Positive spiral generates success and wellbeing

We are living amidst a new industrial revolution. In 2017 there were more mobile phone subscriptions in the world than there were people, and the number of internet-connected devices surpassed 20 billion. Many sectors are experiencing disruptive changes that break down old structures and create the framework for new types of businesses. Finnish companies have all that is needed to do well in the changing competitive climate by capitalising on Finland’s advantages – such as reliability and a practical approach.

Highly-specialised companies, in particular, depend on international expansion because of the limited size of Finland’s domestic market. Digital business models enable start-up companies to aim high from day one. Investors can help accelerate companies’ international growth with their experience and connections. At Tesi, we call on the support of our international network so that we can place the best possible expertise at the disposal of Finnish companies. This produces a positive spiral that generates success and wellbeing.

Finland’s venture capital and private equity market showed positive development during 2017. Established by Tesi and Finnish pension and insurance companies, the fund-of funds KRR III raised 150 million euros for Finnish venture capital and growth funds to invest in companies. We attracted new institutional investors on board that, via KRR, can accelerate the growth also of smaller companies than otherwise would be possible. Many Finnish buyout funds raised larger funds than in earlier years. New players investing in the growth stage of smaller companies have entered or are entering the market. Venture capital funds witnessed record figures when Inventure raised 110 million euros for its third fund.

The high activity level of Asian investors in Finland’s venture capital and private equity market was one of the year’s most prominent features. This was most visible in direct investments, not yet in fund investments. Industrial investors, both Finnish and international, were also active in the market. Although they have always acquired their competitors, now they are looking to acquire a new type of expertise and agility by setting their sights on growth companies.

Despite the positive performance of the venture capital and private equity market, we would need more international investors into Finnish funds. In 2018, Tesi will focus on broadening the investor base of Finnish funds with both Finnish and international investors. We will work towards this together with the Finnish Venture Capital Association and Tekes Venture Capital.

Long-term collaboration between investors and company management has borne fruit: both funds and companies in Tesi’s portfolio grew strongly and there were numerous exits. This was reflected in Tesi’s strong performance in 2017, a profit of 66 million euros for the year. The positive results of recent years will be directed towards accelerating the growth and internationalisation of new companies.

In addition to good returns, we expect responsibility and socially impactful operations from our portfolio companies and funds. We encourage companies to shift their focus from reporting more towards business opportunities and competitive advantage gained through corporate responsibility. At Slush 2017 many international venture capital investors talked about their strategy of focusing on business ideas that create a positive impact on people’s lives. I believe the same attitude is spreading also to later-stage investment, although perhaps with a slight delay. We want to contribute to helping our current and future portfolio companies and funds reach the next step of responsible operation.

The exponential growth in data volumes and advances in artificial intelligence will enable more robust data management in companies. As digitisation progresses, new business opportunities will open up, and they will be of very different types. Tesi, as a state-owned investment company, wants to support Finnish companies through this change. In concrete terms, this is evidenced both in the selection of companies and in developing them once they are in the portfolio.

The increasing complexity of the world and the growth in information volumes can also be seen in our own work. We make decisions in the face of uncertainty, when the right path is found by working through rapid iteration, experimentation, success and failure. Our values of finding brave results together have proven to be an excellent road sign in practical decision-making. We are open-minded in seeking solutions and we open up opportunities, we influence and develop actively and boldly, and we create results together. Operating in this way, venture capital and private equity will be successful, responsible and fun. Working together is always more rewarding than operating alone.

I extend my thanks to companies, funds, all our co-investors and partners for such successful cooperation during the year. I would also like to thank all Tesi’s personnel for the work they have done to smooth the path for Finnish companies’ growth, financing rounds and exits. Successes give us strength to continue our work in a confident and bold frame of mind.

Jan Sasse