Growth financing for ambitious projects

The EU’s new financial mechanism for investment funding will increase the size of financing rounds for venture capital in Finland, paving the way for large investments in growth companies.

The new financial mechanism, wherein investments are split equally between the European Fund for Strategic Investments (EFSI) and Tesi, will supplement the options currently available. The financing – consisting of EUR 15–30 million per company – is targeted at growth-oriented SMEs and innovative midcap companies. The funding is structured to be complemented by private sector co-investments of equal amount.

“This is precision investment in selected companies. It will diversify and supplement both the available sources of financing and companies’ financing structures,” says Tesi’s Development Director Henri Grundstén.

The financing is targeted primarily at young, venture-stage growth companies that are internationalising as well as at established midcap companies.

“Venture-stage companies could be, for instance, enterprises with business operations driven by technology development, intensive R&D and a high risk level. Such companies are likely to be found in the material technology and life science sectors,” posits Tesi’s Investment Manager Miikka Salminen.

Miikka Salminen

We look forward to hearing some bold ideas from growth companies.

MIIKKA SALMINEN / INVESTMENT MANAGER, TESI

The new financing programme is a part of the Investment Plan for Europe, which aims to boost the investment and competitiveness of European SMEs. The EFSI financing will be channelled through the European Investment Bank (EIB).

“Now there’s financing available for ambitious projects. We look forward to hearing some bold ideas from growth companies,” says Miikka Salminen.

FINANCING FOR A LEAP IN GROWTH. Tesi will partner with the European Investment Bank to channel MEUR 100 in EFSI financing to Finnish companies over the next eight years. Each financing round will additionally include at least the same amount of private sector co-investment, so the total sum will rise to MEUR 200.

“Tesi will apply the same criteria and operating principles in these investments as in its other investments. The targets for returns will comply with market practice because we always invest hand-in-hand and on the same terms with private investors,” says Salminen.

We are offering international-scale financing rounds with domestic ownership.

HENRI GRUNDSTÉN / DEVELOPMENT 
DIRECTOR, TESI

The size of an individual investment will be in the range of MEUR 30-60, depending on the fund. Such large financing rounds have never been seen in Finland until now. Although the full sum of MEUR 200 is a good size, it will be sufficient for less than ten companies due to the large investment sums.

Grundstén and Salminen estimate that there are a limited number of companies meeting the financing conditions in Finland; perhaps a few dozen.

“Nevertheless, there’s been a satisfying increase in the appetite for growth, so we hope Tesi can serve companies now seeking really bold growth,” says Salminen.

“Companies can themselves choose their most suitable financing partners from a number of candidates. Here we’re offering international-scale financing rounds with domestic ownership,” adds Grundstén.

“The new financial model enables larger investments than before also in higher-risk, early-stage companies that are capital-intensive or R&D-intensive,” says Henri Grundstén.

TESI TO PREPARE AND MANAGE. Companies can use ESFI financing for many different investments: to expand production, widen a sales network, or for an acquisition. The financing is, however, conditional on the company itself investing an equivalent sum over seven years in factors accelerating growth, such as product development or marketing.

Tesi will collaborate with the company, the company’s advisors and private co-investors in preparing investment decisions and making investments. First-round investments meeting the criteria are presented in the initial stage to the European Investment Bank, which has the right to veto them.

“We’ll make first-round investments for three years and after that we can make follow-on investments for five years,” explains Miikka Salminen.

The EIB becomes operatively involved after the first-round investment decision. Tesi operates as an active owner in developing portfolio companies, makes follow-on investment in them if necessary, and decides on exiting in cooperation with private investors.

 

EIB AND TESI CO-INVESTMENT PROGRAMME
  • What it is: A programme for growth-oriented SMEs and innovative midcap companies to boost growth, internationalisation and product development. Tesi will manage the investments as an active owner, hand-in-hand with private investors.
  • Total amount MEUR 100 (EFSI 50 + Tesi 50).
  • First-round investment 3 years, follow-on investment 5 years.
  • Total investment MEUR 30-60 per company (includes 25% Tesi, 25% EFSI and 50% private sector co-investment).