Making the future, not drifting into it

The world should be a better place in 2030 than it is today. Tesi wants to be part of making the future, not just drifting into it. In addition to world-famous conductors and ice hockey players, we want Finnish expertise, perseverance and creative passion also to produce solutions to global challenges. These solutions are produced in companies: cleaning oceans, enhancing cancer treatments or lengthening IT lifecycles.

Tesi develops Finland’s venture capital and private equity market so that innovative companies have sufficient financing for global growth. Companies are key players in finding and deploying sustainable solutions to global challenges. Therefore also the society at large benefits from the achievements of companies as well as their financial backers. Since only responsible companies are able to create sustainable growth, it is essential that owners set requirements when sparring companies.

We want Finnish companies to be involved in solving the challenges of sustainable future.

TURNING INVESTMENTS INTO IMPACT. During 2018 and 2019, we engaged all our personnel in formulating Tesi’s new strategy. One of the main drivers for our operations is to achieve a positive impact. Our portfolio companies were Finland’s fourth largest source of international sales in 2018. Although this is a great achievement, it is not enough anymore. We want Finnish companies to also be involved in solving the challenges of sustainable future.

We are not alone in this. Startup companies often target their operations, one way or another, at solving the major concerns of mankind. Similarly, more established companies are setting their sights more and more on sustainable development. For example, adopting a circular economy approach to business is one way for a company to make a positive impact.

Attitudes towards corporate responsibility have changed drastically during the past years. A company does not need to be perfect to be qualified as an investment. There can be room for improvement, and investors are ready to jump in and help with these improvements. When the aim is to solve major challenges, it is not what companies leave undone that should be monitored, but rather what they can do in a new way. Research by the Finnish Venture Capital Association indicates that 58% of Finnish investors address impact issues in addition to responsibility when planning new funds. This mindset brings investors and companies to the same side of the table in their attempts to make a positive impact. Common goals are a good starting point for development.

When implementing our new strategy we will build meters to measure the impact of companies’ operations. Alongside profits, we are looking for other ways to measure how companies can quantitatively demonstrate the impact they achieve.

TURNING OWNERSHIP INTO EXPERTISE. Another aspect of our mission is to support Finnish companies’ growth and international expansion. Using our networks we help companies raise financing and, most importantly, expertise from Finnish and international sources.

It is sometimes claimed that Finnish companies are sold abroad too early. It is, indeed, admirable that Finland has companies with long-term owners. There are many companies, though, for which a mix of Finnish and international owners can prove to be profitable, because a company needs different ownership skills at different stages. An international owner can be the best possible solution for a company that is just entering a market that is familiar to its owner.

Minority investors can make ownership arrangements easier when, for example, family business owners want to import expertise to develop their companies without divesting the entire company. Tesi is a minority shareholder in its portfolio companies, working in cooperation with other investors, owners and partners. We try to obtain the best expertise for the company through our networks.

In an ideal case, the company that is sold receives a new and better home, while the vendor re-invests their expertise and resources into new companies. This creates a virtuous circle that produces active ownership, jobs and wellbeing that benefit the whole economy.

A virtuous circle is created, that produces active ownership, jobs and wellbeing that benefit the whole economy.

TURNING MONEY INTO SOLUTIONS. Tesi is an active investor that develops the venture capital and private equity market in Finland, consistently analysing the market to identify bottlenecks. We want to ensure that promising projects are not left behind simply because they lack financing. In 2019, we made investments totalling €133m in funds and directly in companies.

We operate as a long-term investor in funds, and in doing so we enhance the positive development of growth financing in Finland. Our collaboration with Finnish and international funds, such as Lifeline, Atomico or Devco, brings in significant business expertise to Finnish companies. Tesi’s direct investment programmes offer a faster precision weapon for eliminating bottlenecks in the market. Under our Circular Economy programme, we have invested in Environmental Technologies Fund 3 and made direct investments in Endev and Foamit Group. Through our co-investment programme with the European Investment Bank (EIB), we diversify growth financing together with private investors and ensure that Finnish companies can raise large enough financing rounds for their needs. In 2019 we made investments under the programme in Wirepas, solver of industrial IoT challenges, IceEye, developer of satellite imaging, and Rauma Marine Constructions, a shipbuilding company.

The stock exchange is one important source of growth capital. An IPO is also an opportunity for investors to exit from portfolio companies and plough capital back into new investees. Last year five companies listed on Helsinki Stock Exchange’s First North Growth Market. Tesi wants to promote listings on the Helsinki Stock Exchange by acting as an anchor investor and by sparring growth companies towards an IPO. In 2019, we were an anchor investor in the IPO of Relais Group, and two of our portfolio companies (Optomed and LeadDesk) listed as well.

As in previous years, Tesi’s financial performance remained strong in 2019. Portfolio companies’ healthy growth and exits, in particular on the fund investments side, boosted our profit to €78 million. This provides Tesi with excellent resources for continuing to finance Finnish companies’ growth and develop the country’s risk capital market.

TURNING INFORMATION INTO ACTION. Our fourth strategic theme is to produce and distribute insightful data on the venture capital and private equity market. We will deepen our understanding of market bottlenecks so that we can target our investments at areas promising the best potential impact. We collect and refine in-house and public data. We collate the data with our charted experience in collaboration with our partners.

One example of our data product is the analysis of Finnish Mittelstand companies. The analysis confirmed the assumption that Finland’s Mittelstand (mid-sized) companies are a strikingly narrow segment. Most of company turnover in Finland is generated by large corporations in the country’s three largest sectors. An economy weighted in favour of large corporations in a few sectors is vulnerable not only to global macrocycles, but also to business fluctuations in individual sectors. When large corporations are in a dominant market position in their global target markets already, they also have more limited growth potential compared to smaller niche players and growth companies developing innovative products. Mid-sized companies therefore play an important role in Finland’s economy in terms of their growth and employment potential. We must now find ways to lift this group of companies to the next level.

AMBITION FOR OWNERSHIP AND SUCCESS. Tesi was founded 25 years ago. During this time, impact themes have become increasingly important in the world of risk capital. The operating environment has grown in complexity and become more international, while the number of investors and financial instruments has multiplied. Set against this, our own operational capabilities and market leverage have increased. Digitalisation has opened up the whole industry to new ways of working.

Our work will never be completed, because companies and markets face constantly changing conditions. Market bottlenecks change locations and business cycles are not static. Companies and funds need financing, professional sparring and networks to accelerate their growth in all situations.

Our operations are founded on the knowledge, expertise, contacts and networks acquired over the course of our 25-year history. We could not have built our data model, for instance, without systematically collecting the data for such a long time. All of this enables us to implement our new strategy together with our partners.

I would like to thank Tesi’s personnel, investors both in Finland and abroad, and above all Finnish growth companies for their courage in finding new solutions and taking them to global markets. Through ambition for ownership and success, we will together lift Finland into the front ranks of renewed economic growth.

Jan Sasse