COVID-19 has a negative impact on Finnish venture capital and private equity backed companies, but most of them will be able to raise further financing from current investors

23.4.2020

A market pulse survey for Finnish venture capital and buyout investors conducted by Tesi, Finnish Venture Capital Association, and Business Finland Venture Capital in April 2020 indicates that COVID-19 is negatively impacting 50% of VC portfolio companies and 62% of buyout portfolio companies. The survey does, however, show that in over 85% of companies, current owners can wholly or partially meet their financing needs over the next year. It seems that only a small proportion of companies is facing an immediate liquidity crisis.

“We’re in this rather good situation because these funds are well managed and they have taken sound precautionary steps,” comments Matias Kaila, Tesi’s Director, Fund Investments.

One-third of VC backed startups will run out of money in less than six months and one-third in 6-12 months’ time. One-third of startups have cash reserves for a year. The financing situation for startups does not, however, differ much from normal because many of them are financed in a way that they can manage short-term loss-making.

The situation has had a more adverse impact on later-stage growth companies, and their situation is rather worrying. Investors estimate that some 40% of later-stage growth companies will run out of funds in less than six months, and many of them in less than three months without follow-on financing. This differs clearly from the situation enjoyed before the crisis by profitable and established growth companies that were pursuing rapid growth in normal conditions.

In 58% of cases, buyout investors are able to meet the financing needs of later-stage growth companies over the next year. However, for more than half (59%) of the later-stage growth companies, it is uncertain whether they will receive further financing. 42% of startups will ride out the crisis with additional investments from their current VC investors. External financing, on the other hand, is available for only 30% of startups. Less than 15% of startups and later-stage growth companies completely lack follow-on financing.

“It’s important that we take the whole ecosystem into consideration. Taking action during the crisis will ensure that we have high-growth companies and success stories in different sectors in the future, too,” comments Pia Santavirta, Managing Director of the Finnish Venture Capital Association.

Although COVID-19 has a negative impact on one-half of startup companies, for 8-10% of them it has opened up new business opportunities and boosted demand. Only some 2-3% of later-stage growth companies are reaping the same benefits.

“At present, investors are willing and able to provide follow-on financing to their portfolio companies. We’ll continue to closely monitor the impact of COVID-19 on the Finnish venture capital and private equity market,” says Matias Kaila.

About the survey:

  • Altogether 27 investors responded to the market pulse survey, of which:
    16 make venture capital investments
    11 make buyout and/or growth investments
  • The survey was conducted 9th – 16th April 2020.
  • The survey covered 412 companies, of which 345 are registered in Finland.
  • Fund managers completed the survey comprehensively for all their funds and answered all the questions.
  • The company base was widely distributed across different sectors and development phases, and gives a fair representation of Finnish venture capital and private equity backed companies.


Survey results

 


For further information, please contact: 

Matias Kaila, Tesi
Matias.Kaila@tesi.fi, 040 720 1324

Pia Santavirta, Pääomasijoittajat ry
pia.santavirta@paaomasijoittajat.fi, 040 546 7749

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