Startup investments are an exit business – too often we forget this crucial principle. Exits feed new investments, enabling new growth.
By Keith Bonnici
Sometimes those exits tell much bigger stories too. For example, when China’s Thundersoft acquired the Finnish automotive user interface software firm, Rightware, for 68 million dollars last December. Only a few years earlier, a big exit to a Chinese buyer would have been unheard of.
After the Finnish startup boom started, almost ten years ago now, we saw a number of Western investors coming into the country. But over the last year or two, we have seen a rising trend in Chinese and Asian investors, following in the footsteps of Supercell’s mega-deals, looking for opportunities in Finland.
Finnish startups are clearly thinking big. Going to China, working in the biggest economy of them all, is a good sign of that. For example, Optomed, a high-tech portfolio company of ours, already has dozens of workers based in China and the share of Chinese business within its revenue is growing rapidly.
It is not just Mark Zuckerberg who is learning Chinese. One of the latest offerings in Helsinki is free Chinese classes for startups and one of the most visible proponents for building Chinese relations, Peter Vesterbacka, spent 8 weeks last year on a crash course in Chinese, based in Beijing.
Ties between the two countries are the result of years of work at different levels. Many observers elsewhere in the world may have raised eyebrows when Chinese president, Xi Jinping, travelled through Finland to meet the new US president.
During his visit, the Chinese president met with one of our portfolio companies, Visedo, a maker of heavy-duty electric drivetrains. He signed a letter of intent to help them access China’s booming electric vehicles market and continue discussions about an investment from China.
Investments from Asia are not typically at early stage, but for A-rounds – similar to Tesi’s focus – and are seen even for B-rounds. Chinese investors are increasingly at the table when startups are looking for B-rounds. When you are seeking 10-30 million euros, you are usually speaking the same language as the Asian funds.
One of Tesi’s biggest-ever investments, Valmet Automotive, just saw Chinese investors entering through a new share issue. In January, Chinese battery maker CATL bought a 22 percent stake in Valmet Automotive, to expand into the European electric car market. With Valmet Automotive’s new expansion they need to hire a few thousand people and are now recruiting across Finland. With electric cars, self-driving cars and mobility as a service, the startup automotive industry is an incredibly sexy sector again.
Looking at the investment scene in Finland, I can certainly say that deal-flow is getting better; young entrepreneurs are thinking bigger, and we have a growing number of serial entrepreneurs.
Rightware, mentioned earlier, was founded by Tero Sarkkinen, who had previously launched Futuremark and is now building Basemark. Serial entrepreneurs can often see opportunities better, and their ability to deal with the pressure is usually better too. They have built teams before and know how to avoid the usual pitfalls with it.
One of the reasons for the rise in ambition is the growth of Slush from a small student event to a global phenomenon. Several young founders who have been involved with Slush in the past have commented; “I would not have dared to think that big without Slush.” This gives the teams an increasingly international approach from day one. I think one of the strengths that some teams are already using is the relatively large number of Chinese students in Finland. The ambition level is rising – that is needed to attract investors – and we can already see it in the deal-flow.
Keith Bonnici has worked with startups for over twenty years in venture capital, investment banking and also as a founder himself. Currently, Keith works as Investment Director at Tesi’s venture capital team.