Aiming for a broader investor base

Historically, public sector players like Tesi have been expected to develop the market mainly by distributing capital. As the market develops, though, our role has diversified. We have accumulated a massive amount of data about Finland and about international markets, and we are planning to harness this data to provide even better, more enhanced market services.

Since the very start of our operations, we have been involved with bringing new fund teams to market. Altogether 31 of these teams were new entrants. Some 80 per cent of them are still operating. Additionally, Tesi’s FoF Growth funds have channelled pension capital, through FoF Growth and directly from pension companies, into new, developing and smaller-sized funds. Simultaneously, the operations of more established players have been scaled up to a larger size range. Over the past year, alongside making conventional investments in funds and directly in companies, Tesi has researched and developed new types of financing models to supplement the market.

There were many positive examples of market development in 2018. Saari Partners, our target fund, announced a new MEUR 40 fund making majority investments in service SMEs operating in traditional sectors. We also invested in Maki.vc fund, that raised MEUR 80 for seed round or Series A round investments in promising tech startups.

A BROADER INVESTOR BASE GIVES CONTINUITY. Our goal is to collaborate with the Finnish Venture Capital Association and Business Finland Venture Capital in finding ways we can induce new fund investors to invest in Finnish venture capital funds.

Matias Kaila

A broader investor base will benefit managers by giving them more continuity.

MATIAS KAILA / DIRECTOR, FUNDS, TESI

This can be achieved by, for instance, improving market transparency. The analysis we published in spring 2018 of the long-term performance of Finnish venture capital funds is a step in the right direction. Alongside its publication, we arranged an event to keep family office investors abreast of developments in Finland’s venture capital industry.

The proportion of domestic investment in the Finnish venture capital market remains extremely high in comparison with the rest of Europe. A broader investor base at an early stage of the investment process will benefit managers by giving them more continuity and the ability to scale financing activities to suit new funds.

INTERNATIONAL NETWORKING ESSENTIAL. Investing in international funds that supplement the market enables Tesi to reinforce the networking of investors already interested in Finland and show them a potential deal flow. Collaboration also corresponds to Finnish companies’ financing needs, because Finland still lacks larger-sized venture capital funds that are capable of effectively scaling up Finnish companies to enter competitive international markets.

Finland’s visibility amongst international investors does not just project itself.

TOMI RIIHIRANTA / MIDDLE OFFICE
MANAGER, TESI

Finland’s visibility amongst international investors does not just project itself: a lot of footwork is required from both the private and the public sector. Fund players must devote time between fund-raising processes to networking at industry events. The public sector, on the other hand, must sharpen Finland’s market image, highlight the country’s strengths and ensure it has both a viable operational framework for the VC/PE market and an attractive investment environment.

DATA TO SUPPORT THE MARKET. In 2018 we started building up a comprehensive data model encompassing the whole of Finland’s private equity sector. We have solid expertise and sound skills in refining and utilising data. Now we plan to be even more active in producing and distributing information to meet the needs of our various stakeholders and enhance market transparency. We will also endeavour to use our networks to enhance our efficiency in channelling expertise and capital.

TOWARDS MAKING AN IMPACT. Last year also saw the investment world make significant strides forward in fostering responsibility. Laurence D. Fink, CEO of BlackRock, an American asset management company and the world’s largest asset manager, announced that BlackRock would no longer invest in companies that did not have a clear social mission. Social responsibility is, indeed, shifting more towards making a social impact. Responsibility is increasingly becoming a planned component of business activities.

For companies to be competitive, it is now even more important for them to focus on the type of problems or development opportunities that will generate benefits in Finland or throughout the world. At Tesi, this trend is most visible as investments in funds that support the growth of companies developing the circular economy and cleantech.

We are keen to see whether impact investing will form its own investment segment or whether it will be integrated into wider investment activity. For the latter case, the results are promising. Some 64 per cent of respondents to Global Impact Investing Network’s (GIIN) 2018 Annual Impact Investor Survey target market-rate returns for their investments through impact investing. A clear majority of all respondents reported that their investments performed in line with, or exceeding, both financial and impact expectations.

A brisk year for the venture capital market

Financial year 2018 again saw brisk activity in the venture capital industry, as was the case in 2017. The Finnish venture capital market continued to develop favourably and to internationalise, and the improved performance of Finnish funds reflected this.

Tesi made investment commitments to venture capital and private equity funds totalling MEUR 96 in 2018. Our international investor partners and portfolio funds invested MEUR 123 in Finnish companies during the year. The favourable conditions also allowed Tesi to successfully sell its holdings in international buyout funds.

Tesi made investment commitments to venture capital and private equity funds totalling MEUR 96 in 2018.

UNCERTAINTY IN THE AIR. Towards the end of the year, the pace of fund investment slowed as stock market valuations began to fall. The culmination of a protracted economic upswing combined with the threat of a trade war, among other factors, has created investor uncertainty. A slowdown in market growth is expected in 2019, both in Europe and throughout the entire global economy.

A correction in evaluation levels generally depresses buyers’ price expectations rapidly, whereas sellers’ conceptions of the price level are slower to follow. This can slow down the pace of corporate acquisitions and the raising of equity financing. If the fundamentals of the real economy remain favourable, we believe attractive investment prospects will still be found in the market.