Annual Report 2015

5. Determination of fair value

Basis for determination of fair value for venture capital and private equity investments

The determination of the fair value of the Company’s venture capital and private equity investments is, in accordance with industry practice, based on Private Equity and Venture Capital Valuation Guidelines (IPEVG). Due to the nature of typically illiquid venture capital and private equity investments, the determination of the fair value of investments requires FII’s management to use judgment and make estimates.

According to the fundamental principle of IPEVG, fair value reflects the price that would be received in an orderly arm’s length transaction on an active market between hypothetic participants at the measurement date. Accordingly, fair value does not reflect the price that would be received in a so-called forced sale. Fair value measurement uses either one most suitable valuation technique or several complementary methods that are widely recognised in the industry. When determining fair values, the Company pays special attention to the estimated future profitability and business risks attached to the portfolio companies, especially relating to the financial condition of the companies.

Investments in venture capital and private equity funds

The starting point for the determination of the fair values of the Company’s investments in venture capital and private equity funds, i.e. the fair values of the holdings in the funds, are the values reported by fund managers (so-called net asset value or NAV). Fund managers derive the values for the holdings from the fair values determined by the fund in accordance with IPEVG for its investments in target companies, adding/deducting any other assets/liabilities of the fund. The determination of the fair values of holdings in the funds excludes unpaid fund commitments relating to the holdings, to which the Company is legally committed together with other investors of the funds.

Holdings in funds are typically more illiquid instruments than direct venture capital of private equity investments. The Company’s fundamental investment strategy is not to buy or sell holdings in funds during the term of the funds.

The measurement of the holdings in funds may deviate from the amounts reported by fund managers, if the fair value reported by the managers is not considered to reflect the real fair value of the investments or if the reported fair value refers to a different point of time. Deviation from the value reported by the fund manager is always based on fair value testing performed by the Company. Fair value is always tested for funds classified to a risk listing determined by the Company. The risk listing comprises those funds whose investment operations have, according to a risk review performed, not developed as originally determined and the results of whose investment operations are expected to clearly fall short of the targets set previously.

Direct venture capital and private equity investments

Depending on the varying overall status of the portfolio companies, the determination of the fair value of the Company’s direct venture capital and private equity investments is based on either on the one most suitable valuation techniques or a combination of several complementary methods. The techniques applied comply with IPEVG and include recent transactions in the portfolio companies’ own instruments, valuation multiples of peer companies and discounted cash flows. Both the selection of techniques and the actual valuation performed by using the techniques requires substantial use of estimates and judgment by the management of the Company.

The fair values of the Company’s investments in debt instruments are typically estimated through the viewpoint of the value of the portfolio companies’ businesses (fair value without liabilities), because, in the Company’s venture capital and private equity investments, debt instruments are often an integral part of the total investment in the portfolio companies together with the Company’s investments in equity instruments.

The fair value determination process for venture capital and private equity investments

Fair values of the Company’s venture capital and private equity investments are determined by the responsible investment teams. Thereafter, valuation proposals prepared by investment teams are assessed within a separate risk management function before the valuations are introduced to the Management Group for approval. After the Management Group, the values are considered by the audit committee and finally approved by the Board of Directors.

Fair value hierarchy for financial assets measured at fair value

FII’s venture capital and private equity investments include a minor amount of quoted equity securities. Investments in venture capital and private equity funds classified as financial securities are quoted, their market prices are observable and there is an active secondary market for the fund units. The fair values of all other equity and debt investments as well as investments in venture capital and private equity funds are determined using valuation techniques that to a significant degree rely on company-specific, unobservable inputs.

Fair value hierarchy and related input levels are defined by IFRS 13 as follows:

  • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
  • Level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly.
  • Level 3 inputs are unobservable inputs for the asset or liability.

At the highest level in the fair value hierarchy are quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1 inputs), and at the lowest level are unobservable inputs (level 3 inputs). A quoted price in an active market is most reliable evidence of fair value and it shall, as a rule, be used in the determination of fair value whenever available.

When the inputs to be used to measure the fair value of an asset or a liability are categorised within different levels of the fair value hierarchy, the item is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The tables below show an analysis of the hierarchy of fair value measurements.

Fair value hierarchy for financial assets measured at fair value
31 Dec 2015, thousand euros Level 1 Level 2 Level 3 Total
Venture capital and private equity funds
Venture capital 129,622 129,622
Later stage 154,177 154,177
Funds of funds 42,300 42,300
Direct investments
Venture capital 36,429 36,429
Later stage 13,263 83,973 97,236
Financial securities
Interest funds 317,141 317,141
Fixed income funds 85,412 85,412
Other investments 17,009 17,009
Total 432,825 0 446,501 879,326
Direct investments includes share investments €106.9m and debt investments €26.8m
31 Dec 2014, thousand euros Level 1 Level 2 Level 3 Total
Venture capital and private equity funds
Venture capital 115,850 115,850
Later stage 144,015 144,015
Funds of funds 25,450 25,450
Direct investments
Venture capital 22,486 22,486
Later stage 31,524 74,837 106,361
Financial securities
Fixed income funds 196,354 196,354
Equity funds 56,094 56,094
Total 283,972 0 382,640 666,612
Direct investments includes share investments €107.5m and debt investments €21.1m
1 Jan 2014, thousand euros Level 1 Level 2 Level 3 Total
Venture capital and private equity funds
Venture capital 115,084 115,084
Later stage 150,681 150,681
Funds of funds 17,119 17,119
Direct investments
Venture capital 21,871 21,871
Later stage 31,529 83,579 115,108
Financial securities
Fixed income funds 140,736 140,736
Equity funds 45,524 45,524
Direct bond investments 11,927 11,927
Total 229,716 0 388,334 618,050
Direct investments includes share investments €104.8m and debt investments €32.1m
Changes in level 3 financial assets measured at fair value:
Investment classification , thousand euros 1 Jan Total gains and losses recognised in the income statement Additions Decreases Transfers into level 1 31 Dec 2015
Venture capital and private equity funds
Venture capital 115,850 21,011 23,035 -30,274 129,622
Later stage 144,015 38,863 33,336 -62,037 154,177
Funds of funds 25,450 11,721 11,964 -6,835 42,300
Direct investments
Venture capital 22,486 10,293 5,647 -1,998 36,429
Later stage 74,837 23,970 19,119 -25,560 -8,394 83,973
Total 382,640 105,858 93,102 -126,704 -8,394 446,501
Change in unrealised gains and losses recognised in income statement under net gains from venture capital and private equity investments for assets held at the end of period: 53,930
Investment classification , thousand euros 1 Jan Total gains and losses recognised in the income statement Additions Decreases 31 Dec 2014
Venture capital and private equity funds
Venture capital 115,084 -5,219 22,433 -16,448 115,850
Later stage 150,681 3,687 31,631 -41,984 144,015
Funds of funds 17,119 1,451 8,766 -1,885 25,450
Direct investments
Venture capital 21,871 -10,252 10,982 -114 22,486
Later stage 83,579 -27,501 24,713 -5,954 74,837
Total 388,334 -37,835 98,524 -66,384 382,640
Change in unrealised gains and losses recognised in income statement under net gains from venture capital and private equity investments for assets held at the end of period: -40,265
Sensitivity analysis for level 3 financial assets
Investment classification Fair value
31 Dec 2015
thousand euros
Valuation model Non-observable input or implicit valuation parameters Applied input or implicit valuation parameters (weighted average) Change in measurement if input changes
+/- 20%
Venture capital and private equity funds
Venture capital 129,622 Values reported by fund management companies 25,924
Later stage 154,177 Fair value +/- adjustments made as a result of 30,835
Funds of funds 42,300 value testing made by the Company* 8,460
Direct investments
Venture capital 36,429 Target company instrument Valuation multiples** EV/Net sales
2015 (2,7x)
5,968
Later stage 83,973 transactions /
Peer group
EV/EBITDA
2015 (6,8x)
9,872
Investment classification Fair value
31 Dec 2014
thousand euros
Valuation model Non-observable input or implicit valuation parameters Applied input or implicit valuation parameters (weighted average) Change in measurement if input changes
+/- 20%
Venture capital and private equity funds
Venture capital 115,850 Values reported by fund management companies 23,170
Later stage 144,015 Fair value +/- adjustments made as a result of 28,803
Funds of funds 25,450 value testing made by the Company* 5,090
Direct investments
Venture capital 22,486 Target company instrument Valuation multiples** EV/Net sales
2014 (2,6x)
4,161
Later stage 74,837 transactions /
Peer group
EV/EBITDA
2014 (6,0x)
9,502
Investment classification Fair value
1 Jan 2014
thousand euros
Valuation model Non-observable input or implicit valuation parameters Applied input or implicit valuation parameters (weighted average) Change in measurement if input changes +/- 20%
Venture capital and private equity funds
Venture capital 115,084 Values reported by fund management companies 23,017
Later stage 150,681 Fair value +/- adjustments made as a result of 30,136
Funds of funds 17,119 value testing made by the Company* 3,424
Direct investments
Venture capital 21,871 Target company instrument Valuation multiples** EV/Net sales
2013 (3,1x)
3,716
Later stage 83,579 transactions /
Peer group
EV/EBITDA
2013 (6,6x)
11,598
* Fair value testing of venture capital and private equity funds performed by the Company resulted in a fair value that was, in total, 12 million euros lower than the values reported by fund management companies as at 31 December 2015. Correspondingly, the same fair value testing resulted to a total lower fair value of 14 million euros compared to the values reported by fund management companies as at 31 December 2014. Fair value testing of venture capital and private equity funds was not carried out as at 31 December 2013.
** The weighted EV-based valuation multiple calculations include only the impact from those target companies to which applying multiples as a valuation metric is reasonable. For example, in the venture capital allocation, the impact of those target companies which generate still only very limited net sales are not included. Similarly as an example, in the later stage allocation those target companies with a negative EBITDA are not included. Note: EV = Enterprise Value = value of target company's business
on a debt-free basis; EBITDA = earnings before interest, tax, depreciation and amortisation.
5.1 Venture capital and private equity funds
Company Domicile Ownership % Original investment commitment thousand euros
Aboa Venture II Ky Turku, Finland 14.0 % 1,346
Aboa Venture III Ky Turku, Finland 30.8 % 3,500
Armada Mezzanine Fund II Ky Helsinki, Finland 11.5 % 5,000
Armada Mezzanine Fund III Ky Helsinki, Finland 11.4 % 10,000
Armada Mezzanine Fund IV Ky Helsinki, Finland 4.9 % 5,000
Balderton Capital V, L.P. Delaware USA 3.1 % 8,074
CapMan Buyout IX Fund A L.P. Guernsey 3.4 % 10,000
CapMan Buyout VIII Fund A L.P. Guernsey 2.8 % 10,000
CapMan Buyout X Fund B Ky Helsinki, Finland 13.9 % 10,000
CapMan Equity VII A L.P. Guernsey 6.4 % 10,000
CapMan Life Science IV Fund L.P. Guernsey 18.5 % 10,000
CapMan Mezzanine V Fund FCP-SIF Luxemburg 15.8 % 15,000
CapMan Public Market Fund FCP-SIF Luxemburg 7.2 % 10,000
CapMan Technology Fund 2007 L.P. Guernsey 10.3 % 6,300
Conor Technology Fund I Ky Espoo, Finland 40.0 % 8,000
Conor Technology Fund II Ky Espoo, Finland 20.0 % 10,000
Creandum II LP Guernsey 10.4 % 4,783
Creandum III LP Guernsey 5.6 % 7,500
DFJ Esprit Capital III LP United Kindom 12.5 % 10,000
DN Capital - Global Venture Capital III LP Jersey 2.1 % 3,000
EQT V (No. 1) Limited Partnership Guernsey 0.2 % 7,000
EQT VII (No. 1) Limited Partnership United Kindom 0.3 % 15,000
Eqvitec Technology Mezzanine Fund I A Ky Helsinki, Finland 42.3 % 13,770
Eqvitec Teknologiarahasto I Ky Helsinki, Finland 18.3 % 12,446
Finnmezzanine Rahasto III A Ky Helsinki, Finland 9.9 % 10,000
FSN Capital IV L.P. Jersey 1.8 % 9,914
Holtron Capital Fund II Ky Helsinki, Finland 29.5 % 2,000
Industri Kapital 2000 Limited Partnership VII Jersey 5.7 % 10,000
Intera Fund I Ky Helsinki, Finland 8.0 % 10,000
Inveni Life Sciences Fund I Ky Helsinki, Finland 33.7 % 10,000
Inveni Secondaries Fund II Follow On Ky Helsinki, Finland 10.2 % 1,200
Inveni Secondaries Fund II Ky Helsinki, Finland 5.0 % 3,364
Inventure Fund II Ky Helsinki, Finland 11.5 % 8,000
Inventure Fund Ky Helsinki, Finland 24.2 % 9,850
Jokilaaksojen Rahasto I Ky Raahe, Finland 34.2 % 1,850
K III Denmark K/S Denmark 22.7 % 10,000
Kasvurahastojen Rahasto II Ky Helsinki, Finland 46.2 % 60,000
Kasvurahastojen Rahasto Ky Helsinki, Finland 40.0 % 54,000
Life Sciences Partners III B.V. Netherlands 13.8 % 10,000
Life Sciences Partners IV B.V. Netherlands 21.8 % 10,000
Life Sciences Partners V C.V. Netherlands * 5,000
Lifeline Ventures Fund I Ky Helsinki, Finland 10.4 % 3,000
Lifeline Ventures Fund III Ky Helsinki, Finland 19.4 % 10,000
Litorina IV L.P. Jersey 3.7 % 10,325
MB Equity Fund II Ky Helsinki, Finland 10.0 % 4,205
MB Equity Fund III Ky Helsinki, Finland 8.6 % 10,000
MB Equity Fund IV Ky Helsinki, Finland 3.9 % 10,000
MB Equity Fund Ky Helsinki, Finland 17.4 % 2,523
MB Equity Fund V Ky Helsinki, Finland 8.3 % 15,000
MB Mezzanine Fund II Ky Helsinki, Finland 5.0 % 2,740
Company Domicile Ownership % Original investment commitment thousand euros
Midinvest Fund I Ky Jyväskylä, Finland 31.4 % 4,205
Midinvest Fund II Ky Jyväskylä, Finland 25.6 % 8,194
Midinvest Fund PH I Ky Lahti, Finland 25.0 % 2,000
Midinvest Fund YPY I Ky Mänttä-Vilppula, Finland 33.3 % 1,000
MVM IV LP United Kindom * 6,885
NEXIT Infocom 2000 Fund LP Guernsey 6.1 % 3,333
Nexit Infocom II L.P. Guernsey 17.6 % 15,000
Northzone VI L.P. Jersey 5.8 % 7,500
Northzone VII L.P. Jersey 3.0 % 7,500
Norvestor VI L.P. Guernsey 3.7 % 13,059
Open Ocean Fund 2015 Ky Espoo, Finland 7.1 % 5,000
Open Ocean Fund Three Ky Espoo, Finland 11.2 % 5,000
Polaris Private Equity III K/S Denmark 2.8 % 10,087
Polaris Private Equity IV K/S Denmark 2.4 % 10,052
Power Fund I Ky Vaasa, Finland 29.6 % 5,000
Power Fund II Ky Vaasa, Finland 23.9 % 15,000
Power Fund III Ky Vaasa, Finland 13.0 % 10,000
Procuritas Capital Investors III 'B' L.P. Guernsey 6.7 % 7,063
Profita Fund III Ky Helsinki, Finland 27.6 % 11,610
Promotion Equity I (A) Ky Helsinki, Finland 23.5 % 4,000
Seedcap Ky Espoo, Finland 37.8 % 5,291
Sentica Buyout III Ky Helsinki, Finland 13.0 % 15,000
Sentica Buyout IV Ky Helsinki, Finland 8.0 % 10,000
Sentica Kasvurahasto II Ky Helsinki, Finland 23.7 % 10,224
Sentica Terveysteknologia I Ky Helsinki, Finland 33.3 % 3,333
Sponsor Fund III Ky Helsinki, Finland 5.7 % 10,000
Sponsor Fund IV Ky Helsinki, Finland 5.0 % 10,000
Sunstone Technology Ventures II K/S Denmark 7.5 % 7,069
Teknoventure Rahasto II Ky Oulu, Finland 36.5 % 5,500
Teknoventure Rahasto III Ky Oulu, Finland 46.8 % 7,500
Vaaka Partners Buyout Fund II Ky Helsinki, Finland 6.7 % 10,000
Vaaka Partners Buyout I Ky Helsinki, Finland 19.7 % 10,000
Wedeco Fund III Ky Kb Vaasa, Finland 35.1 % 2,310
Wedeco Fund IV Ky Vaasa, Finland 45.3 % 5,000
Wedeco Seed Fund Ky Kb Vaasa, Finland 25.3 % 475
Verdane Capital VII K/S Denmark 7.2 % 12,097
Verdane Capital VIII K/S Denmark 3.0 % 6,553
Verdane NVP II SPV K/S Denmark 8.5 % 10,000
Verso Fund II Ky Helsinki, Finland 10.0 % 5,000
VisionPlus Fund I Ky Helsinki, Finland 9.9 % 5,000
800,529
*Not public information, fundraising in the process.
In addition the parent company owns 100 % of Start Fund I Ky - fund (see note 15. Subsidiaries)
More information from venture capital and private equity investments can be found from the company website www.industryinvestment.com
5.2 Direct investments
Company Ownership %
3Step IT Group Oy 6.9 %
Aker Arctic Technology Oy * 66.4 %
Beneq Oy 14.9 %
Componenta Oyj 6.3 %
Conformiq, Inc. 8.1 %
Coronaria Hoitoketju Oy 6.6 %
Detapo Oy (Pohjolan Design-Talo) 15.8 %
Enevo Oy 13.2 %
Eniram Oy 9.5 %
Incap Furniture Oy 17.2 %
IonPhasE Oy 11.8 %
Keliber Oy 20.0 %
Kotkamills Group Oy 9.6 %
Lamor Corporation Ab 10.1 %
LeadDesk Oy 4.1 %
MariaDB Corporation Ab 4.8 %
Mekitec Oy 22.8 %
Mendor Oy 13.3 %
MetGen Oy 19.2 %
M-Files Oy 9.9 %
MultiTouch Oy 15.3 %
NewIcon Oy 13.0 %
Nexstim Ltd. 2.6 %
Onbone Oy 5.6 %
P2S Media Group Oy (Scoopshot) 13.6 %
Panostaja Oy -
Pesmel Oy 5.0 %
Profit Software Oy 20.9 %
Rauma Marine Constructions Oy *) 17.8 %
Rightware Oy 9.7 %
Sotkamo Silver Ab 14.1 %
Staffpoint Holding Oy 20.6 %
Stella Care Oy 17.3 %
Talenom Oy 16.3 %
Thermisol Oy 20.0 %
Unisport-Saltex Group Oy 13.4 %
Ursviken Group Oy 24.6 %
Valmet Automotive Oy 47.5 %
Visedo Oy 14.0 %
*) Ownership through Tesi Industrial Management Oy
More information from venture capital and private equity investments can be found from the company website www.teollisuussijoitus.fi

Download ready made reports


Annual Report

Financial Statements

Responsibility