Market Positioning Against Global Trends

Finland’s market for start-ups and growth companies is not defined by volume alone, but by its ability to produce companies that attract attention well beyond the size of the domestic economy. Over the last 12 months, this has been particularly visible in a handful of exceptionally large financing rounds that would be notable in any European market, not only in Finland.

This makes Finland comparable to other European venture jurisdictions where ecosystem quality matters more than market size. Finland continues to generate ambitious start-ups and growth companies, especially in technology-heavy fields, but the market remains narrow enough that a few large financing rounds can materially influence yearly statistics. This dynamic was particularly visible in 2025, when deep-tech funding reached record levels and overall market momentum was strongly influenced by a limited number of major transactions.

Landmark Financings

The most significant venture capital (VC)-related transactions in the past 12 months were financings rather than exits or IPOs. The standout financing round was Oura’s EUR777 million round, which is the largest financing round in Finnish start-up history and one of the largest in Europe. IQM’s EUR275 million financing round was another landmark deal, confirming Finland’s position as a credible deep-tech market, particularly in quantum and compute-related technologies. The deep-tech space also include ICEYE and Nest AI among the year’s major financing drivers.

Exit Environment

Exit activity remained comparatively quiet. Although a report by the Finnish Venture Capital Association (FVCA) points to somewhat improved sentiment around exits, the market has not yet moved into a broadly active IPO or M&A cycle. As a result, the Finnish market over the last year has been shaped above all by a small number of unusually large growth financings.

Split Between Headline Financing Rounds and Everyday Financing

One of the clearest features of the Finnish venture market over the last 12 months has been the widening gap between headline transactions and the rest of the market. Total investment figures remained strong, and deep-tech funding in particular reached record levels in 2025, but those numbers were driven to a significant extent by a small group of very large financing rounds as mentioned previously. Beneath that top layer, fundraising remained more demanding, especially for companies seeking mid-sized growth financing rather than true outlier financing rounds.

This contrast is important because it affects how market conditions are experienced in practice. The strongest companies were still able to raise substantial capital, often with international participation, while companies outside that category faced a more fragmented process involving longer timetables and greater dependence on mixed investor syndicates.

More Layered Financing Structures

A second trend has been the growing importance of flexible financing structures. There is continued use of bridge instruments, particularly in capital-intensive sectors where companies need to extend runway between priced financing rounds or preserve momentum while larger financings are assembled. In that sense, the market has not moved away from equity financing, but it has become more comfortable with interim structures that help companies manage timing risk.

Further, the most significant deal term changes have been visible less in formal market standards and more in where negotiations now tend to concentrate. Investors appear more focused on governance, technical and commercial milestones, financing runway, and syndicate quality than they were during the peak years of 2020–2021. In practice, this means that downside protection, control over key decisions and clarity around future financing strategy have gained weight. The shift has therefore been less about inventing new terms and more about using familiar terms more deliberately.

In pure market statistics, ICT remained the dominant destination for Finnish VC, while only about 11% of funded start-ups were in traditional B2C or B2B categories. This suggests that the market was driven less by generic software and more by technically demanding businesses. This is also evidenced by the fact that the largest financing rounds came from sectors of health technology, quantum and compute, space, AI infrastructure and selected energy technologies.

A useful distinction can therefore be drawn between where most financings happen and where the largest financings happen. By number of financing rounds, software and ICT still form the backbone of the market. By value, however, 2025 was shaped by deep-tech businesses with heavier technical content and clearer international strategic relevance.

Typical Structure and Decision-Making

In Finland, VC funds are most commonly structured as limited partnerships (kommandiittiyhtiö). A separate, manager-established, limited liability company usually acts as the general partner, while the fund manager and its investment team manage the fund in practice. This structure is mainly used to organise governance clearly and to ring-fence general partner liability.

Investors participate as limited partners and are not involved in day-to-day management. The manager conducts the investment activity in accordance with the agreed strategy, restrictions and governance framework. Investment decisions are typically prepared by the manager’s deal team and approved through an internal investment committee.

Core Fund Documentation

The fund is usually governed by two principal documents:

• the partnership agreement (yhtiösopimus) establishing the limited partnership and covering the statutory conditions; and
• the main fund agreement between the general partner and the investors.

In practice, the latter is the key commercial document and sets out how the fund operates.

The main fund agreement usually covers the investment strategy, investment restrictions, commitment and drawdown mechanics, fees and carried interest, distribution rules, transfer restrictions, governance, key person events, fund term extensions and winding-up. Side letters are also common, especially where institutional or cornerstone investors require additional reporting, governance or policy-driven rights.

Participation in Fund Economics

Fund principals in Finland usually participate in fund economics through management fees, carried interest and a sponsor commitment. Management fees support the manager’s operating platform, while carried interest remains the main performance-based element and is typically allocated among the senior investment team under the manager’s internal arrangements.

A meaningful sponsor commitment is commonly expected as an alignment measure. In practice, investors often focus less on any single economic term and more on the overall alignment package, including the size of the manager commitment, the forfeiture mechanics applicable to carried interest and the extent to which key person and removal provisions protect the fund if the senior team changes.

Continuation Funds

Continuation funds have become more visible across private capital markets, but they are not yet a defining feature of Finnish VC practice. In Finland, they are seen more often in private equity and selected later-stage or growth situations than in mainstream early-stage VC. At present, they are better viewed as an emerging option than as a standard venture tool.

Evolving Market Terms

Market practice has continued to move towards more detailed investor protections and more structured governance. Typical areas of focus include:

• key person provisions;
• conflict management;
• advisory committee or investor consent rights on selected matters; and
• reporting standards and the mechanics for term extensions, no-fault removal and suspension of the investment period.

The current fundraising environment also suggests a somewhat more institutional limited partner (LP) base. The FVCA report shows record VC fundraising in 2025, with pension funds as the largest funding source and public capital also playing a major role, which is consistent with continued pressure for stronger governance, reporting and alignment terms.

Finnish VC funds are generally regulated within the broader alternative investment fund framework rather than under a separate VC-specific statute. The central legislation is the Finnish Act on Alternative Investment Fund Managers, which implements the Alternative Investment Fund Managers Directive (AIFMD) in Finland. The regulatory focus is primarily on the manager rather than the fund vehicle itself.

Authorisation is generally required where the manager’s assets under management exceed EUR100 million, including leverage, or EUR500 million where the funds are unleveraged and closed-ended for at least five years from initial investment. Below those thresholds, the manager is generally subject to registration rather than full authorisation.

That distinction is important in Finland, where many venture managers remain below the full authorisation thresholds. As a result, a significant part of the Finnish VC market operates under the lighter registration-based regime, although fully authorised managers are also present. In addition, some managers may use the EuVECA label where relevant, but that remains a specific optional regime rather than the default organising framework for Finnish VC funds.

Features of the Finnish VC Fund Environment

The Finnish VC market is active relative to the size of the economy and benefits from a dense start-up and investor ecosystem. The FVCA report described record VC fundraising in 2025, 15 new VC teams entering the market over the last six years and continued strong investment activity. It also shows that Finnish start-ups attracted EUR1.9 billion in equity financing in 2025, with foreign investors accounting for a large share.

Public capital remains especially important in Finland. State-backed actors, most notably Finnish Industry Investment (the state-owned investment company, Tesi), continue to play a catalytic role as fund investors and direct investors. The report also indicates that public-sector investors accounted for a substantial share of Finnish VC investment activity in 2025, which underlines the continued importance of public capital in supporting the market, particularly where private financing is thinner.

The LP base is still weighted towards domestic institutions. According to the FVCA report, 75% of fundraising for Finnish VC funds came from domestic investors in 2025, with pension funds as the largest source. Fund-of-funds activity exists, but is more visible through public or government-backed institutions than through a deep domestic private fund-of-funds market.

Impact and sustainability themes are increasingly present in fundraising and portfolio construction, although they do not form a separate regulatory category in fund structuring. More broadly, Finnish VC is becoming more international both in capital raising and deployment: Finnish investors are investing in more foreign companies, and foreign investors are becoming increasingly important in larger Finnish financing rounds.

Accommodating Longer Holding Periods

Extended holding periods are usually addressed through conventional fund tools rather than venture-specific structures. Managers typically build flexibility through the initial fund term and extension mechanics and maintain sufficient reserves for follow-on investments, particularly in companies that require longer development cycles before exit.

This has become more relevant in a slower exit environment. The FVCA report points to only a modest improvement in exits in 2025, which helps explain why Finnish VC managers have generally focused on longer support periods, more selective exit timing and fund-level flexibility rather than broad use of continuation vehicles.

Scope and Intensity

In Finland, due diligence in VC transactions is strongly stage-dependent. In pre-seed and seed rounds – particularly where the parties use the Startup Foundation’s SeriesSeed or StartupTools Finland documentation or work from that market logic – the process is often focused and pragmatic. In larger rounds, and especially where a foreign lead investor is involved, diligence is usually significantly broader and more structured.

The main legal workstreams are usually corporate housekeeping, the cap table, prior share issuances and option grants, constitutional documents, employment and incentive arrangements, intellectual property, key commercial agreements, financing arrangements, regulatory matters (where relevant) and data protection.

Specific and structured tax diligence usually comes into play in or after the Series A stage. A key focus area for earlier-stage companies in particular is the due documentation and execution of prior issuances, board decisions and shareholder approvals, as defects in these areas can directly affect closing certainty and the enforceability of the agreed rights after completion.

Typical Focus Areas

Typically, the diligence emphasis shifts somewhat in accordance with the target company’s business sector. In software and technology businesses, diligence typically centres on IP ownership, open-source use, data protection, key customer contracts and the status of contractor and employee assignments. In life sciences, defence tech and other regulated sectors, the review is usually broader and more technical, with particular attention paid to patents, freedom to operate, licences, regulatory positioning, product development risk and the route to commercialisation.

Representations and warranties are commonly sought from the company and, in a more limited way, from the founders. Their function is not only risk allocation but also to confirm the absence of any undisclosed material risks. 

Typical Timeline

A Finnish pre-seed or seed financing round can often be completed in less than one month once the term sheet has been agreed, particularly if the round is relatively small and the parties are familiar with the documentation and it follows the established market standards. A larger financing round in a growth company will usually take longer, as the negotiations are more detailed and between multiple relevant parties, and the diligence process is broader.

Where a new lead investor is joining, the process usually begins with agreement on headline economics and governance in the term sheet, followed by diligence, drafting of the long-form documents, internal approvals and closing preparations. In practice, timing is often driven less by execution mechanics and more by the speed at which the lead investor can complete diligence and at which the parties (including existing investors) can settle the revised governance package.

Relationship Between the Parties

The new lead investor typically drives the commercial terms of the round. Existing investors then decide whether to participate pro rata or otherwise, and whether they are prepared to accept the amendments needed to the shareholders’ agreement, the articles of association and the board composition or consent regime.

The company and the founders are often represented by the same counsel, while the new lead investor or investor group is represented separately. In larger rounds, it is common for there to be additional advisers, including counsel for a major existing investor, secondary sellers or management.

Execution Mechanics

If the company already has a shareholders’ agreement, that agreement usually plays an important execution role. In Finnish practice, it is common to include financing provisions designed to ensure that an approved financing round can in fact be implemented. Once the agreed approval threshold has been met, shareholders may be obliged to vote in favour of the required corporate resolutions, waive or not exercise conflicting rights and sign the documents needed to complete the financing.

In substance, this functions as a financing drag mechanism. In practice, however, the purpose is usually not to force through a controversial round but to ensure that a properly approved financing cannot be blocked at the implementation stage.

Equity Instruments Used in Financings

In Finland, VC financings are most commonly implemented through direct equity subscriptions. In the earliest rounds, ordinary shares may still be used, but institutional venture investors will typically require preferred shares or another structure that gives them equivalent preferential rights. As a result, incoming investors often receive shares carrying rights that differ from those attached to the founders’ and employees’ ordinary shares.

At a high level, the rights attached to preferred shares usually include a liquidation preference, anti-dilution protection, participation rights in future financings and governance-related rights such as board representation, enhanced information rights and consent rights over selected reserved matters. The detailed content of those rights is usually set out in the shareholders’ agreement and, where required for enforceability against the company or third parties, reflected in the articles of association.

Convertible Instruments

Convertible loans are also fairly common in Finland, particularly in bridge financings, interim rounds and some earlier-stage situations where the parties want speed or valuation flexibility. In Finnish market practice, these instruments are usually contractual in nature rather than based on statutory option rights or other special rights under the Companies Act.

Their key commercial feature is that the convertible loans convert into equity on agreed triggers, typically a qualified financing round or maturity, often with a discount and sometimes with a valuation cap. From a legal perspective, they are commonly structured as subordinated obligations ranking behind the company’s other debts, which is one reason why they are treated as closer to quasi-equity than ordinary debt in venture settings.

Secondary Components

Secondary components do appear in Finnish financing rounds, but they are not standard in every transaction and are more common in larger or later-stage rounds than in true first institutional financings. In practice, a secondary sale is usually used to provide limited liquidity to founders or early shareholders alongside the primary capital raise, rather than as the central purpose of the transaction.

Core Transaction Documents

A Finnish start-up or growth company financing round is typically documented through a term sheet, a subscription agreement, a shareholders’ agreement, board and shareholder resolutions, and any required amendments to the articles of association. Depending on the transaction, the package may also include updated option plan documentation, disclosure materials and, where relevant, secondary sale documentation.

Although each document has its own role, the subscription agreement and the shareholders’ agreement are usually the two central long-form documents. The first governs the investment itself and the second governs the continuing relationship among the shareholders and, usually, the company.

Term Sheet

The term sheet is ordinarily the first document agreed between the company, the founders and the lead investor. In Finnish market practice, it is generally non-binding as to the substantive investment terms, save typically for clauses such as exclusivity, confidentiality and sometimes costs or governing law.

That said, the commercial expectation is usually that the parties will follow the agreed term sheet closely. Deviations are typically accepted only where due diligence reveals material facts, where the drafting process exposes a point not properly addressed at term sheet stage or where the parties expressly reopen a point as part of the broader package.

Subscription Agreement

The subscription agreement regulates the investment itself and acts as the main instrument for getting the investment completed on agreed terms and allocating transaction-specific risk at signing and closing. It usually covers:

• the subscription and issuance of the new shares;
• the subscription price and payment mechanics;
• conditions precedent (where relevant);
• closing process;
• completion deliverables;
• the treatment of any secondary sale elements; and
• the consequences if completion cannot occur.

The subscription agreement also contains the company’s and founders’ representations and warranties. The market standard in Finland is that the warranty package is qualified by a data-room-based “fairly disclosed” concept, whereas the letter-based disclosure mechanism is used mainly in cases where diligence is not carried out. The agreement may also include specific indemnities or tailored risk allocation for issues identified in diligence, although heavily negotiated indemnity structures are less typical in early-stage venture deals than in private M&A.

Shareholders’ Agreement

The shareholders’ agreement acts as the main governing document between the shareholders and the company after closing. It sets out the ongoing commercial deal among the parties and will usually cover at least the following matters at headline level:

• governance and board composition;
• investor consent rights and reserved matters;
• information and reporting rights;
• future financing mechanics and participation rights;
• transfer restrictions and accession requirements;
• founder vesting and leaver provisions, where relevant;
• non-compete and non-solicitation undertakings;
• treatment of employee equity and option pools; and
• exit-related provisions.

As between the parties, the shareholders’ agreement is the primary source of rights and obligations and is typically the first document looked to when assessing how the parties are expected to act. This reflects the largely dispositive nature of Finnish company law in this context. If a provision of the shareholders’ agreement is not reflected in the articles of association or otherwise cannot bind the company or third parties as a matter of company law, it generally remains contractually binding between the parties to the agreement.

Articles of Association

In Finnish venture-backed companies (and more generally), the articles of association are often comparatively technical. They usually contain the statutory minimum provisions and those share-related or governance terms that should be embedded in the company’s constitutional documents, such as the share classes and their rights (including reinforcement of liquidation preference mechanics), board size and general representation rights.

The articles also often contain a redemption clause designed to protect the shareholder base against transfers made in breach of the shareholders’ agreement’s transfer restrictions. Their function is therefore less to restate the full commercial deal and more to anchor the points that need constitutional effect at company level.

Corporate Resolutions

Financing rounds also require board and shareholder resolutions approving the share issuance, any amendments to the articles of association and any other corporate actions needed to effect the agreed arrangements.

Templates

At seed stage, the best-known standard forms are the SeriesSeed and StartupTools Finland templates. These have helped to standardise smaller financings and reduce friction in the early-stage market. From Series A onwards, however, Finnish rounds are usually more tailored, more heavily negotiated and less template-driven.

Liquidation Preference

In Finnish VC financings, investors usually secure downside protection through preferred share rights, most notably a liquidation preference. The market standard remains a 1x non-participating preference in many institutional rounds, although the precise formulation may vary depending on the company, the round dynamics and market conditions.

The preference places the preferred investor ahead of the holders of ordinary shares on any liquidity event (whether a winding-up or, for instance, a low-valuation exit). In Finnish practice, it is usually part of a broader package rather than a standalone economic term, with the same investor also receiving negotiated anti-dilution, participation and governance protections under the shareholders’ agreement and, where necessary, the articles of association.

Anti-Dilution and Participation Rights

Anti-dilution protection has become increasingly common, especially from Series A level onwards. The most typical formulation is broad-based weighted average, while full-ratchet leaning models remain generally unseen, save for distressed situations.

Participation rights in future financing rounds are also a standard feature. In practice, these are usually drafted as contractual rights in the shareholders’ agreement, entitling the investor to participate in new issuances so as to maintain its holding, subject to agreed exempted issuances. The participation rights quite often also encompass a super pro rata right to an extent such that, where an investor does not exercise its participation right, another same-category investor may take over that share.

Although Finnish company law contains statutory pre-emption rights in share issuances, those rights are rarely considered in practice in venture financings. The reason is that the shareholders’ agreement will usually already regulate how future rounds are approved and implemented, including participation mechanics and obligations on shareholders to support an approved financing. In practice, the contractual framework tends to be the operative one.

Recent Market Movement

Recent market conditions have increased investor focus on downside protection, but Finnish market practice has not broadly shifted to strongly investor-weighted preference structures. Participating liquidation preferences and compounding preferred returns can appear, especially in more pressured fundraising contexts, but they cannot be described as mainstream market standard terms across the Finnish venture market.

What has become more noticeable is a firmer approach to pricing discipline, anti-dilution, consent rights and the practical ability to get future rounds implemented. In other words, investor protection has tended to strengthen through governance and execution mechanics at least as much as through more aggressive preference economics.

Statutory Framework

Under Finnish company law, the board of directors is responsible for the administration of the company and the appropriate organisation of its operations, while the managing director handles day-to-day management in accordance with the board’s instructions and orders. In a VC-backed company, that statutory structure means that investor influence is usually exercised through board participation, consent rights and information rights.

Market-Standard Governance Rights

In practice, a lead investor will frequently require a board seat, especially in early and growth-stage investments, or at least the right to appoint a board observer. Investors also commonly negotiate regular financial and operational reporting, budget visibility and inspection or discussion rights linked to board processes.

In addition, investors usually negotiate a set of reserved matters requiring either their separate consent or a qualified majority under the shareholders’ agreement or board procedures. These often include:

• new share issuances;
• changes to share rights;
• amendments to the articles;
• material indebtedness;
• major acquisitions or disposals;
• related-party transactions;
• departures from the agreed business plan;
• appointment or removal of key management; and
• other decisions that could materially affect the company’s value or the investor’s position.

Degree of Influence

Investor operational rights in Finland are therefore usually structured primarily through governance levers rather than through a managerial right to direct day-to-day operations. In that respect, Finnish practice is broadly consistent with the board-centric approach of Finnish company law. Even so, a lead investor can have substantial practical influence, particularly where it has a board seat and a named veto right on reserved matters.

Representations, Warranties and Undertakings

Representations and warranties by the company and the founders are a standard part of Finnish financing rounds. They usually cover:

• valid incorporation;
• authority and capacity;
• the cap table and title to shares;
• compliance with the law;
• intellectual property;
• material contracts;
• employment and incentives;
• tax;
• insolvency;
• litigation; and
• the absence of undisclosed matters that would be material in the context of the investment.

The company is usually the main warranty giver as many of the relevant facts sit at company level. Founders also commonly give warranties covering substantially the same subject matter as the company warranties, but their liability is typically more limited in scope and exposure. In practice, founder warranties are often important not so much because they shift primary risk allocation away from the company but more because they create alignment and a meaningful skin-in-the-game commitment from the founders.

If a representation or warranty in the subscription agreement proves incorrect, recourse is usually determined under the specific compensation regime agreed in the subscription agreement rather than by reference only to general Finnish contract law principles. That regime is typically built on damages-based logic but is usually made more detailed through agreed liability caps, claim periods, notification requirements and other negotiated limitations and qualifications, including exclusions for matters such as changes in law. In Finnish market practice, the agreed remedy may involve cash compensation and, in some cases, compensation through the issuance or transfer of shares so that the investor is restored to the economic position it was intended to have.

Ongoing Covenants and Shareholder-Level Protections

On the covenant side, the subscription agreement and the shareholders’ agreement perform different functions. The subscription agreement usually contains transaction-specific undertakings linked to getting the investment completed, such as completion actions, delivery obligations and, where relevant, pre-closing conduct commitments or obligations to remedy issues identified in diligence.

The shareholders’ agreement, by contrast, usually contains the ongoing behavioural and governance covenants. These commonly include:

• transfer restrictions;
• adherence mechanics for new shareholders;
• founder vesting and leaver rules;
• non-compete and non-solicitation obligations;
• confidentiality;
• information undertakings;
• governance commitments; and
• the investor-consent regime for reserved matters.

In practice, the shareholders’ agreement is usually the central document governing the parties’ ongoing relationship once the investment has closed.

For breaches of the shareholders’ agreement, the starting point is ordinary contractual damages under Finnish law. In practice, however, shareholders’ agreements often supplement that baseline with agreed contractual remedies, especially for fundamental obligations. Liquidated damages are commonly used for clear-cut breaches such as violations of non-compete or non-solicitation undertakings or transfer restrictions, and the agreement may also provide for share redemption or forced transfer consequences where a shareholder breaches core transfer rules or other fundamental obligations.

Public-Sector Role in Growth Financing

Finland has no single government equity incentive scheme for growth companies, but public and quasi-public actors play an important role in the financing ecosystem. The most important quasi-government actor in Finland in this area is Finnish Industry Investment (a state-owned investment company, Tesi), which plays a central role in the equity financing ecosystem for growth companies.

Tesi as a Market-Building Investor

Tesi invests both indirectly (through VC and private equity funds) and directly (in growth and internationalisation-stage companies). Its significance lies not only in the capital it provides but also in its role as a market-building investor. In practice, it helps deepen the domestic funding market and support larger financing rounds that might otherwise depend entirely on foreign capital. This has made it a central actor in the Finnish growth financing landscape.

Business Finland Funding

Alongside Tesi, Business Finland plays an important complementary role, even though its instruments are generally grants and loans rather than equity. Its best-known programmes for growth companies have included Young Innovative Company funding for start-ups under five years old with high growth potential, as well as newer instruments such as the Sprint Grant for small innovative companies seeking rapid international growth.

Although these Business Finland instruments are not equity investments as such, they are highly relevant to the equity financing environment. In practice, they help companies fund product development, commercial validation and internationalisation, and they can improve readiness for a priced round by helping the company reach milestones that matter to investors.

In the Finnish market, Business Finland funding and equity rounds are also often closely intertwined in practice. This is partly because Business Finland funding commonly sits alongside private financing plans and, in many cases, effectively requires the company to demonstrate an ability to attract corresponding equity funding. As a result, public funding and equity financing are often structured and timed as part of the same broader financing strategy.

No Special Tax Regime for Growth Investments

Finland does not have a broad, standalone tax regime specifically for investments in growth companies, start-ups or VC portfolio companies. The tax treatment of an investment therefore generally follows the ordinary Finnish tax rules applicable to the relevant investor, instrument and holding structure.

Ordinary Tax Rules Apply

In practice, the main tax questions are usually the general treatment of capital gains, dividends and losses, rather than any special venture tax incentive linked to the target company as such. Certain specific rules may become relevant in venture-backed companies, including rules affecting unlisted companies or equity-based incentive arrangements, but these do not amount to a separate tax regime for growth-company investments.

Practical Relevance for Investors

Accordingly, the tax treatment of an investment into a Finnish growth company does not usually depart in principle from the default framework applicable more generally. Any meaningful variation will typically depend on who the investor is, how the investment is structured, what instrument is used and how returns are realised. For that reason, tax analysis in this area is usually transaction-specific.

Policy Focus on Larger Growth Rounds

A central concern in Finland has been that, while early-stage capital is available, there have historically been too few domestic investors with the capacity to lead larger financing rounds in growth companies. Public policy has therefore increasingly focused not only on increasing the overall amount of capital in the market but also on improving the availability of larger rounds led from Finland.

Tesi has expressly identified the international growth phase and larger funding rounds as a shortfall area in Finland, and its renewed strategy is intended to address that gap by supporting larger Finnish funds and enabling larger direct growth investments.

Expansion of Tesi’s Role

The most material recent initiative has been the strengthening of the State’s capital investment activity through Tesi. The consolidation of the State’s capital investment activities under the Tesi group was completed in 2025, and the Finnish government has linked this reform to the goals of improving growth financing, strengthening domestic ownership and mobilising both domestic and international funding for Finnish growth companies. This is supported by a broader policy view that public financing should help address market gaps in the financing of innovative and growth-oriented companies.

Mobilising More Domestic Capital

There are also signs that major domestic institutions are becoming more active in this area. For example, in 2026, LähiTapiola, a large pension insurance company, announced an additional EUR200 million allocation to Finnish growth companies. Although not a government initiative as such, this is relevant in the same policy context: Finland’s challenge has often been less the absolute absence of capital and more the shortage of domestic institutions able to participate meaningfully in larger growth financings.

Securing Long-Term Commitment

In Finland, the long-term commitment of founders and key employees is usually secured through a combination of economic upside, time-based retention mechanics and governance controls rather than through a single instrument. In venture-backed companies, equity or equity-linked participation is usually the central element, but it is often complemented by leaver provisions, continued service requirements and, for senior hires, contractual arrangements that tie part of the reward to staying through a growth period or liquidity event.

For founders, the starting point is usually that they hold a meaningful equity stake from the outset and that this stake remains linked to continued contribution. For key employees, the company will often seek to create similar alignment through options, share-based participation or, more selectively, cash-settled incentive arrangements that reward value creation without adding immediate cap table complexity.

Other Incentive Tools

Although equity remains the main long-term retention tool in start-ups and growth companies, it is not the only one. Companies also use cash bonus arrangements, performance bonuses and, in some cases, retention or transaction bonuses, particularly where the company wants to reward a key hire or ensure continuity through a financing, sale or other critical stage. Finnish official guidance separately recognises several forms of variable cash compensation, including bonus pay, commission, profit-sharing bonus and performance bonus.

A further alternative is a synthetic or phantom-style arrangement. These remain fairly uncommon in the Finnish VC market, mainly due to them not creating tax benefits and the better (perceived) cap table clarity provided by share or option-based plans in venture-backed companies. From a Finnish tax perspective, such arrangements are analysed separately from employee stock options in the strict statutory sense.

Practical Emphasis in Venture-Backed Companies

In practice, Finnish venture-backed companies usually place the greatest weight on mechanisms that align value creation over time and remain workable through future financing rounds. That is why founder reverse vesting, employee option pools and carefully drafted leaver mechanics remain more common than purely contractual retention devices. Cash-based incentives are often used as a supplement, not a substitute, as they do not create the same ownership alignment or exit participation.

Typically Used Equity Instruments

In Finland, founders are usually incentivised through ordinary shares subscribed for at or near incorporation, combined with contractual reverse vesting and leaver terms. For employees, the most common incentive instrument is a stock option plan. Other structures exist, including direct share ownership, but in venture-backed companies they are used more selectively.

Founder Shares

Founder incentivisation is usually built around direct share ownership. The founders subscribe for ordinary shares early, but part of the holding is typically made subject to reverse vesting and leaver provisions in the shareholders’ agreement. Economically, this means that, if a founder leaves too early, some of the shares may be transferred back, forfeited or repurchased, depending on the agreed terms.

The vesting schedule is usually time-based and often runs over several years. The inclusion of a cliff is close to a fixed rule for early-stage founders but becomes more of a negotiated point in later stages. The most heavily negotiated issues are usually the definition of good, bad and intermediate leavers and the related treatment.

Employee Stock Options

For employees, stock options remain the standard instrument in Finnish start-ups and growth companies. They are generally preferred because they are familiar, flexible and relatively easy to structure for a wider employee group, while also allowing the company to create upside without immediate share issuance or an upfront cash investment by the employee.

In a typical venture-backed plan, vesting is primarily time-based, although performance conditions are sometimes added for senior management. Unvested options generally lapse and are forfeited to the company when employment or service ends, while vested options may remain exercisable for a limited period depending on the leaver category and the plan rules. Furthermore, more sophisticated post-service alternatives for vested options, such as “use it or lose it” and time-based de-vesting, have been on the rise recently. Some plans allow exercise as vesting occurs, but many venture-backed companies defer exercise until an exit. This helps to avoid cap table complexity before a liquidity event.

Direct employee share ownership may in some cases offer a more attractive tax outcome, but option plans remain more common in venture-backed companies as they are structurally more flexible and easier to target at a selected group.

Main Structuring Considerations

In Finland, the tax analysis is usually driven by two considerations: when the taxable event occurs, and whether the benefit is taxed as earned income or can instead arise through later share ownership. In practice, the central structuring choice is often between stock options (which are operationally flexible but usually tax-inefficient) and a personnel share issuance (which can be more tax-efficient but is much less flexible).

Stock Options

Employee stock options are generally taxed when they are exercised, including a direct sale of stock options in connection with an exit. The taxable benefit is the difference between the exercise price and the fair market value of the shares at that time, and the benefit is treated as earned income. This can lead to a relatively high overall tax burden.

Even so, stock options remain the most common incentive instrument in Finnish start-ups and growth companies. One practical reason is that, where the options are exercised only at exit (which is the standard), the taxable event and the liquidity event occur at the same time. That does not improve the underlying tax character of the income, but it makes the tax burden easier to fund in practice.

Personnel Share Issuances

A personnel share issuance (henkilöstöanti) can offer a more favourable tax result. In an unlisted company, if the statutory conditions are met and the subscription price is at least equal to the mathematical value (ie, the net asset value) of the shares based on the latest financial statements, no taxable earned-income benefit arises on subscription. This allows personnel to participate in future value growth as shareholders, which can then be realised as capital income.

The personnel share issuance regime is, however, much less flexible than an option plan. Its favourable tax treatment depends on statutory conditions being met, and those conditions restrict how selectively the company can target the issuance. In particular, the issuance must be available to the majority of the personnel, and differences in allocation must be based on objective grounds.

For that reason, personnel share issuances are often attractive in principle but harder to use in a typical venture-backed setting, where incentives are frequently intended for a limited group of founders, executives or key employees and where flexibility is important. Stock options therefore remain the standard instrument, even though their tax treatment is usually less favourable.

Relationship With an Investment Round

In Finland, the main link between a financing round and an employee incentive programme is usually the investor requirement that a sufficient pool be reserved on a fully diluted basis. That point is typically addressed as part of the round economics even if the actual option plan or other incentive structure is only adopted after closing. In other words, the financing documents usually fix the size and dilution effect of the pool first, while the company finalises the detailed plan terms later.

From a process perspective, this means that the investment round usually deals with the cap table allocation rather than the full implementation package. The board and the shareholders then adopt the necessary corporate approvals after closing, once the company has clearer visibility on hiring needs, the intended participant group and the preferred tax and administrative structure.

Governance and Dilution

The shareholders’ agreement will often require lead investor consent for the adoption of an equity incentive plan and for any increase to the reserved pool. By contrast, individual grants under an approved plan are usually left to the board. This gives investors control over the overall dilution framework while allowing the board enough flexibility to use the plan in day-to-day retention and recruitment.

In practice, the key commercial discussion is therefore usually about who bears the dilution associated with the pool. Once that has been agreed in the round, implementation becomes more of a technical and governance exercise. That sequencing is typical in Finnish venture financings because it separates the dilution negotiation from the later design of vesting, leaver, exercise and tax-sensitive terms.

Exit Rights and Governing Framework

Exit-related rights in Finnish venture-backed companies are primarily governed by the shareholders’ agreement, with certain related provisions (such as liquidation preference) also reflected in the articles of association. The shareholders’ agreement is typically the main source of the contractual rules governing how a sale process may be initiated, controlled and completed.

The most common exit mechanisms include drag-along and tag-along rights in connection with a trade sale, as well as provisions addressing IPO scenarios and the initiation of an exit process. Drag-along rights are typically structured to allow a defined shareholder majority, usually including a specified investor majority, to require minority shareholders to sell their shares on equivalent terms in a qualifying exit.

While drag-along rights typically allow an exit to be initiated at any time once a bona fide third-party acquisition offer exists and the agreed thresholds are met, shareholders’ agreements commonly also provide for defined exit trigger events that govern the exercise of specific investor exit rights. These triggers typically include the passage of a specified period following the initial investment and/or predefined valuation or return thresholds. Such trigger events often allocate enhanced control over the timing and execution of the exit process to a defined investor or investor majority. Furthermore, separate exit rights linked to investors’ fund life cycles have become more common in recent years.

Transfer Restrictions

Outside these exit scenarios, transfers are generally subject to fairly strict restrictions, including board or investor consent requirements, rights of first refusal and lock-in arrangements for founders and other key individuals. These restrictions are intended to preserve cap table stability and support incentive alignment during the investment period. They also mean that, in the absence of an organised liquidity process or a full exit, shareholder-level liquidity is usually controlled rather than freely available.

Developments in Market Practice

Prolonged holding periods and reduced exit liquidity in recent years have not fundamentally altered the core exit mechanisms used in Finnish VC transactions. However, they have increased the emphasis placed on clearly defined exit rights and trigger events at the time of investment. In particular, investors have focused more closely on time-based exit triggers, return expectations, and the allocation of control over the exit process in downside or delayed-exit scenarios.

Role of IPOs in Exit Practice

IPO exits for VC‑backed companies remain relatively rare in Finland compared to trade sales, particularly following the slowdown of the IPO market after 2022. However, they continue to represent a relevant strategic option for growth companies with international scale, and market interest in IPO exits has shown signs of recovery.

The timing of an IPO is driven by market conditions, revenue predictability, governance maturity, and the company’s ability to meet ongoing disclosure and compliance requirements. Venture investors typically view IPOs as part of a broader exit strategy rather than as a default outcome.

Listing Venues and Offering Structures

Finnish growth companies most commonly pursue listings on Nasdaq First North Growth Market Finland, a multilateral trading facility, due to lighter listing requirements and a lower regulatory burden. Later‑stage companies may consider a listing on the main market, Nasdaq Helsinki or foreign exchanges, particularly in the United States, depending on the company’s investor base and sector.

Offering structures usually involve a combination of primary and secondary components, allowing the company to raise growth capital while providing partial liquidity to existing shareholders. Dual‑track processes, where an IPO is pursued in parallel with a sale process, are increasingly observed.

Pre-IPO Secondary Transactions

Owing to recent years’ challenges in exit market and extended holding periods, there is a growing demand for pre-IPO liquidity among founders, early employees and early-stage investors, particularly in later-stage companies that have been privately held for an extended period. Even so, secondary liquidity is usually approached as a controlled exception (usually in connection with a financing round) rather than a continuous market feature. The objective is typically to provide limited liquidity, cap table rebalancing or retention support without undermining long-term incentives, governance stability or the company’s broader financing strategy.

Structural Challenges

One of the main practical constraints is that Finnish growth company shareholders’ agreements are usually not designed for active secondary trading. They typically include tight transfer restrictions, rights of first refusal, consent requirements and tag-along mechanisms. Those provisions work well in preserving control and cap table discipline, but they make repeated or open-ended secondary trading cumbersome.

As a result, secondaries often require a bespoke waiver or co-ordinated process rather than being capable of occurring on a frictionless basis. In a larger shareholder base, the mechanics alone can become burdensome, particularly if multiple approval, notice and participation steps must be run before a transfer can close.

Legal and Commercial Parameters

Where a structured secondary sale is contemplated, the legal and commercial framework needs to be built carefully. Typical points requiring attention include:

• transfer restrictions and any necessary waivers or consents under the shareholders’ agreement;
• treatment of pre-emption, right of first refusal and tag-along provisions;
• eligibility of sellers and approved buyers;
• valuation methodology and price-setting mechanics;
• confidentiality arrangements and information access;
• disclosure and securities law considerations, where relevant; and
• preservation of employee incentive and governance objectives.

Equal treatment and process fairness also matter in practice, even where not all shareholders participate. A company will usually want the programme to support, rather than distort, the company’s future financing and exit narrative. That is especially important if the company may later pursue an IPO, where pricing discipline, shareholder composition and governance coherence will come under closer scrutiny.

Company-Facilitated Tender Offers

Company-facilitated tender offers are also becoming more common in the Finnish market, particularly among later-stage companies. These are often co-ordinated alongside financing rounds and involve a limited pool of sellers and approved buyers.

Prospectus Requirements and VC Transactions

The offering of equity securities in Finnish VC transactions is governed by EU and Finnish securities regulation, including prospectus and disclosure requirements. In most VC and growth equity financings, exemptions from prospectus requirements are available, as offerings are typically made to professional investors and to a limited group (eg, if the securities are offered to fewer than 150 persons other than qualified investors, no prospectus is needed). As a result, VC transactions can generally be executed without the need for a formal prospectus.

Securities law considerations become more prominent in larger financing rounds, in transactions involving a broad shareholder base, or where a significant number of employees or other individuals participate through incentive arrangements. In such cases, particular attention must be paid to information disclosure, offering documentation and the structuring of employee participation to ensure continued reliance on applicable exemptions.

Crowdfunding as an Alternative

Equity crowdfunding is also used in Finland as a financing method for early-stage companies, typically through licensed crowdfunding platforms. While crowdfunding offerings remain subject to securities regulation, they are generally structured under separate regulatory regimes and are less commonly used in connection with institutional VC rounds.

Foreign VC investments in Finnish growth companies are generally permitted and common, and Finland maintains an open and internationally oriented investment environment. However, sector-specific and national-security-related restrictions may become relevant depending on the nature of the target company’s activities and ownership structure.

Finland has implemented a foreign direct investment (FDI) screening regime that allows Finnish authorities to review acquisitions of substantial influence in companies operating in sectors considered critical for national security or public order. While most VC investments fall outside the scope of mandatory screening, minority investments, increased ownership through follow-on rounds, or investments in defence-related, dual-use or other sensitive technology companies may trigger assessment requirements.

The relevance of foreign investment controls has increased in recent years, particularly in technology-driven sectors and in transactions involving non-EU investors. In addition, Finland is preparing a significant reform of its FDI screening regime in connection with the entry into force of the new EU FDI Screening Regulation in the summer of 2026. The planned changes are expected to materially broaden the scope of the Finnish regime and tighten screening requirements, which may further increase the relevance of FDI considerations already at the VC stage.