How does the future look like for venture capital and private equity in Finland?

Henri Grundstén | 2017-02-07

Globalisation is spreading, banks are retreating from their traditional role, new forms of financing are emerging, and expertise is gaining importance. These are the future trends predicted by experts in corporate financing, venture capital and private equity in the online brainstorming session Tesi arranged in autumn 2016.

We asked participants to describe the trends they expect to emerge over the next 5-10 years. In response, we received an abundance of foresight, some clearly more probable than others.

Increased regulation and a decline in collateral security volumes were regarded as root causes for banks’ changing roles. New forms of financing will open markets to new players – and, with the spread of crowdfunding, to private individuals. As the business environment becomes ever more global, so will financing arrangements more often be international. This trend is already evident in venture capital. Increasing demands for business expertise will be placed on both providers and recipients of financing.

How will these changes impact our industry? As the role that banks play contracts, venture capital and private equity investors can expect more investment opportunities and higher demand, as also can other forms of financing. Crowdfunding’s growing popularity will also change the business climate for investors. On the one hand it will probably translate into a larger and more diversified deal flow but, on the other hand, enacting transactions can become more challenging because of broader ownership, more complex shareholder agreements, and valuation issues. Growth in internationalisation has been on the horizon for a long time. International investors accelerate the development of the market and its dynamics in Finland, but at the same time we need larger Finnish funds, especially in the venture capital sector, with the opportunities and capability to operate on international markets. Otherwise there will be greater dependency on international investors for venture capital financing in the Finnish market.

Opinions differed markedly about the public sector’s role in corporate financing. Half of the participants forecast a diminishing role, while the other half believed it would grow. There may be multiple reasons for this divided opinion – the prevailing economic climate in Finland, in which state intervention is regarded as important, or the abundant supply of EU-based financing in particular to growth companies. Correspondingly, opinions about a contraction in the role of public financing are probably based on the idea that public sector input will not be needed in a well-functioning market.

We gained valuable insight also into how the respondents see Tesi’s role. Our key task was seen to be the development and renewal of the venture capital and private equity sector in Finland. Related to this, the importance of Tesi’s role as an investor in funds, particularly in acting as an anchor investor in new funds, was highlighted. Tesi was also regarded as a natural market supplement in its role as co-investor, in which it should focus especially on correcting market deficiencies.

Predicting the future is notoriously difficult, but nevertheless well worth the effort. The online brainstorming session provided plenty of sound views on corporate financing’s future. The future outlook for venture capital and private equity investing was perhaps hazier, but we can nevertheless be fairly confident that at least internationalisation and new forms of financing will increase, and that the traditional role of banks will contract. There is also good reason to seriously address the demand for specialised expertise. Tesi, as an internationally networked player and active owner, has had these themes on its agenda for some time now. There are good reasons to continue focusing on these as the strengths of Tesi in the future.

Henri Grundstén

Development Director