Thank you for Subscribing to CIO Applications Europe Weekly Brief
The Finnish PropTech Cluster, A Global Testbed For Innovation?
By Teemu Haataja, Director, Sector Head of Real Estate and Construction & Sarah Sipilä, Director, Global Strategy Group, KPMG Finland
As the birthplace of Nokia and global gaming leader Supercell, Finland is a hub for innovation and a promised land for engineers and coders. Key institutions such as Aalto University and VTT Technical Research Center of Finland Ltd drive R&D and have strong programs that encourage commercialization of innovation. Business Finland, a government-funded organization, promotes Finnish businesses abroad, works to attract investment to Finland, and finances innovation.
In 2016, the Finnish government and key industry stakeholders launched Kiradigi to stimulate sustainable digitalization and innovation in the built environment. This project brought government representatives, municipal leaders, and industry companies together to drive change. In a larger country, involving all key decision makers might not have been possible, due to the sheer number of players involved. Between 2016 and 2018, Kiradigi channelled about 16 million Euros of public and private funding into the sector, including 130 different projects to stimulate innovation and create new businesses. Kiradigi will now continue as KiraHub, a non-profit funded by key industry organizations. The Platform of Trust was recently established to serve as a digital platform for sector companies to help fulfil legal obligations related to supplier evaluation and smart identification cards for site workers.
Proptech Finland was launched in 2018 to create a community for proptech. Proptech Finland has forged strong connections in the Nordics and Europe and has been using them to foster links between startups, corporations, and investors in Finland and internationally.
SLUSH, the world-renowned startup event in Helsinki, has brought attention to the startup scene and attracted global investors.
To succeed, Finnish startups need to continue focusing on solving real pain points and validating their value propositions
Most Finnish proptech companies are still small, with average revenues at almost 2 million Euros in 2017, but growing quickly with an average revenue CAGR in 2015-2017 of 63 percent. Sub-clusters in design, planning, and property management are emerging. Companies are using all the technologies typically associated with proptech, but most frequently build their businesses around 3D design, BIM, augmented and virtual reality, cloud computing, and IoT. Key companies such as Assetti in real estate portfolio management, Hyperin in retail real estate management, 720 Degrees in indoor air quality, and Leanheat in energy efficiency (recently acquired fully by Danfoss) are building growing positions in Finland, Europe, and beyond. More established players in building technology such as private-equity-backed Fidelix in building automation and iLOQ in smart locks have developed into fast-growing, profitable businesses. As these and other companies have grown, private equity and venture capital funds are showing significantly more interest in the sector.
In construction, innovative players are challenging the old guard. For example, Fira, based in the Helsinki region, has an entirely new focus on the customer experience and has revolutionized traditional plumbing projects with its two-week pipe renovations. Fira has invested significantly in smart services and tests innovations first within its own business before commercializing them. Jussi Aho, Fira’s CEO, said, “Digital innovations in construction need to correspond to the technical reality of the site. They must be tested. I believe that innovation is created through the interaction between different types of people. The solutions are found between us.”
Admares, a born-global player from the Finnish west coast, has developed the capability to mass produce complete smart buildings in a factory setting. Admares is set to disrupt the sector by moving the majority of construction activities off-site, virtually eliminating the need for traditional construction labour and the construction site, significantly reducing construction time, and improving quality.
In spite of the many conditions that spark innovation and facilitate commercialization, startups in Finland face multiple barriers. Currently, no proptech-focused fund exists in Finland or the Nordic countries. Finns often excel at creating technically-advanced products, but struggle with marketing or building successful service businesses around them. Established players have been slow to test innovations emerging from local startups. According to Proptech Finland founder, Mikael Långström, “even when companies have success piloting a startup’s services, significant delays often occur, as the processes for implementing innovation more broadly do not exist.” Some startups have had to prove their concepts with sales to leading players in other countries before Finnish companies would even consider purchasing their services.
Nearly all recognize the vast potential of proptech. To succeed, Finnish startups need to continue focusing on solving real pain points and validating their value propositions. They also need established players willing to test their products and services and to find committed investors. Perhaps Fira’s Jussi Aho said it best, “We are at a very exciting time now. Real estate and construction are among the last sectors to be transformed by technology. There is nearly infinite potential for improvement. I am not sure that we even understand the scale of the challenge yet.”