Fund-based venture capital investments are an effective instrument for investing in technology companies. With the carefully selected fund, investors can effectively spread their risk in the technology market without having to do all the necessary legwork themselves.
Investing in early-stage technology requires a wide variety of information and expertise to produce a sufficient deal flow, to make the investment, to maximise the company’s value, and to exit from it. Successful investing requires an understanding of different technologies and their commercial significance today and in the future. Additionally, the investor needs adequate resources for analysing the different investment targets. Likewise, it is also critical to understand the entrepreneur’s expertise and capabilities.
All investors can’t possibly have all these skills, experience or resources, so they rely on assistance from a venture capital fund in their investment activities.
Tesi is one of the main public European technology investors utilising fund-based investing in its portfolio. Our mission is to enhance the growth and internationalisation of Finnish SMEs in a market-driven and profitable way.
Tesi's end customer is specifically a Finnish company, not some fund manager mid-way along the investment chain. However, the role of the fund manager is essential when selecting the investment targets that have the most potential for growth from the spectrum of businesses.
Should Tesi focus only on Finnish venture capital funds, or should international funds also be in the focus? This is a topic that is discussed regularly. Investing also in international funds is justified because their managers may have just the special expertise and contacts a company needs for growth in the market area it is pursuing. These skills help when a Finnish technology company is seeking additional capital, a fast-track to growth, or bigger markets.
International funds select their investment targets from a broader spectrum of companies and have often gained more experience with the importance of selectivity. Successful international fund managers often have previous experience with these challenges, i.e. actual success stories in their portfolio and also the ability to fund big funding rounds later on.
International funds supplement the offering of Finnish funds and work in good collaboration with Finnish actors. The Finnish ecosystem needs capital from multiple sources, a variety of expertise and extensive networks. This is why Tesi invests in domestic funds and, selectively, in international funds.
When thinking about development of the Finnish private equity and venture capital market, it makes sense to carefully listen to what Finnish technology companies want and need from their venture capital investors. “A lot of capital” rarely tops the wish-list of the enlightened entrepreneur; instead, they are looking for expertise to grow the company, talent to do the right things, and networks and contacts the company can use. Sometimes the entrepreneur would like to have support from someone who possesses all this expertise.
The critical factor is to have the kinds of partners that will best help the companies to grow their business and expand to international markets. Often, both domestic and international investors are needed. Therefore, it’s clear that Tesi's portfolio must include the expertise of both Finnish and international funds.
Tapio Passinen (Ph.D., MSc. Tech and MSc. Law) is Investment Director at Fund Investment team. His work includes making investments in Finnish and international venture capital and buyout funds. Tapio joined Tesi in 2013 and he has broad experience in the venture capital and private equity sector from Pohjola Private Equity Funds Oy and the Local Government Pensions Institution (Keva). Previously Tapio worked as a Special Advisor at the Ministry of Finance’s Financial Markets Department.