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Venture capital investors are flocking to the Nordic country in search of the next big hit as the mobile and tablet gaming market takes off, writes Kasper Vita
THE global success of Angry Birds is helping Finland's other mobile-game fledglings take wing.
Enticed by the title's rapid rise to fame, venture-capital investors are flocking to the Nordic country in search of the next hit. The game developers attracting attention include the makers of Clash of Clans, Hay Day and Hill Climb Racing. Each of those has had millions of downloads, joining Angry Birds in Apple Inc's application store's top lists.
Expanding at an annual pace of 57 per cent, gaming has emerged as a niche growth industry for the country of five million seeking to diversify its economy as once-dominant mobile-phone maker Nokia Oyj shrinks and cuts thousands of jobs. Angry Birds maker Rovio Entertainment Oy attracting $42m in venture money in 2011 has helped local rivals including Supercell Oy and Grey Area Oy also lure international backers.
"There's an amazing critical mass here," said Sean Seton- Rogers, general partner at London-based Profounders Capital, who joined thousands of investors and entrepreneurs in the Nordic region's biggest startup event, Slush, in Helsinki last week.
"Once you start having a viable ecosystem, it feeds off itself," he added.
Helsinki-based Supercell's Clash of Clans was the top- grossing iPhone app in the US as of yesterday, meaning its players spent the most money, including in-game purchases, according to appannie.com. Oulu, Finland-based Fingersoft Oy's Hill Climb Racing was the most downloaded free game. Rovio's Angry Birds was named the most downloaded paid app ever this year by Apple, and its Angry Birds Star Wars edition is the most popular paid app now, according to appannie.com.
While Finnish startups are benefiting now from the extra engineering talent available as Nokia cuts jobs, the country's gaming industry is decades-old and began developing in the era of personal-computer titles. A shift in player preferences toward mobile phones and tablets, resulting in Rovio's success, gave the industry a shot in the arm, Seton-Rogers said.
"The market has really grown with the growth in mobile gaming," said Seton-Rogers, who helps manage €30m of venture funds and first invested in a Finnish startup, mobile gaming cross-promotion network Applifier, last year.
Supercell got a €10m investment last year from Accel Partners, which also has a stake in Rovio and was an early backer of Facebook Inc. Grey Area, maker of the location-based multiplayer game Shadow Cities, has raised money from investors including Index Ventures and London Venture Partners.
While Finnish game makers compete in some areas, they cooperate in others, sharing experiences as they seek global growth. Helping with that goal is Startup Sauna, a non-profit organisation focused on polishing small businesses into world-beaters, based on pro bono input from coaches like Rovio chief marketing officer Peter Vesterbacka and Supercell chief executive officer Ilkka Paananen.
"It's all about the community, which makes it insanely powerful," said Vesterbacka, a co-founder of Slush, welcoming visitors in his trademark red hooded sweatshirt to the event whose attendance doubled from last year to 3,000. "It's cold and dark, but once you get inside, there are amazing startups."
Developers also tend to move around, spreading talent. Supercell CEO Paananen, for instance, has held top positions in companies including Digital Chocolate Inc and Sumea Oy, which developed games in the early 2000s in cooperation with Nokia.
Finnish game-industry veterans including Matias Myllyrinne are embracing the new competition. Myllyrinne is the CEO of Remedy Entertainment Oy, the developer behind Max Payne and Alan Wake, which beat Angry Birds for Time magazine's game of the year in 2010.
"It's absolutely fantastic – the birth of a gaming cluster is good for everybody in the field," he said in an interview. "The threshold for me to call up the guys at Supercell or Rovio is not very high, and vice versa."
In a change of pace from blockbuster titles developed for Microsoft Corp's Xbox 360, Remedy has also tried its luck in mobile gaming, selling more than 10 million digital copies of Death Rally.
"We've started looking at tablets and mobile phones, there are fine opportunities for us to bring our knowhow," he said.
"One can go see Lord of the Rings on a big screen or watch YouTube clips, they serve a different function."
As mobile games typically cost a maximum of a few dollars, and many are free, the revenue the startups generate from game sales is limited. Many target extra revenue from selling ads and in-game features, as well as merchandise such as the ubiquitous Angry Birds T-shirts, plush toys and candy.
The game industry in Finland grew 57 per cent in 2011 to €165m, according to the Finnish chapter of the International Game Developers Association. Growth has continued this year, with Supercell alone now grossing "clearly above" $500,000 a day, helped by Clash of Clans and Hay Day, Paananen said in an interview.
Apple takes a 30 per cent cut of what a game on its system grosses, with the developer keeping the rest.
To help fuel the growth, Finland's government is planning tax breaks for minority investments in unlisted growth companies. Finnish prime minister Jyrki Katainen attended Slush, wearing colourful nail polish as he made his opening remarks, part of a publicity stunt for guitar-learning game GuitarBots.
The nascent political support, coupled with the thriving game-industry community and the Angry Birds success, make it easier for startups to stay in Finland and less necessary to relocate to Silicon Valley to gain funding.
© Bloomberg
