How Finland became a hotspot for defence tech
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Hi there, I'm Maddy Savage. And for today's Business Daily, I'm digging into an industry that's thriving around Europe, defence tech. It's a sector that includes a wide range of technologies designed to help countries protect and defend themselves, from surveillance tools to military and maritime software and flight simulators.

I've been to visit one of the cities where the industry is growing rapidly, Helsinki in Finland. The war in Ukraine just kind of put everything on steroids. Things started happening a lot faster. I guess we're all aware, at least here in this part of Europe, that the world is a lot more insecure than it used to be. In this programme, I'll be meeting some of the Finnish defence tech start-ups generating global interest, finding out how the industry's image has changed over the last few years...

and digging into the challenges for the sector in Finland and around Europe. We build these bureaucratic processes into the governments, into the acquisition organisations that are preventing Europe from moving fast enough. That's all coming up on Business Daily from the BBC World Service.

But first, I'm starting the programme around 4,500 metres in the air above a mountain range just above George on the south coast of South Africa. Clear skies and I'm flying a fighter jet. Well, not really. This is...

A simulator, a mixed reality simulator developed by one of the defence tech companies that's really making a mark in Finland. Yeah, that was me a few weeks ago, wearing a headset and sitting in a cockpit where I had pedals and control panels like the ones in real F-16 fighter jets. I was trying to explain how the simulator works while I was attempting to control it, and it didn't go too well. Whoa, I think...

I've pushed myself a little bit too far to the side and oh no, oh no, oh no, I'm going to crash. Whoa! That feels really, really real.

So this is the technology that's being used by members of the military to basically teach them to learn exactly how to fly these sorts of planes with precision, but avoiding having to do that in either reality, in the sky, or in more traditional simulators, which are huge, involve multiple screens. They normally take place in massive aircraft hangars. But we are in a small office in...

a district of Helsinki city centre. My name is Timo Toikkanen. I'm chief executive officer of Vario Technologies. So we are a maker of mixed reality headsets. And what does that mean for people that are less techie than you? So quite many people know by now what virtual reality headsets are. So they are this kind of thing that you wear on your head and you see...

scenario, synthetic content. It's like seeing a video game. And mixed reality is kind of like the next stage of that where you don't only see artificial synthetic content, but in addition to that, you can also see the real world. And the way we do it, you can blend them together digitally completely seamlessly so that you don't anymore know which part of what you see is

The company was launched eight years ago and it works with a wide range of industries including car makers and medical research.

But the defence side of the business has seen significant growth since 2022, when Ukraine was invaded by Russia. And since then, Varios scored more than $50 million in extra funding from investors. The war in Ukraine just kind of put everything on steroids. Things started happening a lot faster. And I guess we're all aware, at least here in this part of Europe, of the new situation.

which is that the world is a lot more insecure than it used to be. Finland is Russia's neighbor and has joined NATO. Has that had an impact on your business? Well, our largest clientele is in the United States, and that's because most of NATO's weapons systems originate in the United States. But definitely, you know, what has happened, especially recently,

And are you seeing more interest now in the last month or two then from European military forces and governments?

Yes, we are today supplying more than 80 synthetic training programs across NATO, many of them in Europe. And we definitely have seen over the last month or two much more ambitious plans and much bigger scale plans in ramping up.

synthetic training for various things in European countries. I don't want to name names, but there definitely is. And that will over time, of course, certainly benefit many companies, including ourselves. So it would seem both the war in Ukraine and the political tensions between Europe and the US since President Trump returned to power have generated a lot of interest in the company's technologies. And this is an experience being shared by a lot of other defence tech startups around Europe right now.

A recent report by Dealroom, which gathers data on tech funding, found there's been a 30% increase in venture capital investment in companies classified as working within the defence, security and resilience space in the last two years. During a tricky time for the global economy, when the overall European market for this sort of private funding dropped by 45%.

Helsinki was listed in the report as amongst the top five cities in Europe for investment, scoring almost $200 million in 2024 alone. Later in the programme, we'll dig deeper into some of the specific reasons the defence tech scene is growing here.

But first, I want to get a broader understanding of an industry that hasn't always had a great image. So Nicholas Nelson, I've spent my entire career the last 18 years in defence, international security and investment. He's from the US but based in London and now focused on investing in the Nordics and Baltics. So I wrote an article back at the end of 2020 focused on the opportunity to build defence unicorns or startups valued over a billion in Europe. And

And at that time, I received a number of notes in response to it. It was one of the few times I've actually received proper hate mail that this was, you know, Europe didn't need this, didn't care about this, and it was too aggressive of a stance. He says many of his critics felt uncomfortable about Europe building companies connected to defence at a time when there was an increased focus on European companies' social and environmental responsibilities.

But now, given the increased geopolitical tensions, more people support his argument that defence tech is essential for Europe's safety. If you believe in human rights, free and fair elections, rights of minorities, it really only matters if you can protect your people from either, yes, direct invasion, but even things like misinformation, disinformation or cyber threats. And the way to do that is investing in defence. So how would you describe the mood and the buzz around defence tech now?

I think it's very difficult to even appreciate the sheer level of the sea change that has transpired over the last even five years. Since then, I've gone from where investors were not really interested, besides myself and a small syndicate I ran, to now you're seeing a number of funds springing up both at the national level as well as generalists moving into the defense space.

One of Finland's big investors in the scene is a state-owned company called Tessi. It recently released a report revealing the nation has 368 defence tech companies, 40% of which are start-ups and scale-ups, with many growing at rates of 30 to 40%. That's impressive for a country with a population of just 5 million.

Defence tech is expanding in other parts of the Nordics too, but a separate report from Danske Bank found that Finnish companies account for 85% of the total investment in the region.

Finland borders with Russia, and its government spent a greater proportion of its budget on defence than many other European countries, even before the war in Ukraine. It also kept up military service.

Nicholas believes these factors may have influenced Finnish entrepreneurs and investors in the defence tech scene. They also have a memory of the Winter War, which transpired during World War II, where they were invaded by the Soviet Union. So for those both historical reasons, as well as the nearness of the threat and the shared border, is why they have that, I would say, greater risk profile, if you will.

Another core factor behind the growth in Finland's defence sector is what people who work in tech refer to as the local ecosystem. The people, initiatives and culture that help an industry develop.

Earlier in the programme, we heard from the CEO of the mixed reality company, Vario. He set up the business with former colleagues from the Finnish phone company, Nokia. Nokia was huge in the early 2000s and then ran into financial trouble. But that helped grow the country's tech ecosystem as talented workers instead built their own companies. In Vario's case, many of the team also worked together at Microsoft in between.

So there was a lot of, you know, like technology jobs that were kind of honed under the wing of these bigger companies. They had obviously great experience of how to build complex electronics and a lot of connections, you know, to suppliers and whatnot, you know. So many of the ingredients that were needed came from the background of the core team. You're listening to Business Daily from the BBC World Service.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

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I'm Maddy Savage, and today I'm finding out why the northern European country of Finland has become a hub of defence tech. Finland also has a reputation for producing spin-out companies, businesses grown out of university research. It's home to the largest annual tech event in Europe called Slush, and it's made heavy investments in public-private partnerships.

Hi. Nice to meet you. Thanks very much. Just shut the door.

Kursi Koko works for Business Finland, a Finnish government agency that promotes investment and innovation. And I'm the head of Defence and Digital Resilience programme. And your role didn't actually exist until spring 2024, which I guess tells us something about the real focus on this sector right now. Well, we started this particular programme actually not only a year ago.

And before that, we had a little bit similar program, but this new one is more focused on defense tech and defending our country's independence.

We have directed 120 million euros for supporting the research and development initiatives from especially the small, medium and start-up companies. And that's taxpayers' money? That's taxpayers' money. And we measure, of course, very carefully how that's used. And we can prove at Business Finland that the money spent for these kind of efforts, even the risk-taking, is paying off.

very well. Clearly, whenever money is directed from one area to another, there are debates. Finland has an ageing population. There's also concerns about climate change. It's, of course, a good discussion. And I think the open discussion is needed. And there will be hopefully different times how the money will be spent. One example about if we talked about a lot about green transition just a couple of years ago,

So you can actually see in the sustainability and green trends even in defence tech. So things are being done in more energy efficient way and more sustainable way. So they are a little bit merging, but of course the political decision makers need to make their decisions where to put the money. Kursi says one ongoing challenge for Finland is encouraging global talent to move here to help fill skills gaps.

Other defence hubs around Europe, like Cambridgeshire and Munich, have traditionally attracted more money. And their winters aren't as dark and cold.

Everybody is competing about the software talent, especially certain kind of talents. So I think we need to have a good story. And I think we do about all in all a safe and stable country, low hierarchies where you can do your innovations in this area. And we have a team, for instance, in Business Finland, who is specialized in providing support for the talent who wants to come to Finland.

Another part of the tech ecosystem in Helsinki is this place, Maria01, an old hospital that's become the biggest start-up campus in the Nordics and hosts a lot of events designed to promote networking and collaboration.

I'm here to meet Janne Hirtala, the CEO of Kelo. Its technology allows unmanned airships to fly in low clouds in cold Arctic temperatures. The firm started out in a shed in a remote part of eastern Finland. That's true that I've told the story that great startups start in a garage, but the best ones will be started in a shed.

And that was the first laboratory in a secret location where which we started from. And for security reasons, we can't really come and see your factory right now. But you have got some photos which you've opened up on your laptop. Do you want to just talk me through what we can see here? Yeah. So here we basically see the platform flying in a very Arctic scenery. It's above Arctic Circle. We have a flight time of 12 hours in a single flight that we can we can fly and everything's very silent.

We also use hydrogen to produce energy through hydrogen fuel cells. So this is a very novel technology that has come together in a single package that can now reside in the air for a very long time.

The company originally planned to use its technology to gather data about climate change. But Yannis says it's now also targeting governments, cities and research institutions in Europe who can use it for surveillance. It isn't turning a profit yet, but recently got a spot in a NATO-run programme called Diana, designed to help accelerate the growth of these sorts of dual-use businesses.

Still, Janna believes one of the core issues for new Finnish and European defence companies is something of a clash of cultures between start-ups and military organisations. It's just the long cycles that the defence forces and the NATO has had acquiring new technology. So it used to take six to ten years from concept experimentation into prototyping and

And that's kind of the cycle that startups cannot do and they don't have a patience to follow that kind of process. I guess the flip side of the argument is because of concerns about security, data security, wanting to make sure that products are 100% safe. I think there's a part of that, but I think we built sort of these bureaucratic processes together.

into the governments, into the acquisition organizations that are preventing Europe from moving fast enough. But I would say that also the secondary reason there that frankly a lot of the NATO officers have mentioned publicly as well, that if you use taxpayers' money to develop technology, you have to make it work. And then that's really on the opposite side of the spectrum for startups, which DNA is that we will fail fast and rapidly, and you don't have every startup succeed.

Nicholas Nelson, the investor we heard from earlier, and Timo Teukenen from the mixed reality company Vario shared similar concerns with me, alongside worries that Europe's defence tech market is currently very fragmented.

All this is something the European Union is trying to address, with ongoing tensions between the US and Europe adding a sense of urgency. In just the last couple of weeks, the EU has set out a vision to help support the defence industry with more investment, simpler regulations and encouraging better cooperation between member states.

We'll be keeping an eye on how quickly things end up moving. But for now, that's all we've got time for from Business Daily. This episode was produced and presented by me, Maddy Savage. Thanks for listening.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

If you're going there, so are we. Book now on Emirates.com. Fly Emirates. Fly better.