownership structure. "I’d like to remind everyone setting up a startup or trying to raise funds for a company, to be very careful, paying attention to and documenting to whom they distribute the shares of their company. At some point, it might be necessary to turn to a bank for financing, and then a clear ownership structure is essential," Preem advises.

Prototron and sTARTUp Day Expanding Possibilities

Despite the difficult times, it’s very important that Estonia's strong startup ecosystem is preserved and developed. There are quite a few new and longer-running funds in Estonia that have money to help develop startups. Swedbank is a co-founder of Prototron, a prototyping development fund that has so far helped implement 98 awesome ideas, supporting them with almost €1.3M. The teams of these start-ups have involved more than €85M as follow-on investments. For example, well-known and successful startups such as Comodule and Lingvist have gained their first momentum at Prototron.

Developing the startup ecosystem is important to Swedbank. Therefore, the bank has cooperated with the organizers of sTARTUp Day, the largest business festival in the Baltic States, since their first event in 2016. Currently, Swedbank is the co-organizer of sTARTUp Day. As part of the event, Swedbank also awards one of the participants in the pitching competition with a €10,000 equity free funding. "It's great to see that several companies recognized by us at sTARTUp Day, such as the biotech company ÄIO and Gearbox Biosciences, have thereafter grown and successfully attracted much larger amounts from investors," Preem rejoices.

For the third year in a row, Swedbank also supports the award gala for Estonian startups organized by Startup Estonia, Founders' Society and LIFT99. In order to guarantee continuity, the bank in cooperation with Startup Wise Guys has also set up a summer school for young entrepreneurs.

Triin Preem giving out "Giving Back Powerhouse" award to NAFO at Estonian Startup Awards 2023.

"There are still a number of other ways we use to give startups a boost, but the most important one is doing what we do best. We offer our corporate customers a wide range of services. Therefore, when you start your company with us, you can be quite sure that under suitable conditions the company can also become very big. Furthermore, we try to find collaboration opportunities between our customers and ambitious startups. For example, we currently offer our customers sustainable solutions in cooperation with such awesome partners as eAgronom and Arbonics," Preem says.

Which startups have particularly attracted the bank's attention? "Those who, despite the difficult environment, have recently managed to raise money are certainly worth noting. For example, we can mention such notable industry players like Skeleton, a leading manufacturer of supercapacitors and energy storage that has raised €108M, a renowned fuel cell producer Elcogen, which received €45M, an innovative solar roof manufacturer Roofit.Solar, which contributed €6.45M, and Arbonics, a pioneer in establishing a new forest economy, which contributed €5.5M. But of course, this is not a complete list. There are plenty of influential and active startups in Estonia, and we are always ready to listen to and think along with the innovative ideas of our entrepreneurs," Preem encourages.

Come meet Swedbank's team at the sTARTUp Day 2024 demo area, and find sessions hosted by Swedbank in the festival schedule: the panel "Green Tech & Sustainability: Forging the Future" on Day 1, and a keynote by Kaspar Roost, Design Ops Lead at Swedbank on Day 2.
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