Industry Investment Ltd Finland's leading investor in early-stage companies
The state-owned equity investment company Finnish Industry Investment Ltd had a good year for profits in 2005. Successful exits were made both from funds and from the company's own balance sheet. Finnish Industry Investment Ltd established its position as Finland's foremost risk financiers for seed-stage companies. Priorities for investment also included venture capital funds investing in growth companies and regional funds.
At the end of 2005, Industry Investment Ltd was an investor through funds or directly in a total of 422 companies. Of these, 317 were early-stage companies and 105 were more mature-stage companies. When Industry Investment acted as a co-investor a substantial amount of private equity was also channelled into promoting business.
The parent company Finnish Industry Investment Ltd placed EUR 104.7 million in new investment commitments, of which EUR 42 million was placed in funds and EUR 12.7 million direct in target companies. The company gave the Start Fund I Ky fund, which was founded for the purposes of a seed-finance programme, a commitment in the amount of EUR 50 million.
Finnish Industry Investment Ltd's investments in an acquisition price and in investment commitments totalled at year-end EUR 325.6 million, an increase on the end of the previous financial year of EUR 43.7 million. Investments accounted for EUR 177.8 million, which broke down into EUR 148.3 million in funds and EUR 29.5 million direct into target companies. Unpaid investment commitments amounted in total to EUR 147.8 million, of which EUR 144.2 million was in funds and EUR 3.6 million in direct investments.
The parent company's net profit for the year rose to EUR 33 million, compared to EUR 8 million for 2004. The Group's net profit for the year was EUR 31 million. The improvement in profitability was influenced favourably by the increase in exits in the sector of business.
Investors' confidence in early-stage risk investment improved
In 2005, Industry Investment Ltd established its position as Finland's foremost early-stage risk financier for companies, in both cash terms and in number of placements.
The flow of projects into Industry Investment's seed-financing programme continued to be plentiful throughout the year. During the year under review, a total of 47 decisions on initial or continuing financing were made in the programme, to a combined value of EUR 10.8 million. Industry Investment Ltd's investment commitments in a single seed investment ranged between EUR 50,000 and a million euros, averaging EUR 290,000.
By the end of 2005, investments had been placed in 56 target companies in the seed-financing programme. They needed capital particularly to complete product development, to gain access to the market, and to build distribution channels.
Roughly 30% of the early-stage investments were placed in the Helsinki Metropolitan Area and the rest in different parts of the country.
The investments are spread over many spheres of business, although information and communication technology and electronics were stronger than others. There are also several investment targets in the energy and environmental sector.
In the seed-financing programme, Industry Investment Ltd invests in early-stage Finnish growth companies together with "business angels" experienced entrepreneurs or corporate executives and equity investment funds.
The capital of the Start Fund I Ky fund, which was founded for Industry Investment's seed-financing programme in March 2005, is EUR 50 million. On the basis of its first two years in business, the programme is estimated to have settled down at roughly 50 investments and an annual level of EUR 1015 million.
Industry Investment Ltd plays a more active role in establishing new funds
During the financial year 2005, Industry Investment Ltd made new investment commitments in nine equity investment funds to a total of EUR 92 million, including the aforementioned Start Fund I Ky.
Slightly more new venture capital funds (i.e., publicly quoted funds investing in seed- and early-stage companies) were established in 2005 than in the previous year. Finnish Industry Investment Ltd took a more active role than previously and sought to promote the start of funds. The company took part in establishing four new funds: Eqvitec Technology Mezzanine Fund II Ky, Finn-Thai Technology Fund Ky, Seedcap II Ky and Sentica Kasvurahasto II Ky.
Industry Investment Ltd also took part in two regional equity investment funds established in 2005: Midinvest Fund PH I Ky and Wedeco Seed Fund I Ky. The funds invest in early- and growth-stage companies and in restructurings.
In 2005 Industry Investment Ltd placed one new private equity fund investment (i.e., investments in later growth-stage companies undergoing restructuring, etc.) by providing a EUR 10 million investment commitment for the CapMan Buyout VIII LP fund, which invests in Nordic companies.
Industry Investment Ltd has also invested in venture capital funds active in the bio sector. During 2005 a decision made the previous year was effected on EUR 10 million in investment commitments to the Dutch Life Sciences Partners III fund, which invests in European bio sector companies and which has an active Finland strategy. During the year under review an investment decision was also made on a EUR 10 million placement in the CapMan Life Science IV fund in March 2006.
During the year under review, the willingness of private investors to invest in a risk fund aimed at the extractive industry was studied. However, sufficient interest could not be found among other investors. After the end of the financial year, a decision was made to start up Industry Investment's own extractive industry financing programme.
Noteworthy exits in risk financing in growth companies
In 2005 direct initial and continuation investments in target companies were made to a total of EUR 12.7 million. A favourable cyclic trend and a good market contributed to several exits in 2005, both in direct investment and in fund investment.
At the end of the financial year, Industry Investment had direct investments in a total of 14 companies. These had been given investment commitments totalling EUR 37.8 million. Of Industry Investment's total of 325.6 million in current investment commitments, this direct investment portfolio represents 10.1 per cent.
In 2005 Industry Investment Ltd made three new initial investments totalling EUR 10.1 million:
Industry Investment Ltd placed continuation investments in companies already in the portfolio for a total of EUR 2.6 million:
Industry Investment Ltd exited completely from two investments in 2005 and agreed on one exit which was effected in 2006:
Industry Investment Ltd provides later-stage growth companies with equity investments to finance growth, spinoff projects, succession from one business generation to the next, substantial industrial investments and restructurings. Industry Investment Ltd takes part in direct investments together with other investors and financiers. The company's share in equity investments aimed at these later growth-stage companies is EUR 1 5 million.
Outlook for the future
Industry Investment's Managing Director Juha Marjosola forecasts that the favourable trend in income will continue in 2006:
"Industry Investment Ltd increases the supply of risk financing, particularly in areas with growth potential. In addition to seed-stage companies, also venture capital funds investing in growth companies will become a major target for additional placements. The number of direct investments will increase in prospects in which investment is not feasible in fund form due to private investors' passivity.
"At the current rate, the seed-financing programme's EUR 50 million will be fully invested in four years, which means during 2007, when the programme will have included investments in a total of 100120 target companies. It is intended to start the Start Fund II Ky fund in 2007 with a scheduled capital of EUR 50 million.
"Since the end of the financial year, it has been decided to change the mining fund project into a financing programme within the framework of which investments will be made in the mining sector. Not enough private capital has been found to establish a fund."
Decisions of the annual general meeting
The annual general meeting of Finnish Industry Investment Ltd passed a resolution on 27 March 2006 that no dividend would be paid for the 2005 financial year from the distributable assets of EUR 46.8 million.
The annual general meeting elected to Industry Investment's Board of Directors for 2006 Director Heikki Aurasmaa of the Central Finland Regional Labour and Business Centre to continue as chairman, with continuing ordinary members Board chairman Johanna Ikäheimo of Lappset Group Oy, Professor Antti Paasio of Turku School of Economics and Business Administration, and Managing Director Sirkka-Liisa Roine of the Finnish Foundation for Share Promotion, plus new members Managing Director Matti Luukkonen of IS-Print Oy, Counsellor Raili Mäkitalo of the Ministry of Finance, and Industrial Counsellor Heikki Vesa of the Ministry of Trade and Industry.
Finnish Industry Investment Ltd is a state-owned equity investment company. It invests moneys raised from the sale of state assets for the growth and internationalisation of Finnish business. Industry Investment Ltd invests primarily in equity investment funds. Investments are also placed in companies. The targets are all sectors and particularly early- and growth-stage business which, without Industry Investment Ltd, would not receive sufficient private capital. Equity investments are needed for target companies' seed stage, for financing growth, for spinoff projects, succession from one business generation to the next, substantial industrial investments and restructurings. The company participates as a co-investor in at most half of the capital and holdings which are the subject of the investment. The total of the company's investments and investment commitments is roughly EUR 330 million.
PDF file: www.teollisuussijoitus.fi/yhtio/vuosikertomus.html (in Finnish)
Annual Report 2007 (in English, available in the end of April)
Managing Director Juha Marjosola, Tel. +358 50 62 636, email@example.com