Valuation using DCF method

When it comes to valuation, we are talking about how much something worth. Well, this premise itself is highly subjective, because in the end, how much a thing worth is really in the buyer’s eye. That is why many people say valuation is an art, not a science. More complicated calculations do not make valuation more concise. However, we need some methods to estimate the value of investment target, for at least these methods can be used as parameters to facilitate in making final decisions. 

Valuation models assume that markets are inefficient but eventually the true value of a project will be discovered. The valuation methods used for mature business, startup or unprecedented projects can vary significantly. The less mature a target is, the more risks it will be involved, and the more estimations will be used in valuation. However, financial analysts’ valuations are biased, and it is always recommended to check the answer against common sense.

DCF Method

DCF represents Discounted Cash Flow. Well, apparently, this method is more useful to companies which have financial track records, because the results can be more predictable and justified based on historical performance. For startups without financial track records, this method can only be used as a reference (a sign of entrepreneurial confidence and commitment) in conjunction/comparison with other methods. 

Principles of DCF

  • Assumes that the project/firm has intrinsic value based on its current cash flows, and the growth in and risk of those cash flows. 
  • The following will be estimated:
  1. Effective life of the project/firm
  2. Expected cash flows-properly timed over the effective life, and
  3. The right discount rate

DCF analysis is the basis of the most popular project valuation methods. There are a few elements in the DCF model:

We can see from the model, The accumulated discounted future cash flows. Usually for valuation, the time span is 5 or 6 years. Proper estimation of Discount factor is also very important, as discount factor is applied based on the fundamental concept in finance, the time value of money-that a dollar today will be more valuable that a dollar received in the future (time preference, inflation, future uncertainty). Thus when using DCF method, both future cash flow calculation and the discount factor used can be quite tactical/ “tricky”, which involves lots of computational work. 

  • Calculating the Discount factor

There are different ways to calculate the discount factor, we may often see the following are commonly used: Internal Rate of Return (IRR), Weighted Average Cost of Capital (WACC) and Capital Asset Pricing Model(CAPM). 

1)IRR technique

A project’s Internal Rate of Return (IRR) is simply the discount rate that when applied to a project’s expected cash flows yields NPV = 0.

Projects are accepted if IRR > Cost of capital. However, when applying IRR technique, Caution needs to be exercised, because in the following cases, IRR is not recommended or not enough to use alone:

  • Some projects don’t have IRR, so this technique is only guaranteed to work if all the negative cash flows occur before positive cash flows. (Equity financing v.s. Debt financing).
  • Project can have multiple IRR, for example, Cash inflow in the beginning of the project and cash out flow in the end of the project.
  • For mutually exclusive projects, we might get inconsistent rankings which is conflicting with NPV calculation, so it is not that simple to simple compare project’s with IRR, it is always recommended to double check with NPV. 


The weighted average cost of capital (WACC) is a calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. Thus WACC is the discount rate for entire company which compose of cost of debt Kdand also cost of equity Ke. 

t is the corporate tax rate, and V is Current market value of debt and equity (not book values!). However, WACC can be quite difficult to estimate from outsiders of a firm. 


The capital asset pricing model was developed by the financial economist William Sharpe, set out in his 1970 book Portfolio Theory and Capital Markets. It provides estimates of a project specific discount rate for a given level of systematic risk that can not be diversified.

Rf is risk-free rate which can be referenced from government bonds and treasury bills. The second half of right hand of the equation is the adjustment for risk indicated by beta. The difference between E(RM) and Rf is called Market risk premium, which can be found in online resources as parameters for calculation(usually from 5%-8%). However, It is a forward looking model of expectations. When graph CAMP, we end up with the security market line (SML).

Advantages about DCFDisadvantages about DCF

Forward looking-better aligned with wealth creation

Focuses on the business operations

(Somewhat) removed from market irrationalities.
Makes many assumptionsComputationally intensive-information is not always reliable and is always noisy

Depend crucially on growth and risk assessment

There is no guarantee that the market value(price) will quickly reflect the DCF value.

Firms tend to use firm-wide discount rate WACC rather than project specific discount rate CAPM. Since WACC tends to neglect systematic risk-beta, when keep assessing projects with WACC, big companies’ systematic risk tent to increase because more riskier projects were accepted because of higher WACC even though those projects might indicate negative NPV, which would gradually lead to the decline of firm value. For smaller firms, such issue is less likely than bigger firms because they are likely operating in more focused areas.

The model of Seven Domains of Attractive Opportunities introduced by John W. Mullins is an effective and powerful tool to evaluate the investment target. I recommend to use this model in combination of valuation methods for final decision making. The inner core of the model is the team domain, including its technology, strategy, execution, ability to manage cash flows and the people. I think team is one of the most important factors when evaluating investment targets, because all in all, it is all about whom we are working with, and whom we would like to make great things happen together. A combination of analysis of the target’s overall segment competitiveness, market fit and industrial attractiveness will help making better decisions.

The entrepreneurial venture: why your business plan probably won't deliver

Development Zones in China

Shenzhen, Photo from Unsplash

Chinese market is without a doubt one of the most competitive ones in terms of market volume, political stability, economic development, and technological competitiveness. With a population of more than 1.4 billion, over 100 cities of more than a million people, and 900 million citizens with access to the internet, the potential for the tech sector is huge and presents a big opportunity for foreign tech companies. With important trade links across the whole of Asia, China is a key market to crack for any business with global ambition. (Hedley 2021).

As mentioned by Liu Dianxun (CBBC 2019), Director General of Investment Promotion Agency of Ministry of Commerce of P.R.C., a product of China’s reform and opening up, development zones have been a driving force behind China’s industrialisation, and this industrial development has boosted Chinese urban construction; today, the successful integration of cities and industry can be seen in many places. As proven by more than 30 years of development, these kinds of Chinese zones, which act as the window for China’s opening up to the outside world, not only play an increasingly significant role in Chinese open economy but are also a key contributor to China’s modern development.

Briefly, there are 5 types of economic development zones in China: Pilot Free Trade Zones, Economic and Technological Development Zones, High-Tech Industrial Development Zones, Border Economic Cooperation Zones, and Special Customs Administrative Zones. The purposed of the zones are different which can be seen from their different names. Examples of different zones and their targeted areas together with international well-known companies’ names is illustrated below:

Pilot Free Trade Zones in China

Name of the ZoneFocused industries and landed companies
Shanghai Pilot Free Trade ZoneEnergy BP and Oil
Logistics DHL
Automobile Porsche
Finance BNP Paribas and Shanghai Tianwei Investment Co Ltd
Tianjin Pilot Free Trade ZoneAviation Airbus, UTC, and Airyc
Advanced manufacturing Caterpillar and GE Healthcare
Marine engineering and shipbuilding CSIC
Retail Unilever
IT Lflytek, Johnson Controls, and Volvo IT
Bio-industry and healthcare BGI and Ringpu
Automobile Volkswagen
Guangdong Pilot Free Trade ZoneFinance HSBC, Standard Chartered, UBS, Citibank, and JP Morgan Chase & Co
IT and high-tech Arm Holdings, Microsoft, eBay, Apple, Intel,Qualcomm, Airbnb, Medtronic, SAP SE, and SAS
Culture and creativity The Walt Disney Company
Logistics DHL, UPS, Lufthansa Cargo, and Maersk
Manufacturing BP, British Gas, Airbus, Valeo, Tesla, Siemens, ABB Group, and TÜV Rheinland
Fujian Pilot Free Trade ZoneAviation services Taikoo (Shandong) Aircraft Engineering Co Ltd and Taikoo Engine Services (Xiamen) Ltd
Aerospace Technologies (Xiamen) Co Ltd and Honeywell Aerospace
Shipping and logistics Swire Haitou Cold Chain Logistics(Xiamen) Co Ltd
Finance Free Trade Financial Center
Culture and creativity Xiamen C&D Inc
Zhejiang Pilot Free Trade ZonePetrochemical Glencore and Vitol
Aviation Boeing
Shipping and marine engineering IMC Pan Asia Alliance Group and Tsuneishi
Port logistics Brightoil Petroleum (Holdings) Ltd
Marine tourism Sheraton, Westin, Hilton, and Shangri-La
International agriculture Maruha Nichiro
Henan Pilot Free Trade ZoneAutomobile and automotive equipment Volkswagen
Manufacturing Siemens
Financial and professional services HSBC, Standard Chartered, and China Agricultural Bank
Commercial services Starwood
Logistics UPS
Hubei Pilot Free Trade ZoneHigh-end manufacturing GE, Honeywell, Schneider Electric,and GKN
Bio-industry, life sciences, and healthcare Pfizer, Bayer,and AstraZeneca
Technology IBM, Siemens, and HP
Infrastructure and energy Arup
Chongqing Pilot Free Trade ZoneAutomobile GKN, Brose, Ford, and Continental AG General Motors
IT and big data AT&S, HP, Ericsson, Acer, Microsoft, Visteon Corporation, and Honeywell
High-end manufacturing Pilatus PC-6 Airplanes and Enstrom Helicopter Corporation
Finance HSBC, Liberty, and Standard Chartered
Professional services Vailog Group and Jardines
Sichuan Pilot Free Trade ZoneLogistics DHL, Maersk, and FedEx
Finance HSBC, ANZ Bank, and Soft Bank
Advanced technology Microsoft, Sony, Intel, Fujitsu, and Hitachi
Automobile Honda
Shaanxi Pilot Free Trade ZoneAerospace XRA (JV of Rolls-Royce & XAE), Snecma, Avio,and Parker
Finance and professional services HSBC, Standard Chartered, Ernst & Young, PwC, KPMG, and Deloitte
Manufacturing ABB Group and Schneider
IT and software Oracle, Samsung, Intel, and Emerson

Examples of Economic and Technology Development Zones(ETDZ) in China

Name of the ZoneFocused Fields and landed companies
Beijing Economic and Technological DevelopmentArea (“BDA”)Automobile Porsche
Robotics and equipment manufacturing General Electric-Hangwei
Biomedicine Sanofi
Science and technology culture Tesla
High-end service industry J. P. Morgan
The Shanghai Minhang ETDZPharmaceutical high-tech, and electrical equipment industries. Investments from the food, beverage, and leisure industries.
Changsha National High-tech Industrial Development ZoneAutomotive GAC Fiat Chrysler, Volkswagen, Bosch, and Continental AG
Financal and professional services HSBC, Standard Chartered, CitiBank, Ernst & Young, PwC, KPMG, and Deloitte
Advanced engineering machinery Hunan Frutiger Machinery Equipment Co Ltd and Hunan Cifa Engineering,Machinery Co Ltd
New materials Honeywell Boyun Aerospace Systems (Hunan) Co Ltd
Biomedicine Fresenius Kabi Jianyuan (Changsha) Medical Technology Co Ltd
Chengdu Tianfu Software ParkICT Intel, IBM, and Thoughtworks
Automotive FAW–Volkswagen
Food&Drinks Unilever
Equipment Manufacturing Siemens, Sigma Precision Components, and Gardner Aerospace
Bio-pharmaceutical Bayer and Sanofi
Chongqing Liangjiang New AreaAutomotive Ford, General Motors Corporation, Iveco, Honda, Johnson Control, Renault, Mazda, Suzuki, and Volvo
High-end manufacturing Pilatus PC 6 Airplanes, and Enstrom Helicopter Corporation
Electronic components AT&S, HP, Ericsson, Acer, Microsoft, Visteon Corporation, and Honeywell
Services Jardines and Raffles Medical Group
Guangzhou Development ZoneIT Jabil, Sony, Omron, and Samsung
Chemicals P&G, Amway, LG Chemical, Colgate-Palmolive,and Evatane
Auto and auto parts Honda, Toyota, Jatco, Stanley Electric,and NTN
Food and drink Meiji, Yakult Honsha, PepsiCo, Wrigley Company, and Nestlé S.A
Biomedical GE, Thermo Fisher Scientific, Bayer, Baxter International, and Biothera
Hangzhou Hi-Tech Industry Development ZoneNetwork communication equipment: H3C, Huawei, and MacroSAN
Information software: Insigma Technology Co, Hundsun,and Enjoyor
Internet of things, System integration: Hikvision, Supcon,Dahua, and Uniview
E-commerce: Alibaba, Toocle, and NetEase
Health: Sanofi, Tigermed, and Centrillion
Nanjing Economic and Technological Development ZoneNew electronic information Green smart cars Biomedical and energy-saving new materials Software and information services
Qingdao National Hi-tech Development ZoneEquipment manufacturing Edwards and Recaro
Services Standard Chartered Plc and Maersk
Intelligent manufactuing and new materials Rhodia
Bio-pharmaceuticals Genova Inc
Marine products
Shanghai Fengxian Economic Development ZoneAdvanced Engineering RMI Pressure Systems Ltd
Electrical Shanghai GE Guangdian Co Ltd
Automotive manufacturing General Motors and Volkswagen
Financial services HSBC and Lloyds Insurance Company
Hospitality and tourism Radisson, Hilton, and Marriott
Harbin Economic and Technological Development ZoneHigh-end equipment Hafei and Airbus
Pharmaceutical and food AB-Inbev, Brewery, Botian Sugar Co Ltd, and ABNA Harbin
Information and Cloud computing Towngas Telecom Harbin Data Centre
Shenzhen Tian’an Cyber ParkFinance HSBC, Standard Chartered, UBS, Citibank, and JP Morgan Chase & Co
High-tech Arm Holdings, Microsoft, eBay, Apple, Intel,Qualcomm, Airbnb, Medtronic, SAP SE, and SAS
Culture and creative Disney
Modern logistics DHL, UPS, Lufthansa Cargo, and Maersk
Manufacturing BP, British Gas, Airbus, Valeo, Tesla, Siemens,ABB Group, and TÜV Rheinland
Xi’an Hi-tech Industries Development ZoneAerospace XRA (Rolls-Royce & XAE JV), Snecma, Avio, and Parker
Finance and professional services HSBC, Standard Chartered, Ernst & Young, PwC, KPMG, and Deloitte
Equipment manufacturing ABB Group, and Schneider
Software and IT Oracle, Intel, and Emerson
Ningbo Hangzhou Bay Economic and Technological Development ZoneAutomobile Volkswagen, Faurecia, and Johnson Control
Equipment Phase and Eaton Cooper
Household appliances Unilever

In addition to the economic development zones scattered around China for different development purposes locally, the central government has pointed regional strategic development areas to enhance inter-city cooperation in order to strengthen regional economic development both locally and internationally. For example, Yangtze River Delta which contributes 20% of China’s GDP, Jing-Jin-Ji and Xiong’an New Area which is one of the most important region economically and politically, Yangtze River Economic Belt which helps strengthen the economic in western-middle parts of China, and the Great Bay Area which promotes China’s tourism and international collaboration.

As China will become technology superpower by the year of 2050 (Hedley 2021), with growing advanced technology invented domestically and number of engineers graduated locally, Finnish tech companies will not only have the opportunity to scale up in Chinese market in case of successful investment acquisition, but also acquire privilege to accelerate their technology through joint R&D with Chinese partners.

Nevertheless, companies need expertise to guide them through the Chinese market, shed light on the pros and cons of different zones and regions, and seek for the best policy support in order to find the best solution tailored for their own cases to do business in China.

Chongqing, Photo from Unsplash


China-Britain Business Council(CBBC).2019. In the Zone: A Comprehensive Guide to China’s Zones and Regions

Mark,Hedley.January 22nd ,2021.Why China Will Become A Tech Superpower by 2050. China-Britain Business Focus. Assessed on 1.3.2021.

Different ways of Chinese market entry for Finnish deep tech startups

In recent years, China has thoroughly carried out reforms to decentralise and lower barriers to entry, reform of innovation oversight and of promotion of fair competition, and reform to support efficient service in a convenient environment (CBBC 2019). There are mainly 5 different ways to enter Chinese market: Selling products and services to the Chinese market, entering the market as direct investment to China as wholly foreign-owned enterprise, as Joint Venture with local partners, as local representative office setup, and through merger and acquisition.

We illustrate more in detail for the two scenarios for market entry: enter the market via technology transfer and entering through merger and acquisition known as M&A.

Selling products and services

Among the 5 different ways for market entry, selling products and services to the Chinese market is the most direct way with less commitment with local partners, or rather the relationship is quite transactional. Companies can sell the goods and services through local distributors or online. Of course, foreign companies need to study the market carefully for their product-market fit and find the right partners to help them with the sales in China. Companies need to make sure the products and services are inline with local regulations and policies before market entry.

Wholly Owned Foreign Enterprise

Setting up wholly foreign-owned entities require foreign enterprise to have direct investment in China. Companies can benefit from having direct control of its operation and IPR. However, foreign companies need to investigate carefully of local rules and policies, and make sure their products and services comply with local requirements. It is also important for companies to choose the best location for their business. Each city in China has their own competitive areas. A strong network is vital for wholly owned foreign enterprise to survive and compete in Chinese market.

Representative Office

Establishing local presentative office is with low cost but also with limitations on business activities. Many companies use this method to “test the water” in the Chinese market and use the time to actively socialize in China to build relationships because an effective network known as Guanxi is very important for doing business in China.

Joint Venture

Joint development or co-development is a deeper form of partnership where the corporate and startup share resources – usually including labour, capital and IP – in order to jointly develop a product or service (Bannerjee & Bielli & Haley 2016). Joint Venture is one of the most common way for foreign companies to enter Chinese market. By having reliable business partner for the joint venture, foreign companies save time and energy to build networks and familiarize with the market.

Shareholder structure needs to be negotiated and agreed upon with local Chinese business partner in advance. Ensuring a healthy, long-term relationship takes concerted effort, requiring clear and effective communication, maintenance of trust, and an ongoing perception of mutual benefit. Monitoring and measuring success (or failure, as the case may be), is vital to keep track of the progression (of the collaboration(s) and should feed back into the company’s periodic strategic reviews.( Bannerjee & Bielli & Haley 2016).

Technology Licensing

According to the report from EU SME Center (Guo & Huang & Kimmons 2020), technology can be transferred in the following ways:

• Licensing: A common practice; includes patents, designs, technical secrets, and know-how;

• Ownership transfer: An uncommon practice; generally not recommended due to the risk of IP infringement.

Process of transferring technology to China (Guo &Huang & Kimmons 2020)

Based on the exclusive rights conferred by a patent, licensing is permission granted by the patent owner to another party to use the patented invention based on agreed terms and conditions (including, for example, the payment of royalties), while the patent owner continues to retain ownership of the patent. (Guo &Huang & Kimmons 2020).

Licensing allows the Finnish deep tech startups align their technology and knowhow with the sales and distribution advantages of their Chinese partners. The partnership via licensing can be established as manufacturing or by establishing together as Joint Venture. Joint ventures take co-developement a step further, in terms of pooling resources into a new legal entity, with its own governance structures and business processes (Bannerjee & Bielli & Haley 2016). Both methods are widely used in the case of market entry. It is important to declare the ownership of intellectual property in the beginning of the partnership by written format.

A sound partnership cooperation allows both parties involved in the partnership to utilize their advantages and serve the best interests of each party. However, a not well managed partnership would lead to detrimental results, for example, IP infringement or even lawsuits. It is suggested that all partnerships should be well considered, and once decision made for execution, commitment and efforts are certainly needed which applies universally not only in Chinese market. Especially given the fact Chinese market is quite unique itself, which usually demands lots of time and resources to invest in in order to make foreign business successful in China. Whilst changing priorities cannot always be avoided, damage can be minimised if there is a clear exit strategy – that is, clearly-defined conditions under which partners will withdraw from the collaboration (Bannerjee & Bielli & Haley 2016).

Merger and Acquisition

As market globalize, and the pace at which technologies change continues to accelerate, more and more companies are finding mergers and acquisitions to be a compelling strategy for growth (Harvard Business Review 2001, 74). In the context of this thesis topic, M&A can attract large institutional investors to Finnish deep tech startups and in case the transaction succeeds, it will not only add competitiveness to Chinese corporate investors technology advantages, but also enables Finnish deep tech startups to access Chinese market successfully through Chinese institutional support because the market capability from the acquirer in China is robust. After all, acquisitions remain the quickest route companies have to new markets and to new capabilities (Harvard Business Review 2001, 74).

Due diligence is designed to reduce resource ambiguity in a target firm and to define the expected value created by merging the resources of two distinct organizations (Faulkner & Teerikangas & Joseph 2012, 623). And it should be conducted prior to the M&A decision was made regarding the target firms. Due diligence can help the acquire understand clearly of the target firm during the pre-acquisition phase and therefore smoothen the integration phase and facilitate M&A success after acquisition.

In Finland investment exit through M&A is the most common in comparison with other countries in Europe. According to Bo Ilsoe (2020), the Partner of NGC Capital, Finnish companies had a lower percentage of IPOs than companies in the rest of Europe (5% vs 11%) and a higher percentage of M&A events (89% vs 84%).

Exit types in Europe (Ilsoe 2020).

However, post-merger integration also demands lots of efforts due to the differences in cultures and corporate cultures, which is vital for the success of M&A activities. Integration success of cross-border mergers will depend on the degree of interaction between the two firms, the degree of integration, and the extent to which the firms value their original cultures (Faulkner & Teerikangas & Joseph 2012, 409).


China-Britain Business Council (CBBC).2019. In the Zone: A Comprehensive Guide to China’s Zones and Regions.

David, Faulkner and Satu, Teerikangas and Richard J, Joseph. (eds.) 2012. The handbook of mergers and acquisitions. Oxford : Oxford University Press cop.

Ran, Guo & Yun , Huang & Alexandra , Kimmons & Yue, Li & Yu , Lin & Demi, Ping & Ben , Rotheram & Bill ,Tian &Hannah , Williams & Torsten , Weller & Charlie , Zeng & Yuki , Zheng. 2020.Exporting Goods, Services and Technology to the Chinese Market.EU SME Center

Siddharth, Bannerjee and Simona Bielli and Christopher Haley. 2016.Scaling Together: Overcoming Barriers In Corporate-Startup Collaboration. Nesta. March.

Harvard business review on mergers and acquisitions. 2001.Boston: Harvard Business School Press.

Bo,Ilsoe. 2020. NGP Capital’s New Tool Analyzed Over 30,000 European Startups-Here’s What We Found 3 December.  Accessed on 23.3.2021.

Funding types for Start-ups in General

There are different ways for funding for startups. Usually, an entrepreneur will start business with own saving and borrowings from family and friends. Later on when the business idea is more mature and need to grow, entrepreneur may turn to the other ways to seek for funding to enable its further growth, which can be categorized as public funding and Private funding. Besides public funding and private funding, there is also frequently discussed topic for funding through customers which usually apply innovative business models to help startups with positive cash flow. Funding via customers would be treated more properly as the consequences as successful bootstrapping.

Funding can be done as a result of equity investment or as debt. Apparently funding via customers is the best for entrepreneurs because it gives positive cash flows without asking for equity or without paying back with interests. However, gradually when startup growing in scale like AirBnB, it still needs to seek funding from the private market and public market, even though it started with innovative prepaid business model (successful customer funding). We will illustrate each funding types in brief below.

1.Public funding

Public funding is by word meaning to get financial support from the public. Public can be a general term to represent both public organization and public market. Public organization like Business Finland can offer both grand and debt financing to companies. Individual investors can buy company stocks when they are issued via initial public offering in the public market, as known as secondary market.

Public grants and debt financing

Startups can acquire funding through public grands for example from EU Horizon 2020 or Business Finland, which normally do not require firms’ equity and paybacks. This is an ideal way of acquiring funding, however the competition for startups is very high. Debt financing usually requires startups to pay back together with some interests, however, it is quite commonly used because for startups it is relatively cheaper than equity financing because there will be no influence on company operations and decision making, unless facing financial distress.


When company is ready to go to the public market, they will use services from investment banks to help them with initial public offering in the primary market, after which individual investors can purchase and sell the company’s stock in the secondary market. Some companies also choose to list by themselves known as direct listing, or via Special Purpose Acquisition Company (SPAC). The detailed comparison to go public by IPO, SPAC and Direct listing is explained in the appendix.

The benefits of listing are the ability to raise funds for internal uses or acquisitions, liquidity, proper price discovery, and analyst coverage. The cost of listing includes fees for listing on an exchange, regulatory requirements, expenses related to mandatory disclosure, the competitive risk of revealing information useful for competitors, and investor relations. In addition, executives may feel the burden of delivering short-term results, having a higher profile in the media, and subjecting themselves to the scrutiny and potential action of activist investors. Many of these costs are fixed and have been on the rise. (Mauboussin & Callahan 2020).

2.Private funding

Private funding by word meaning is funding through private market. For example, funding through angel investors, venture capital funds, corporate ventures, and crowdfunding. There are also other channels to get the funding from private market which can alert regulatory challenges, for example peer to peer landing and shadow banking. We will only mention the most often used types here.

Angel investment

Angel investors are wealthy individuals who provide capital to fund concepts or very young companies that need to complete prototypes or attract initial customers. (Madison Park Group n.d.). Angel investors usually involve in the early stage of startup investment and thus they carry on lots of risks. However, in case the investment is successful, they also enjoy higher expected returns on investment. An angel with strong operational expertise in a start-up’s industry can often relate better to entrepreneurs and offer mentorship, more patient capital, and better valuations (Madison Park Group n.d.). However, compared to institutional investors, angel investors can have limits in knowledge, ability to scale up the business or back up strongly from financial perspectives.

Venture Capital Investment

Venture capital is equity financing provided by institutional investors that either manage a fund on behalf of large institutions (usually pension funds and insurance companies) or have their own proprietary pool of capital (Madison Park Group n.d.). Venture capital firms invest equity into young companies that have prospects for attractive growth and value creation (Mauboussin & Callahan 2020). Moreover, venture capital fund has its own life circle, usually 10-15 years. All the venture capital funds are aiming for bring extraordinary returns to its limited partners who invest in the fund. The general partners are carrying fiduciary roles to actively searching for promising startups to invest in order to bring positive returns on investment.  Venture capital firms usually consists of experienced investment experts and technology expertise that invests in specific field/fields. Such expertise can guide entrepreneurs in business operations, growth and building valuable networks for the business.

Startups use VC investment to go through different phases which include pre-seed, seed, Series A, Series B, Series C+, some needs Series D and E before going public. The challenge for entrepreneurs is to match their company’s stage of development and business prospects with the appropriate venture capital sources (Madison Park Group n.d.). Startups can gain positive attention and feedback from the public via venture capital investment since usually venture capital firms are investing in promising growth startups.

Corporate and Corporate Ventures

Corporate usually have specific investment targets directly related or indirectly related with corporate business activities, and it is an active player in Merger and Acquisition(M&A) activities worldwide. Corporate can invest in startups via equity investment directly or through corporate ventures. Direct equity investment is easier to understand, in which corporate can invest directly to startups as stakeholders and participated in management board. Corporate or corporate ventures invest in startups to further strengthening their competitiveness and market position. There are various objectives for corporate or corporate ventures to collaborate with startups, among which investment and acquisitions are two of the reasons for corporate-startup collaboration with objectives to solve business problems quicker and at lower risk, and expand into future markets by accessing new capabilities or channels (Bannerjee & Bielli & Haley 2016). The reason to pursue a merger or an acquisition is to achieve a better competitive position in the marketplace-a lower cost structure, for example, or a better platform for growth (Harvard Business Review 2001,62).


Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture (Smith 2021). There are basically four types of crowdfunding: equity, debt, rewards and donations. The differences of the four types of crowdfunding are shown in the picture below:

Different types of crowdfunding (Invesdor 2014).

Crowdfunding has become very popular funding tool for startups which are willing to raise capital but having limited financial track records. Startup can also use crowdfunding platforms to attract attention from target customers thus raise its brand awareness. In order to be qualified to raise capital through crowdfunding platforms, massive information on operation, finance, and development need to be disclosed to the public, which could be also considered as a risk to make information public to its competitors.

Customer funding

However, not every startup is going through pre-seed or seed funding phase, because not all startups require funding from outside sources immediately in their initial business development. Entrepreneurs may wish to remain autonomous in their business operation, or they simply think it is less profitable to get investors involved in the early stage of development. Such funding behavior generated by the startup funders themselves is named as bootstrapping. Successful bootstrapping can be achieved through innovative business models, such as revenue received on pre-paid basis from the customers. There are successful examples of startups directly go Series A funding after a few years of bootstrapping with proven tractions. For example, SuperMatrix in Finland.

Global Regional Comparison of VC investment 2020 (PWC&CB Insights 2021)

As a matter of fact, startups generate funding to further develop their business ideas. Depending on the different startups, the funding needs and the channels can vary case by case. It is not always the ultimate goal for every startup to go for IPO, which depends on complicated factors internally and externally, despite of the fact that IPO is the ideal scenario for investor to achieve successful exit. In the Internet age, in which organizations change at the speed of light, this ability to learn and adjust constantly may be the difference between the organizations that succeed and those that don’t (Harvard Business Review 2001, 202).


Harvard business review on mergers and acquisitions. 2001.Boston: Harvard Business School Press.

Madison Park Group. No date. Guide to Venture Capital.

Michael, J, Mauboussin and Dan, Callahan.2020. Public to Private Equity in the United Sates: Morgan Stanly Investment Management A Long-Term Look. Counterpoint Global Insights.

Siddharth, Bannerjee and Simona Bielli and Christopher Haley. 2016.Scaling Together: Overcoming Barriers In Corporate-Startup Collaboration. Nesta. March.

PwC and CB Insights. 2020. MoneyTree ™ Report Q4 2020

Invesdor.2014. What is crowdfunding. Accessed on 6.4.2021.

Tim, Smith. 2021. Crowdfunding. Investopedia. 18 March. Accessed on 6.4.2021.

Fintech and its landscape in Finland

Fintech, by word definition, is the combination of finance and technology. It provides financial services through technology innovation. Because the current definition of Fintech is still ambiguous, it is difficult to find a standardized definition of Fintech. However, according to Arner (2019), FinTech involves the use of technology, particularly information technology to transform the way that finance is being done in global markets, developing countries, and across start-ups and tech firms. The nature of Fintech is international, inclusive, easily accessible, efficient and gradually change the business model at the financial industry level.

Indeed, the combination of finance and technology is not a new thing. Our ancestors invented currency like coins and paper money to enable efficient transactions. Arslanian (2019) mentioned what different Fintech today from financial technology in the past is the development of Artificial intelligence in computer science and big data.

Industry overview in Finland

Finland has been well known as incubators of innovation due to its high transparency social system, educational level and globalization. One of the world’s most influential start-up founding events Slush is also created in Finland. Fintech industry is raising in Finland as well. According to Deloitte (2019), Finland is aiming to become the international hub for Fintech development and innovation.

Despite of being one of the most innovative country in the world, Finland is also enjoying the reputation of number 1 in terms of sounded banks, business environment and microeconomic stability, ranked by World Economic Forum in 2018.

Finnish Fintechs are operating in the following areas: payments, cryptocurrencies, blockchain, insurance, security and compliance, APIs and platforms, data and analytics, customer services and acquisition, financial software, wealth management, investing, financing and personal finance management. (Helsinki Fintech Farm 2020).

Currently the Fintech ecosystem in Finland is still emerging. Big incubators in the financial industry like Nordea, OP and Danske are cooperating with business accelerators to strengthen their role in Fintech development, to conquer the challenges of disruptive innovation from new entrants in the financial industry.

In order to have a sound Fintech ecosystem, Finland still needs to strengthen its inputs in talent acquisition, nurturing Fintech industrial leaders to drive the industry, developing Regtech, as well as helping Finnish Fintech companies to grow globally and encouraging them to access international capital. The financial industry in Finland has been focusing heavily in the local market, and talents here are sometimes lack of the ambition to go international. Due to the global nature of Fintech, these could be unignorable hurdles to consider when growing Fintech in Finland in scale.

Current market players in Finland

Current players in Fintech industry includes banks, insurances companies, pure Fintech startups, and technology companies. According to Helsinki Fintech farm (2020), there are approximately over 180 organizations that labeled themselves as Fintech in Finland, with accumulated revenue of €1,100 million in the year 2018, among which the most operated areas in the Fintech field are financial software, financing and payments.

Figure 1: Finnish Fintech landscape (Helsinki Fintech Farm 2020).

Other stakeholders in the ecosystem

Other stake holders in the Fintech ecosystem in Finland includes business accelerators such as Nestholma, Maria 01, Fintech Finland, Helsinki Fintech Farm. Finnish universities are also having growing interests in research and development in the Fintech field.

In addition, customers, regulators, individual and institutional investors are also playing very important roles in the ecosystem. According to Deloitte (2019), Fintech startups get funding mainly through PE, public sector grants, and debts. Fintech startups which are facing challenges in acquiring capital due to the lack of financial track record turned to innovative ways of funding, such as crowdfunding, or initial coin offering (ICO).

Game theory: Regulators need to look forward and reason backward.

The fast evolution of financial technology requires regulators to come up with new regulations for setting up the legal framework in order to standardize the industry at the right time. However, it is easier said than done. The agile and international nature of Fintech makes it difficult to catch up in regulation’s perspective.

In order to enable innovation and protect all the stakeholders in the Fintech ecosystem, innovation in regulation becomes imperative. Regtech is the combination of regulation and technology. The main functions of Regtech include regulatory monitoring, reporting, and compliance (Frankenfield 2019). It assists regulators in enacting regulations effectively by using technology.

One of the strategies in game theory is to look forward and reason backward. It would be obsolete for regulators to catch up always afterwards in such era of fast science and technology development. It is important to educate regulators to improve understanding of Fintech, Also it is crucial for regulators to think out of the box from the helicopter view by using the facilitation of Regtech. The increasing competition in technology also means incremental threats in data security. The bottom line for any Fintech regulation should be the protection of consumers’ privacy, national sovereignty in terms of data security and at the same time enabling innovation, which can be treated as dominate strategy for regulators to consider when making regulations. 

Conclusion and Recommendations

Fintech has emerged to fill the gap between financial institutions and increasing financial service needs from individuals and organizations, especially for those who may not be qualified to receive financial services from incumbents. As a result, Fintech offered by technology companies becomes too small to pay attention to and too big to ignore, which started from offering poorer financial services to challenging the current leading position of incumbents after the leapfrog growth oriented from its technology and large customer base, that leads to incumbents to re-think of their business model. In order to cope with the challenge, it is recommended that financial incumbents to cooperate with large technological organizations to seize the opportunities in Fintech growth, or establishing its own technology units by going down to the bottom of market to conquer the disruptive innovation from technology companies.

Even though the ecosystem of Fintech in Finland is still immature especially regarding accessing to capital, talent acquisition and regulation. Fintech industry is still growing, and related regulations need to come up on time. This article recommends regulators to look forward and reason backward using game theory, in order to enact effective regulations to protect stakeholders in Fintech ecosystem, national sovereignty in terms of data security and at the same time enable innovation.

More information on current Fintech players in Finland:



Deloitte.2019. Finland as a FinTech Hub ,Pre-Study of the Finnish FinTech Landscape, the Supporting Ecosystem and Key Recommendations.Deloitte Oy. White Paper from Fintech Finland. Accessed 5.2.2020.

Doulas, Arner.2019. Introduction to Fintech. [online lecture notes]. from University of Hong Kong on Edx. Assessed on 10.2.2020.,

Henri, Arslanian. 2019. Introduction to Fintech. [online lecture notes]. from University of Hong Kong on Edx. Assessed on 10.2.2020.

Helsinki Fintech Farm.2020. Assessed on 5.2.2020.

Jake, Frankenfield. 2019. What you should know about regtech. Investopedia.27 April. Accessed on 18.2.

Finland and China ,learning from each other

China is Finland’s most important business partner in Asia . There are around 350 Finnish companies in China and their number is increasing steadily. In the mean time, from 2012 to 2017, Chinese direct investment to Finland accumulated to over 7 billion euro, which means Finland becomes the fifths largest investment destination for Chinese investors in Europe.

I feel really happy to see the closer cooperation between the two countries in my heart- my home Finland and my motherland China. I feel very proud to be a Chinese; I feel very blessed that I came to Finland and fell in love with this country. Indeed, I had spent my first 20 years in China, and it has been 12 years since I came to Finland for exchange study. I sometimes feel how amazing it is: if I am in Finland, I miss Beijing, but if I am outside Finland in other countries rather than China, I will miss Finland! The two counties are where my loved ones live and they both give me education and empower me to grow…💖

So with so many years experiences living, working and studying in both countries, what I think how Finland and China can learn from each other? Here are my point of views:

1.From complexity to simplicity, a fast growing economy needs to learn from the North.

Growing in a fast growing economy, it is easily to be very ambitious. We strive for excellence and hard work, until we finally climb to the very top, we could overview the downhill with relief. But why? Is it really that important to be on the top of the mountain? Have we forgotten to appreciate the views while we were climbing?

I truly appreciate how Finnish möki life had renewed me: while I was sitting on the bench, looking at the swans on the lake, with no human noise bothering me, I started to listen myself within and my soul was echoing…No matter at which phase of economy and human development, we all need to get back to our root, to respect the power of rules and laws by nature, and to embrace the simplicity and authenticity in life.

2.From Simplicity to complexity, a younger land needs to learn from ancient Eastern wisdom.

I was reading wisdom from Confucius, while thinking why Chinese people are so friendly and hard working. Especially as Chinese women, our participation rate in the labor market is over 75% which ranks one of the highest in the world. Suddenly the answer knocks my head while reading- it is our ancient wisdom that acts as value foundation for our behaviors. So from thousands years ago our philosophers were discussing about the topics we are still talking about today: How can we live a happy life? And they were trying to give us answers by the following key words: hardworking, learning, respect, perseverance and sharing.

These values and wisdom are integrated in our family and school’s education at an earlier stage. We are discussing about different schools of philosophy particularly in Chinese literature courses throughout our school years. Finland is a relatively young country. I would say, many social challenges Finland faces today can be solved by our ancient wisdom.

3.Loving and sharing, family based culture in cooperation with independent thoughts and individualism

I would say it is not white and back, neither nor. We are trying to say in general only here as everywhere can have particular cases: the family culture in China can be too close to be spacious and in Finland can be too aloof to feel being cared. Of course people are benefiting also from different modules of family cultures. For example, in Chinese family culture, you are cared, loved and it is very rare to feel lonely and being neglected. Family members are supporting each other and sharing together. In Finnish family culture, people enjoy personal space. Children understand their own uniqueness and take self leadership in many decision makings from childhood.

How I wish the two culture modules can be integrated together sometimes so that we can both enjoy individualism and close family ties, from the bigger picture. ” The previous generation plans the trees, so that the next generation can enjoy the shadow.” And the healthy circle just continues…

The cooperation between Finland and China in education, innovation, culture, business are strengthening and blossoming from diverse perspectives. The longer I live here in Finland, The more I feel it was not a coincidence to come here as an exchange student. As a person embracing simplicity, honesty and straightforwardness while deeply appreciating ancient literature and wisdom, I think something is written. Indeed, we are learning from each other!:)

Picture from Finland Today2019

Able to jump to the periphery

The first time I learned the word ” periphery ” was from an article writen by Larry Huston “Mining the periphery for new products” which was one part of the reading assignments during my summer study in Aalto school of business. The purpose was to understand how people management could facilitate innovation. Here was what I learned in combination with other 2 related articles:

PeripheryWe always hear one cliche: Think out of the box! But in contrary, This picture tells a manager how to really put it into action in order to facilitate innovation. I think we do not need to discuss how important innovation is for business. But how this concept could apply to our lives? And why it is important to do that?

This picture reminds a story I heard when I was small. It was an experiment: Some scientist put fogs in very cold Place, and later put them in a heating pan. The temperature of the pan went up by time. The fogs were getting so comfortable in the pan, even when the temperature went up, none of them would jump out till they dead. What if they jumped to the periphery of the pan and looked the whole situation before it was too late???

After all, they are fogs and we are HUMAN! We are farway advanced. However, Ironically we human make the same mistakes! I would refer the “Core business” part as ” core activities”when it comes to individuals. People are very easy to live for the moment if the living standard is satisfactory and seldom take the initiative to think about change. The reason is because most of us are afraid of change and the uncertain consequences it might follow. I remembered in one of the biology class back to my hight school, the teacher asked us movement and static, which was absolute and which was relative? Most the class answered movement was relative and static was absolute. But surprisingly, the teacher told us Movement was absolute and static was relative! How come we dont know the earth is moving all the time and if we talk about static, we are potentially using some objects of reference. So is our lives!

We think we are stable for the moment and life will be like this forever. This was almost the same mistake as how high school students answered the question regarding movement and static. Back to the early 90s before China enacted the policy of open up to the outside world, my parents’ generation considered working in state-own companies as ” iron bowl” that one would never loose job and able to raise his own family. So it was a very huge shock for many of that generation when they knew they would loose their jobs because of structural reform: State-own companies were privatized in order to be competitive in the marketing economy.  A former product manager might make a living on the street by fixing bycicle tires if couldnt find a new job…I still remember the song the government made to encourage people to face the reality and stand up again. Very hard to find the song again since it was from 1998. If you are interested , here is one link to the song which you can listen on line. The name of the song translated in English is Mr.Wang: <老王> How many would really think one day they would loose their “iron bowl” at that time?

So for individuals, to be able to jump to the periphery means to be able to look further in one’s life, in order to keep one’s skills and knowedge update through constant learning, thus being able to minimize risks and manage changes. Keep “moving” is the only solution to keep “still”.The secret to achieve that is to constantly doing self-reflection: How I can improve and how I can be better . Sounds easy but it is actually quite hard because one needs to be honest to oneself, willing to take responsibilities and conquer any hurdles might on the way.

Another suggestion if you happen to jump to the periphery yet still fail: Dont put all the eggs in one basket. If the yellow circles I mentioned in my previous article are baskets( life elements), how many eggs you have put to each basket?:)