Growth financing from a variety of sources

Tesi’s direct portfolio companies developed favourably in 2017, boosting their sales by an average 22% during the year. Financing was available from a diverse range of Finnish and international sources. Tesi made new direct investments amounting to € 29 million in altogether 22 companies.

One of the largest financing rounds in 2017, € 25 million, was raised by open source database developer MariaDB Corporation, representing the largest-ever growth financing granted to a Nordic company by the European Investment Bank (EIB). The financing came from the European Fund for Strategic Investments (EFSI).

In November, MariaDB raised a further € 23 million led by Chinese AliBaba Cloud. This will enable the fast-growing MariaDB to develop new cloud and automation solutions and help the company to add new features to its databases.

“Loans and guarantees from the European Investment Bank and the European Investment Fund have become an important form of debt financing, allowing companies to raise loans from Finnish banks. More and more companies are also using crowd-funding. The diversification of financing sources has become a fact. Time will tell in which direction these relatively new phenomena will lead,” says Heli Ahlroos, Tesi’s Director, Venture Capital.

The higher activity level of Asian investors was one of last year’s biggest trends.

One of the major events of the year was Valmet Automotive’s acquisition of Stockholm-listed Semcon’s automotive engineering operations in Germany and testing operations in Spain. Valmet Automotive also formed a strategic partnership with Chinese CATL, a leading global provider of battery and energy storage solutions. CATL became a substantial shareholder, acquiring a 22% holding in Valmet Automotive.

“These arrangements serve the company’s objective of focusing on providing design services to the automotive industry while also building a strong position in the fast-growing electric vehicle business,” explains Jussi Hattula, Tesi’s Director, Growth & Industrial Investments.

Acquisitions are a good way to give companies broader shoulders for growth and international expansion. Another example, in June, was the acquisition by Profit Software of Evolvit Ltd, a company specialising in IT services and solutions for finance companies. “Companies should dare to take more growth leaps through acquisitions ,” comments Ahlroos.

Overall, Tesi’s portfolio companies developed favourably in 2017, boosting their sales by an average 22% during the year. On the other hand, in some cases the lack of resources with competence in internationalisation and operational scaling slowed down companies’ growth.

ASIAN INVESTORS AND INDUSTRIAL BUYERS VERY ACTIVE IN THE MARKET. The high level of activity shown by Asian investors in the Finnish venture capital and private equity market was one of last year’s biggest trends. The Chinese made both more investments and more acquisitions in 2017 than in previous years.

“This is a good opportunity for Finnish companies, because Asian investors bring their expertise of operating in Asian markets. In the coming year we will analyse more thoroughly how Tesi can promote the internationalisation of Finnish companies in Asia, and how to raise financing there,” says Ahlroos.

In addition to MariaDB and Valmet Automotive, Asian and other international investors were present in many investments and exits of Tesi’s portfolio companies throughout the year. The Chinese CYG acquired a holding in OptoFidelity and Rightware was sold to the Chinese company Thundersoft. Visedo, a specialist in hybrid and electric drivetrains, was sold to Danfoss, a family-owned Danish company. Static dissipation expert IonPhase was acquired by the British listed company Croda International.

Hattula points out that a private equity investor is a temporary owner. Acquisitions tend to be good news, because companies can continue their growth under the stewardship of new owners. Last year’s global upswing favoured sellers, because companies’ valuations were high.

“We see many Finnish bioeconomy projects in the deal flow right now, and Asian investors have shown keen interest in them as well,” says Hattula.

INTEREST FOCUSES ON HEALTH TECHNOLOGY AND CLEANTECH.

Ahlroos believes that investors are showing increasing interest in growth companies in the IT sector that, in one way or another, apply software, artificial intelligence, analytics or mobile technology to healthcare. In 2017, Tesi made two new investments in this sector.

BCB Medical specialises in the gathering and analysis of clinical and medical data. Using registers that support patient data systems allows treatment paths to be digitised, enabling comparison of data on the quality and impact of treatment. Tesi invested in BCB Medical together with Swedish Standout Capital. With the backing of new owners, BCB Medical plans to export its clinical and treatment data solutions.

Led by Swiss Debiopharm Innovation Fund and Tesi, bioinformatic solutions provider BC Platforms raised € 9 million in financing. The company’s mission is to be a global leader in providing biobanks, the pharmaceutical industry and the healthcare sector with a platform for managing genomic and clinical data.

Other health technology companies also raised large investment rounds in Finland. Ahlroos is very pleased with this development because health technology companies have previously faced challenges in obtaining financing.

In 2017, Tesi also invested in KotiSun Group, a company specialising in renovations of service water, heating and drainage systems. The consortium formed by CapMan, Tesi and Varma is now a major shareholder in the company. KotiSun has also set its sights on growth and internationalisation.

RESPONSIBILITY GROWING IN IMPORTANCE. Tesi wants Finnish companies to grow and succeed, while operating responsibly. When screening investment proposals, Tesi makes an ESG evaluation to identify the main risks, opportunities and development areas associated with a company’s environmental, social and governance impacts. These are then addressed in portfolio companies through active boardwork as well as through working groups and committees.

“We pay special attention to companies’ governance, personnel wellbeing, work safety, product safety and the way they handle customer relationships. When a company’s business model is based on environmental benefits or social impacts, responsibility is naturally in the spotlight. By investing in BCB Medical, for instance, we can promote nationwide development of the quality and efficiency of medical treatment,” explains Ahlroos.

Portfolio companies’ sales grew by an average22%during the year.

“We are actively seeking investment opportunities in circular economy,” comment Hattula and Ahlroos. “It would be great to be involved in developing a company that would solve the challenges of sustainable development globally – for example, plastic wastes,” adds Ahlroos.

Ahlroos and Hattula believe that responsibility is a competitive asset for companies. Customers are demanding that their suppliers operate responsibly. Markets will favour those companies that can report on their responsible operations and, for instance, reduce their use of energy and raw materials. It will not be enough to simply meet legal requirements; companies will need to be proactive and even more responsible by surpassing them.

Hattula believes that private equity is an excellent method of renewing businesses and setting them on a sustainable and responsible path. “Owners can accelerate the introduction of new business models by making choices. Traditional industry must, by necessity, become more responsible,” he adds.

“Today the world economy is still based on the concept of linear continuous growth, but global resources will not suffice if today’s models are simply duplicated. The next industrial revolution, based on digitisation, will fundamentally change our ways of thinking and operating – but we must already start moving forward. The direction is towards a circular and sharing economy,” says Hattula.