Companies first

Companies first

Tesi

Entrepreneurs need to hear more about how investors contribute to value creation in their portfolio companies, outlines Tesi’s CEO Jan Sasse. He wants to turn Tesi into a data mill because data plays a key role in business development.

Tesi

Entrepreneurs need to hear more about how investors contribute to value creation in their portfolio companies, outlines Tesi’s CEO Jan Sasse. He wants to turn Tesi into a data mill because data plays a key role in business development.

Investors have many means to accelerate the development of their portfolio companies. Jan Sasse, who started as Tesi’s CEO in March, thinks we should promote these opportunities even more.

“Investors bring many benefits to company development. We have to correct the misunderstandings related to the image of private equity,” Sasse notes.

“The Finnish Venture Capital Association (FVCA) has done great work,” he adds.

Finland’s venture capital and private equity market has grown and evolved. Business angels are now interested in companies in different phases. Business angels’ investments in Finland have grown during this decade from almost zero to over 50 million euros last year.

Obviously, a good investor offers more than just capital to the portfolio company – it also offers its expertise and networks. Sasse emphasises the growing importance of data in business operations: big data, analytics and business intelligence will become increasingly important.

“We at Tesi have accumulated a lot of data about what has been done and what the impact has been. We want to build a data mill to analyse internal and company data, as well as external data. Tesi is well suited for that,” Sasse emphasises.

More heterogeneity for boards

Tesi has taken an increasingly active owner role in recent years. In Sasse’s opinion, it’s important that companies have clear ownership and everyone has a shared vision of the direction of the company.

“All parties are focused on value creation.”

In Sasse’s mind, active ownership doesn’t always mean a seat on the board. What is critical is mapping the expertise that’s needed for the portfolio company’s board. There has been a lot of talk about the importance of knowing marketing and international markets, and the lack of these in the management of Finnish companies. Sasse sees the issue from a broader perspective.

“There should be more heterogeneity on company boards. The direction is clear; companies need increasingly diverse expertise. I think that boards should also have members from different age groups.”

Sasse thinks that board work in Finnish companies has developed well and managers have increasingly more international expertise.

Sasse-EN

“The Finnish way of negotiating and sticking to what was negotiated is definitely a solid advantage that makes it easier for a foreign partner to enter Finland.”

More minority investors needed

Tesi invests in companies directly and through venture capital and private equity funds. The majority of the investments have been made in funds. Jan Sasse emphasises that the distribution of investments is not an intrinsic value. Tesi currently has fund commitments of over 300 million euros. The total amount of direct investments is about 170 million euros.

“The majority of the investments will continue to be in funds, but the percentage may fluctuate. Direct investments are faster, while fund investments have a slower cycle.”

“In terms of investments, it is never Tesi first. It’s the companies’ needs first in collaboration with our partners,” Sasse accentuates.

Tesi wants and needs co-investors for direct investments because as a State-owned investor, it doesn’t go in as a majority shareholder, nor does it go in alone; its participation is always on equal terms with other investors as a part of an investor syndicate.

“The owners of many growth-oriented companies are not necessarily willing to give up their majority stake, but they are interested in getting minority investors to join in. From the perspective of company growth and internationalisation, it would definitely be good to attract more minority investors to Finland. Likewise investors may need minority shareholders in their portfolio companies to share risk and to enable adequately scaled funding,” notes Sasse.

“It’s good that pension funds, for example, are making minority investments,” he adds.

More internationalisation of funds

Finnish companies raised a total of 383 million euros of venture capital last year, of which 216 M€ was from international investors. The investments from Finnish and foreign buyout funds in Finnish companies totalled more than 500 million euros last year.

Sasse hopes that VC funds would grow in size and that funds would see internationalisation as an advantage.

“Small funds do not have resources to participate in follow-on investments. Funds need to get larger in size.”

The key is the track record. When investors are satisfied, they will invest also in successor funds.

“It’s great that Finnish VC funds invested 40 million abroad last year.”

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In terms of investments, it is never Tesi first.

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Jan Sasse

“Later stage funds are still mostly Finnish. Of the more than 300-million-euros invested, only about 30 million was directed abroad. These funds should internationalise as well. They need more international teams and more international investors to participate,” Sasse notes.

“I believe that funds are heading more towards international markets. Going forward, we should think outside the box.”

“It’s important for growth companies to have access to the expertise of serial entrepreneurs and professionals who have gained experience from international markets.”

“The more we have international companies and experienced investors, the more this expertise can be dispersed. Naturally, this takes time.”

People are increasingly important

In the fourth industrial revolution, the significance that humans have as a company’s success factor will become increasingly important. It is easy to outsource production and other functions.

“Often, however, the human resources issues are overlooked in the due diligence process,” Sasse frets.

Personnel well-being is important in the successful implementation of change and in promoting creativity. It is also part of corporate responsibility. Company employees, their well-being and responsible operations play an increasingly important role in value creation.

The significance of responsibility has increased strongly as investors assess companies. More often the company’s corporate responsibility is a decisive factor when investors are deciding which company they will invest in.

Negotiating culture an advantage for Finland

In this decade, the reputation of Finnish health technology and gaming companies, in particular, has attracted significant investments. The venture capital market has evolved and become more international, which has been one of the main areas of Tesi’s work as well.

The market development efforts must continue, along with the marketing of Finland’s strengths. Sasse would like to bring up the Finnish negotiating culture.

“Our negotiating culture is a competitive advantage,” he notes.

Sasse thinks that the Finnish way of negotiating and sticking to what was negotiated is definitely a solid advantage that makes it easier for a foreign partner to enter Finland.

Sasse also highlights the industrial internet and digital expertise as Finland’s success factors and attractive powers. Finland has traditionally had a strong engineering industry. Today the engineering industry offers comprehensive solutions. System expertise, IoT and digitalisation are increasingly part of our engineering expertise.