More important than money

In addition to money, Finnish companies need skilled ownership, active board work and insight into international business operations, to support their growth and internationalisation. The most successful investors contribute with experience, resources and risk-taking ability to their portfolio companies, which consequently show much higher growth rates than their peer companies. A study conducted by the Finnish Venture Capital Association, shows that companies that received a VC/PE investment on average showed a 6 times higher average rate of annual growth in net sales, compared to their peers. Annual growth in the numbers of personnel employed was up to 15 times faster. Tesi’s role in supporting companies’ growth and internationalisation is deployed through both direct minority investments and investments made in funds.

OUR STRATEGIC THEMES IN 2018

Market developer. To develop Finland’s venture capital and private equity market, Tesi’s primary task is to eliminate market bottlenecks. We assist in the creation of new VC/PE funds, especially in sectors where we see potential for fund-based growth financing. Last year, for example, we invested in Saari Partners, which develops SMEs in the service sector, and in Maki.vc, which invests in early-stage technology companies.

Direct minority financing together with private investors is one way to support the growth and internationalisation of SMEs. Direct investments allow capital to be put to work faster than fund investments and can be used in business sectors that do not fit the typical operating models for fund investments. I believe there is room in the market for funds and for institutional investors operating as minority financers. With direct investments we can also support funds in situations where the size or lifetime of the fund set challenges for implementing a planned investment.

Our role as an owner. Developing a company strategically over a long timespan calls for skilled owners who are active and complement each other, a properly functioning board and a professional and innovative management team. Seamless teamwork between all parties is essential. Our active ownership primarily implies, that we collaborate with the owners of the company to identify what expertise and experience is needed in the company’s board and executive management to achieve the company’s planned growth and internationalisation. The best results are often achieved when the board and the executive management is diversified in terms of age, gender, education and cultural background.

Impact and responsibility. As an investor, we can make an impact on the achievement of national and global goals for sustainable growth through the investments we select and by promoting sustainable development in our portfolio companies. When we invest, we look not only at the financial goals but also at the responsibility targets and impact objectives of the companies and funds. We analyse what type of tangible issues there are that promote responsibility and subsequently improve the company’s business. The content of these issues range, depending on the case, from climate change mitigation to promoting diversity. Decisive for achieving the goals is setting the right direction for the development and working over a long timespan.

Renewal. As a state-owned capital investor, we constantly evaluate our role in the market. The reason for Tesi’s existence is defined by law: we help Finnish companies to grow and internationalise and we develop the Finnish capital market. To fulfil this mission, we are constantly critically assessing both new and current investment themes. Thus, our investment portfolio and investment focus are subject to alteration of changing market needs.

At the end of 2018, we started a new form of investing by providing supportive anchor investments to growth companies planning an IPO. Anchor investments are made in companies where listing is the best financing option but when the size or the business sector makes an IPO challenging. In October, we made our first anchor investment in the First North listing of the industrial facility maintenance specialist Viafin Service.

In August we entered a co-investment programme with the European Investment Bank (EIB) that will channel a total of MEUR 100 to promote the growth of innovative SMEs and mid-cap companies. In each financing round, private investors will provide at least the same amount of capital as the EIB and Tesi. This is a way of helping a Finnish fund make larger investments and deploying larger growth investments.

In 2018, the Finnish state decided to concentrate its mining industry holdings in a new ownership and development company, Finnish Minerals Group, to which Tesi’s Mining Cluster Investment programme was transferred. As part of this arrangement, Tesi exited from its investments in Keliber Oy, Ferrovan Oy and Sotkamo Silver Ab. We also disposed of our international buyout fund portfolio. We will support long-term market development by focusing now on other prospective funds.

OUR INVESTMENT YEAR

Our investments. The financial year 2018 was busy in terms of investment volumes. We invested altogether €59m in eight funds and €37m in FoF Growth III. Direct investments comprised first-round investments of €52m and follow-on investments of €10m.

The focus of venture investments was on fast-growing deep tech companies, such as ICEYE and Dispelix. Nosto, Oura Health and Kaiku Health represent investments in scale-up phase. Conventional growth and minority investments included Zsar, Uusioaines and GRK.

Exits. In capital investment, the systematic development and goal-oriented value creation in the company is followed by the sale to a new owner prepared to develop the company further, or the company goes public. The investment year showed examples of successful exits from both our Finnish and international funds. Creandum exited from Spotify and MB Rahastot sold Suomen Transval Group Oy to Posti Group Corporation. Nexit Ventures exited its Ekahau holding, selling it to Ookla. Tesi exited from six companies, three of which were in the Mining Cluster Investment programme.

A LOOK AHEAD: CIRCULAR ECONOMY PROGRAMME AND DEVELOPMENT OF OPERATIONS 

Circular Economy. As an investor, we can make an impact on the achievement of national and global goals for responsibility through the investments we select. We invested in some interesting circular economy companies and funds through our new MEUR 75 Circular Economy programme. The programme’s first direct investment was in Uusioaines, a company processing recyclable glass and a manufacturer of foam glass. We made our first fund investment in the Environmental Technologies Fund III, which focuses on investing in early-stage technology companies.

Our goal is that the companies and funds in our investment portfolio have a positive net impact, and we support them in solving any challenges to achieving this goal. The circular economy offers abundant opportunities for profitable and responsible business.

Strategy work. In autumn 2018, we launched a strategy process during which we will identify the steps Tesi should take to better assist companies towards growth and internationalisation. We want our strategy to clarify where Tesi is particularly needed as a finance provider and market facilitator, and to bring to light which actions we can take to develop the investment market. Strategy work gives us the resources to focus our efforts better and to make a stronger beneficial impact.

Data. So that we can develop the venture capital and private equity market, now and in the future, we want to deepen our understanding by augmenting data. We are building our own data model to combine Tesi’s long-term knowledge of the investment industry and transactions with external data on companies, transactions and VC/PE investing.

By collecting, refining and analysing data, we will examine what has been done, how different solutions have worked and what sort of new strategic opportunities different players can find. Using our data model, we will produce useful information and market prospects for our stakeholders and in collaboration with them. Just the same as in ownership and boardwork, cooperation and diversity enable the best possible outcome also in exploiting data.

Personnel development. Tesi’s personnel have been involved in all stages of our strategy work. Our personnel’s diversified skills and enthusiasm for enhancing our operations is a joy to behold. By doing things together, we also continuously learn from each other. Enhanced utilisation of data is a key component of our new strategy, and for us that also means focusing efforts on developing new types of talents and skills.

Many thanks to growth companies, funds, co-investors and partners! I would particularly like to thank the Finnish Venture Capital Association, the Directors’ Institute Finland and the Family Business Network Finland, with whom we arranged many events. Heartfelt thanks to Tesi staff for a year rich in investment activity and strategy work.

Jan Sasse