There has, however, been large, industry-specific differences in recovering from the crisis – the situation representing the so-called K-curve. Outlook for the ICT sector has improved significantly during the year. However, demand in the global market determines the way to a great extent, especially in our industrial sector. Order intake in industrial companies has started to recover but is still significantly behind the pre-crisis levels and full recovery is expected to take much longer. Small businesses with limited resources to adapt are at the most disadvantageous situation. Based on the survey results, most companies cannot implement any more cost-saving measures.
The effects have also been felt in the venture capital and private equity sector, although the crisis has had a lesser impact than expected. No disruptions to the systemic level were identified, and the volumes of euro-denominated transactions remained buoyant. On the other hand, there are signs of a decline in transaction volumes. Funds have experienced a slowdown in fund-raising, but it is still too early to predict whether this will continue.
The impacts of the pandemic on international investors’ activity Finland will also become evident later as the negotiations for the realised funding rounds had already begun prior to the corona crisis. In general, the supply of venture capital has not, for the time being, declined as significantly as was initially feared. Rather, international investors’ activity was in fact higher in early 2020 than the year before.
Investments produce both social impact and profit
Despite the coronavirus crisis, we have continued with our normal investment activities. During the year, we invested over EUR 240 million in funds and companies, including a commitment of EUR 65 million in KRR IV fund-of-fund managed by Tesi, other fund commitments and direct investments as well as stabilisation and Venture Bridge financing due to the corona situation.
KRR IV , raised just before the pandemic, will contribute to the creation of new funds over the upcoming years. KRR IV total capital is EUR 175 million, which will be invested in 10–14 Finnish VC&PE funds between 2020–2025.
With fund investments, we develop the Finnish VC&PE market long-term. Fund investment volumes remained roughly the same compared to previous years, although there were some delays in fund-raising. Icebreaker.vc, Superhero Capital and Open Ocean raised new venture capital funds in 2020, in all of which we have invested as well. New growth and buyout funds were raised by CapMan Growth, Verso Capital and Sponsor . In addition, we made a commitment to GOS’s s pilot debt fund. Furthermore, Tesi invested in numerous companies that have a societally important impact, enabling their growth and internationalisation. These companies include Fifax that farms fish more sustainably on dry land; Swappie, which refurbishes and then retails smartphones and IQM, building Finland’s first-ever quantum computer. The joint investment program by Tesi and EIB has played an important role in enabling larger funding rounds during 2020.
Despite the challenging year, there were also successful exits. Kaiku Health will continue its global growth under the ownership of Swedish Elekta, a leader in radiotherapy technology. Europe’s third largest producer of folding carton, Austrian Mayr-Melnhof Group, signed a contract for the entire stock of Kotkamills Group Ltd. The transaction is subject to regulatory approval. The exits give boost to Finland’s ecosystem in otherwise challenging circumstances and create a sound base for Tesi’s future investment operations through returning profits
From responsibility to beneficial impact
The themes of responsibility and societal impact continued to draw attention in the VC&PE industry in 2020 as well. In the autumn, we conducted interviews to chart investors’ understanding of responsible investment and their methods for promoting it in their portfolio companies. Some 30 fund managers who manage active funds in our portfolio took part in the interviews. We found that the interviewees unanimously felt that corporate responsibility is essential to profitability, especially over the long term. Each investment team had also a responsibility policy. However, methods for reporting and communications varied widely, and managers rarely used any responsibility standard. There was a general desire to promote diversity, but practical challenges were seen as an obstacle.
In 2021, we will continue our active development work around the themes of responsibility and impact. We strongly believe that Finnish growth companies have a vital role in solving global challenges, and we want to enable the growth and internationalisation of these companies. This year, our objective is to achieve harmonised methods of working in a socially beneficial and responsible way that can be put into operational use in investment activities. We also continue to systematically develop value creation procedures as part of our investment activities. We have already begun this work by asking our stakeholders for views, and we will share our insight with the market as well.
