Jan Sasse, CEO of Tesi comments:
“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. The key driver for our operations is to achieve a positive socio-economic impact.
We operate as a long-term investor in funds, enhancing the positive development of growth financing in Finland. Collaborating with Finnish and international funds, such as Lifeline Ventures, Atomico or DevCo, brings in significant business expertise to Finnish companies. Tesi’s direct investment programmes offer faster solutions for eliminating bottlenecks in the market. Under our Circular Economy programme, we made an investment in Endev. Through our co-investment programme with the European Investment Bank (EIB), we ensure larger financing rounds for companies. In 2019, we made investments under the programme in Wirepas, Iceye and Rauma Marine Constructions. Tesi also wants to promote listings on the Helsinki Stock Exchange by acting as an anchor investor and by sparring growth companies towards IPOs. 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 venture capital and private equity market.”
Business environment
The slowdown in Finland’s economy continued in 2019, and forecasts indicate a decline to zero growth. Alongside demographic factors, Finland’s business is affected by declining prospects for the global economy, geopolitical tensions and the coronavirus pandemic.
Europe’s venture capital sector enjoyed a good year for both funds raised and investment volumes, measured in monetary terms. While PitchBook’s statistics highlight a reduction in the number of companies raising angel and seed investments in Europe, there was appreciable growth in the average sizes of series B, C and D financing rounds, raising the valuation levels of companies. Exits declined from European venture capital backed companies.
Companies originating in Finland raised more than €500m in venture capital, including some investment rounds exceeding €100m. The volumes and sizes of Finnish buyout investments have remained steady in the long term, however, declining in 2019 from the previous year. There are new growth funds in the market. Alongside venture capital and private equity, IPOs and crowdsourcing rounds have in recent years become more relevant as financing channels for Finnish growth companies. Well-functioning and diversified financial markets are an important element for successful entrepreneurship and ownership.
A more multidimensional and more challenging operating environment will result in ever greater worldwide pressure on political, social and economic systems, as well as on capital allocation strategies. In the prevailing situation, VC & PE investors’ role as creators of sustainable economic growth, e.g. through the commercialisation of innovative technologies and business models, is growing in importance.
Investment operations
In 2019, Tesi made new investments and commitments amounting to €133m (€121m in 2018).
Tesi’s fund investments focus on venture capital, growth and buyout funds. In 2019, Tesi gave commitments totalling €89m (€59m) to ten funds. Tesi gave two commitments to Finnish venture capital funds (Sparkmind.vc, Lifeline IV) and five commitments to growth and buyout funds (Armada V, CapMan Buyout XI, DevCo Partners III, Evolver Fund I, Juuri Fund II). These funds attracted €758m from other investors, which is roughly 10 times the amount of Tesi’s commitment. In addition, Tesi gave three commitments to international venture capital funds (Atomico V, Creandum V, Northzone IX) supplementing the Finnish venture capital market with their special focus and/or expertise.
Tesi makes direct minority investments in fast-growing technology companies, growth-oriented SMEs, M&As and buyouts, and industrial projects. Tesi’s investment programmes promote growth and the renewal of economic structures. In 2019, Tesi made direct investments amounting to €43m (€62m) in 25 companies. Of these, Tesi made initial investments totalling €17m in six companies (Wirepas Ltd, IQM Finland Ltd, Picosun Ltd, Endev Ltd, Fira Group Ltd, Relais Group Plc). Tesi made follow-on investments amounting to €26m in 19 portfolio companies. Overall, a total of almost €180m in new risk capital was channelled into these portfolio companies, over four times the amount invested by Tesi.
The €75m Circular Economy programme was launched at the end of 2018. In 2019, Tesi made an investment in Endev, which bases its operations on incinerating municipal waste and recovering raw material from it. By the end of 2019, Tesi has made investments amounting to €12.5m from the programme. The EFSI co-investment programme channels financing from the European Investment Bank to Finnish companies, enabling them to raise larger financing rounds. One-half of the financing comes from the EFSI programme and one-half from Tesi, with private investors participating to an equal extent. In 2019, three investments amounting to €12.3m were made through the EFSI co-investment programme (Wirepas Ltd, Iceye Ltd, Rauma Marine Constructions Oy).
Tesi also supports growth companies in making their initial public offerings (IPOs). In 2019, six companies listed on the Helsinki Stock Exchange. Tesi was involved in three of them: as an anchor investor in the listing of importer and technical wholesaler Relais Group, and in the IPOs of Tesi’s portfolio companies Optomed (producer of fundus cameras) and LeadDesk (provider of contact centre software).
One of Tesi’s objectives is to enhance the internationalization of Finland’s VC & PE market. Alongside capital, international investors provide Finnish companies with highly valuable expertise in international business and contact networks. In 2019, Tesi’s international partners invested altogether €124m in Finnish companies, of which €35m came from Tesi’s international portfolio funds.
Financial performance
Financial performance was strong in 2019, in line with the trend of previous years, resulting in a profit of €78m (€55m in 2018). A healthy profit was generated by both VC & PE investments and financial securities.
The Group’s net gains from venture capital and private equity investments in 2019 totalled €65m (€90m). Net gains from funds were €42m (€72m) and from direct investments €23m (€18m). The increase in funds’ net gains was due to successful exits from portfolio companies and a general rise in valuation levels. Net gains from direct investments derived mostly from an unrealised change in fair value, driven by the strong growth in portfolio companies and progress in implementing their business strategies. Net gains from financial securities amounted to €39m (-€14m). The capital markets recovered from the slowdown in the last quarter of 2018, and this was reflected in earnings from financial securities.
The Group’s balance sheet totalled €1,130m (€1,031m) at the end of the year and shareholders’ equity grew to €1,088m (€995m). Carrying value of funds was €419m (€371m) and direct investments €291m (€235m).
The total amount of investments under management at the end of 2019 was €1.3 billion. In addition to Tesi’s own investments and commitments, this includes the capital of the KRR I, KRR II and KRR III funds that Tesi manages, as well as the EIB funds managed by Tesi in the EFSI co-investment programme.
The cumulative amount with which the Finnish government has capitalised Tesi from the very start of its operations is €669m. The Company’s cumulative profit from operations, including the figure for the 2019 financial year, amounted to €419m. In addition to this, Tesi has generated altogether €180m for the Finnish state in corporation tax and dividends.
Events after the financial year
In 2020, Tesi has raised fund-of-fund KRR IV (Kasvurahastojen Rahasto IV Ky), together with Finnish institutional investors. The size of KRR IV was €165m at first closing, of which Tesi’s commitment was €65m. KRR IV plans to invest in 10-14 Finnish venture capital, growth and selected buyout funds in 2020-2025. Tesi has also made direct investments in UpCloud Ltd and Nordic Rescue Group Ltd, which is the parent company of Saurus Ltd and Vema Lift Ltd.
Prospects
In 2020, Tesi will focus on four strategic themes: socio-economic impact; growth & internationalisation; value creation; and producing insightful data to develop the Finnish venture capital and private equity market together with its stakeholders.
Tesi will continue to use its fund investments to promote the long-term development and internationalisation of Finland’s venture capital and private equity market. Tesi will put special emphases on sparring with Finnish fund management teams in scaling up internationalisation, enhancing diversity in fund management teams, building networks, developing the fund investor base, and strengthening Finland’s growth fund market. The deal flow for Finnish fund projects is growing strongly.
With direct investments, Tesi aims for faster impact by spreading risks with private investors in individual cases. Direct investment will mainly focus on investment programmes (Circular Economy investment programme and EFSI co-investment programme) and other focus areas. When screening projects, Tesi will pay greater attention to the positive net impact of potential investees. The direct investments deal-flow is expected to remain broadly the same as in 2019.
The positive financial performance of recent years provides Tesi with sound resources for promoting Finnish companies’ growth and internationalisation well into the future.
Annual General Meeting
Tesi’s Annual General Meeting was held on 13 March 2020. Kimmo Jyllilä was elected Chairman of Tesi’s Board of Directors. Pauli Kariniemi, Annamarja Paloheimo and Riitta Tiuraniemi will continue as members of the Board of Directors. Anniina Heinonen, Minna Helppi and Riku Huttunen were elected as a new member of the Board of Directors.
Tesi performance and results 2019 presentation material
For further information, please contact:
CEO Jan Sasse, tel. +358 (0)40 861 9151
Tesi (Finnish Industry Investment Ltd) is a state-owned investment company that wants to raise Finland to the front ranks of renewed economic growth by investing in funds and directly in companies. We invest profitably and responsibly, hand-in-hand with co-investors, to create the world’s new success stories. Our investments under management total 1.3 billion euros. Ambition for ownership and success www.tesi.fi | www.dtg.tesi.fi | @TesiFII