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Antti Kummu, a founding partner of CapMan Growth, joins us to discuss their take-private of Silmäasema, what makes companies valuable, the importance of storytelling, Elon Musk, and much more.

3 takeaways from the conversation with Antti Kummu

1. The Role of Detailed Metrics in Business Success

One of the significant points Antti emphasized was the importance of detailed metrics and data in understanding and driving business success. During his tenure as CFO of a rapidly growing company, he developed a detailed Excel model that encompassed all aspects of the business, from KPIs to financial performance. This model helped in making informed decisions and building robust IT systems for better data management. According to Antti, having a comprehensive understanding of metrics not only aids in day-to-day operations but also plays a crucial role when explaining the business story to investors. As he puts it, “The more detailed you can model the business, the better you understand and can run the business.”

2. The Strategic Value of Storytelling

Antti also highlighted the strategic value of storytelling in building and selling a business. A compelling narrative can significantly enhance a company’s appeal to potential buyers and investors. This storytelling is not just about the numbers but also about the vision and journey of the entrepreneur. Antti shared that having the entrepreneur articulate their story adds a personal touch that resonates well with stakeholders. “The better story you have and the simpler it is, the more impactful it becomes,” says Antti. A well-crafted story, backed by solid data, can lower the cost of capital and attract better investment terms.

3. Building Companies for Strategic Buyers

Another critical insight from Antti was the focus on building companies with strategic value for potential buyers. He explained that identifying and enhancing the elements that increase a company’s valuation multiple is vital. For instance, in the case of Silmäasema, Antti and his team recognized the potential in combining optical retail with eye health services, which significantly increased the company’s value. This strategic thinking involves looking beyond immediate financial metrics and considering factors like market position, customer base diversification, and unique selling propositions. Antti noted, “We have a detailed list of issues that make a company much more valuable, and we work on these aspects from the beginning.”

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Podcast transcript

Episode 48_Antti Kummu podcast

Josua: Welcome to the show, Antti. Thanks. Really excited to talk about growth with you and how to generate growth, something you’ve had you’re working on very closely at the moment. But I’d be interested to start with a little bit of background. So before you ended up on this side of the table, you spent some time at Desi and Finvera.

Josua: So I’d be interested to hear about just briefly how your career got started and how you made. the decisions that you made leading up to your current role?

Antti: Yeah, thanks. Actually, I’ve been working with the growth companies for more than 25 years in very [00:01:00] many different roles. I started in senior financing in Pinvera and after that I moved to Desi, which I was practically 10 years and do all the different investment stuff you can do.

Antti: So I was investing in funds. I was investing in VC funds. I was investing directly to buyout companies and the growth companies. And also I was responsible for major industrial investments by like Turku Yard, Valmet Automotive and acquisition of Aker Arctic to to Finland from Goran. And I was heading the direct investment team for three years as a management team member.

Josua: Oh, I didn’t know that Tessie was also invested. I thought it was mostly in funds, but, or maybe it is mostly in funds, but they also do direct investment. Actually,

Antti: I was one of the first person who was starting the direct investment arm in Tessie. And so at the time when I joined Tessie, there was nine employees.

Antti: So we [00:02:00] started the operation of also investing directly to the companies together with the private investors.

Josua: What was there like a directive that this is not what this, it should be doing, or was it just, you saw an opportunity to generate returns? Was there something like the reason for doing, going direct?

Antti: It was more like the we see that there wasn’t that much money in the market.

Josua: Yeah.

Antti: And a lot of LPs at the time they were asking, let’s say, co investments.

Josua: Yeah. So it’s a way to provide liquidity or more money into the

Antti: market. But also if you look discuss these industrial investments, they were a little bit different type and that’s a whole.

Antti: whole story because there was problems in, in, in Turku yard and there was issues in Valmet Automotive at that time and let’s say government needed some kind of tool to solve those issues. And Tessie had a personal and actually funds to do that. transactions. [00:03:00] That’s why I get involved in those.

Antti: And it was a really interesting time in my career.

Josua: I can imagine that you must have had a really good very broad picture of Finnish business life. Yeah. All the different companies, major players and so on.

Antti: And since then, I work, I moved to the private sector. So I was building the Tohola daycare chain for a while.

Antti: I was in an operative management role in there. So I was a CFO of that company. So we basically built that company from scratch to 60 million euros and we sold the company to EQT. And I was one year with EQT after the after we sold the company.

Josua: Was after, after Tessie and Finvara, when you went to build that, build a chain of daycare, was that the first operational role

Antti: that you had?

Antti: Yes. Yes. And it was actually first time I was in a CFO role. So I needed to learn a lot of new things really fast because company was growing more than a hundred percent of year. [00:04:00] We established I think, 40 daycare centers around Finland. We acquired tens of daycare centers and we built the whole organization and do the carve out from the mother company, and then we sold the company within three years.

Antti: So it was a quite fast learning curve.

Josua: How, what was it like to go from being on the investment side of things? to them being very hands on operationally in a company that’s growing like that rapidly.

Antti: It’s a huge difference to be in charge in an operation because there is always so much things happening that you don’t anticipate.

Antti: So in growth company and in operative management it’s the day to day operative, you never know what happens when you go to work. There is always some problems you need to solve. There is always some issues you need to be responsible. So it’s very hectic but it live that life.

Antti: And it’s [00:05:00] really, let’s say, interesting if you get to the, let’s say, curve when the company is growing and the organization is growing. And so it’s something. Every bunch, let’s say, in this industry, let’s say, have a possibility to live true.

Josua: Yeah, I think it’s such, it creates so many opportunities also for the people inside the company when you’re growing that fast, because there’s new responsibilities and new roles and they need to be filled, new opportunities that need to be explored.

Josua: And if you’re there and you’re willing to work hard. There’s, there can be a lot of opportunities for the people working inside the company.

Antti: And there’s so much energy. Yeah, exactly. Because people are seeing that this is working and the company is growing and everybody is doing great. And even though I’m not in an operative role anymore, it has been a really good experience when I now work with the entrepreneurs.

Antti: So I enjoy it. actually know what they’re doing and know what the phase they are. If you, if I [00:06:00] see the organization, how many people they have in the back office operation, what is the size of the company? So I basically see in all of those stages as a CFO.

Josua: Exactly. Just out of curiosity, as a CFO, was there something that you developed In, in, in way of your own was there a specific numbers KPIs that you were paying special attention to?

Josua: Did you develop some kind of own reporting or how did you structure your job as a CFO to make sure that you, the company was,

Antti: I, I’ve always done a lot of Excel and I did a very detailed Excel model and a model the whole business and that was a really good because we could, let’s say, develop KPIs.

Antti: develop the IT system based on that Excel. So in the beginning of the company was small, I have everything in Excel. And then I hired a lot of people who were good in IT and good [00:07:00] data. So they were able to build a data system around that Excel which I wanted to manage the company and in all of the investments since then, we do a very detailed let’s say Excel model.

Antti: of a whole company, not just, let’s say the final sale accounts and balance sheet, but all the KPIs, let’s say, it’s very important that you understand, let’s say, how the KPIs, for example hourly rate, what you get from the customer and turns into the Revenue. So very detailed Excel and financial model.

Josua: Okay. So it’s going beyond the basics. Obviously you have gross margin and you have your profit margin and all that, but,

Antti: But I understand the, really the business. So if you’re selling the car, you need to have a, let’s say model, how many. cars in which models and what is the average price of selling and who is selling how much and let’s say [00:08:00] the more detail you can model the business, the better you are, the better you understand, the better you can run the business.

Josua: Got it. So you essentially want to have the business like almost as an equation and you can look and see if this one goes up by 50 percent then Yes. Okay. Just in general, get in your current role. You’re investing in both smaller and bigger companies. Do companies typically have this kind of reporting that you want to see?

Antti: That is, let’s say the main thing we usually bring to the company is that they are usually driven very well by the entrepreneur. They know, and of course they have the basic reporting. But they don’t have the, let’s say the data and they don’t have the systems and they don’t have the modeling capacity.

Antti: And that is something we usually bring to the company. Some entrepreneurs are much better in this and they understand the value of the data and they’ve been let’s say preparing. But in most of the cases, they’ve been [00:09:00] only focusing on growing company and products and customers. So they didn’t have time to do that, but they understand that it’s important.

Antti: And that is something we build together. We model the company because it’s also helping the, let’s say, explain the story to the investors because eventually we are selling the company forward and then we can show the data what we’ve done and and how the company has evolved. And then the buyer eventually understands that, hey, this is the value actually behind that.

Antti: Okay,

Josua: how long does it typically get? Is it a continuous process?

Antti: And as the company is growing, you need more data and you have more, let’s say, advanced systems and and a bigger investments. And of course you can. Yeah.

Josua: Are there we’re getting very specific into this, but I think it’s very interesting.

Josua: Are there now in your, you’re not in an operational role, you’re presumably taking board seats in the portfolio [00:10:00] companies. Are there any typical operational KPIs beyond the balance sheet income statement? that you as a board member want to pay attention to on a monthly, quarterly basis? Are you looking at any specific like operational KPIs or

Antti: just?

Antti: It depends a lot about let’s say the type of industry I work in. For example, if we have a retail company, of course you look at the daily sales. Or where the sales comes from or the conversions in some type of company is very important to understand or in some companies the average price is maybe really important and where the, let’s say the let’s say next big deal is coming.

Antti: It’s always depending on the situation and the industry of the company. And you just need to actually understand which are the most important KPIs that you need to manage and follow to understand the company.

Josua: Yeah. Would you say generally? the boards are not aware enough of both [00:11:00] what the most important metrics are for that business and what the actual numbers are.

Antti: Or it depends a lot. There are really good boards and really good board members, but in many cases we’ve understood that they don’t, not all of them understand the business that that they are in. The bigger the company is, there are a lot of issues in a board agenda, and actually the role of the actual business comes more, and that is a problem for us.

Antti: especially in listed companies, you have so much reporting, so much compliance and other stuff. So the time for the actual business and understanding what is important is quite small.

Josua: Yeah.

Antti: And that is something that in private setups and in boards that we operate is so different that we only usually have a, Us, we have the entrepreneur and we have maybe one outsider or two outsider as an advisor who [00:12:00] all focus on business.

Antti: And we actually met usually weekly in one call and we have board meeting in every month. But we are very operative in that way as a board.

Josua: That must be very efficient. A few kind of, not too many chefs and everyone’s focused on the same thing.

Antti: And usually we have the most of the ownership in the table so we can decide very fast.

Josua: Yeah. I’ve, it’s something I’ve been struck by that I think is very interesting is just this question of even understanding how a company makes money. Like it sounds so simple, but when you think about it, I think a lot of people who work inside companies don’t really understand. Yeah. We know we’re selling a product to this company, but we don’t actually understand really how the company makes money.

Josua: Yeah. So I think probably that’s like getting everyone to focus on that. Getting the KPIs operational metrics specific for that business that can probably unlock a lot of value because all of a sudden you’re saying we’re losing money on this and making. A lot of money here let’s just focus here.

Antti: Yeah, it was [00:13:00] like, that was the reason, for example, why we interested in Silmaaseva. We understood that the concept was great, that you can offer, let’s say, the eye health services and an optical retail to same customer, and customer doesn’t need to know whether he has an eye related problem or He just needs glasses.

Antti: And the concept was great. So you can actually sell the both services to the same customer. And you have, can have a, let’s say, conversion between these. So the concept was great. But actually, if you look at the reporting of the company, it was mainly based on the optical retail. And at the time when we were.

Antti: Looking at the company, they didn’t focus so much about eye health, and we saw that the eye health was actually really interesting part of the company because people are getting older. All of us are getting some eye related disease at some [00:14:00] point of time. It’s just eventually, every people. And we saw that is very positive.

Antti: much faster growing market. And actually, if you combine these, some of the optical retail customer can be converted to the eye health customer. And they are, of course, one surgery. It is much more valuable than one, one eye glasses. And that was the, let’s say, the background just. Just to understand that the concept and what actually, what is inside in that company.

Antti: And our presumption was that they are running the company quite well, but actually we could do much more. If we, let’s say, manage the healthcare side of that company better. And we had a background together with Koronaria and Teppeli, then Ulla Napankangas from healthcare.

Speaker 3: Yeah.

Antti: And that’s why we were, let’s say, able to do a lot more with the same asset.

Josua: Interesting. So essentially you were looking at [00:15:00] it from the outside and saying, run, but there’s this other part here that’s not being focused on. Yes. So if we just. If you just change, make a there were probably was a lot of work involved, but essentially if we changed the strategy a little bit we can, I guess this, these are public numbers, I think.

Josua: So more than doubled revenue since the take private and was in 2020 or 2019, 2020, 2020, more than doubled revenue, profit margins increased. Triple

Antti: profitability of that company.

Josua: Triple profitability in what, it’s four years? Yeah. So that’s, it’s just, I think, so fascinating that there was, here was this.

Josua: public company, which means that the reporting is public. I’m guessing you were just using publicly available data and anyone could have made that kind of anyone had access to the information, but not everyone saw the opportunity. And then of course, not everyone had the resources to then act on it.

Josua: But was that essentially how it worked?

Antti: Yep. Of course, in Koronaria, which made the investment to Silma Asemaa, we were owners of Koronaria. In Koronaria, [00:16:00] it already operated in private eye health. They had their own chain called Medilaser at the time, and they were also a large operator in public eye health.

Antti: So they knew the industry from inside really well. And they had a history that they have in years ago, they have been building the optical retail chain also for spec savers as a franchise entrepreneurs. And they sold that back to the spec savers. So they knew both, they knew the optical retail, they knew the iHealth, they knew the public side.

Antti: They saw that if you can combine these and run this. in a proper way, this would be a much, much more valuable entity than it is today. So you had entrepreneurs, you have the courage, and you actually, you have the expertise, and you have eye doctors running the business. Because it’s very, let’s say, important that [00:17:00] you have, let’s say, the people who know the industry.

Antti: And that has been, let’s say, the basis of our operations. So we have entrepreneurs who really, who know all the, let’s say, nuts and bolts in their business. And that is something that we support, and it’s not the other way around.

Josua: Yeah, that’s it’s very interesting because your strategy is to take significant but still minority positions.

Josua: Leave the entrepreneur or the operational team with a majority stake in operational control. And then you support them as a very active, but nevertheless, as an advisory or board capacity.

Antti: Yeah, we can be very active. Let’s say in many cases, depending on the company, or we can be a little bit different.

Antti: more passive in, in, in some of the cases, usually we are always in a board but in most of the cases, we are partnering together with the entrepreneurs. So we are forming the, let’s say alliance to, to build that company. So we have maybe more financial resources. We have a lot of expertise from [00:18:00] other growth companies, which we have built and we know the ESG and compliance and other stuff and the entrepreneur knows their own business and they have a really good vision and we, let’s say, try to build that together and it has worked really well.

Josua: So when you, given that you have a minority stake then and as an investor, you’re looking to. Exit the investment at some point. So when do you have a discussion about here are what we want to do? If we come in, if we make this investment, yes, you’re going to be in charge, you’ll make the decisions, but this is what’s important to us.

Josua: This is the timeframe. This is what we’re looking to do. Like, how do you create alignment? Early on what is it, what do those kind of do you have a specific plan that you make? Or Yeah. Is it more, yeah. Before

Antti: the investment we have a discussion with entrepreneurs in, in, in many cases they are, let’s say, thinking should they sell the company now or maybe later because they are already valuable.

Antti: Yeah. Or really valuable company at that time. And if you calculate from their [00:19:00] wealth, it’s usually major part of their whole family wealth at. time. So usually we offer them a partial exit at the time. And then we make a plan together with the entrepreneur that let’s not sell the company today.

Antti: Let’s sell it together after five years, let’s double or triple the size of the company. And then we, let’s say, sell all is the company together after that. And you can have a, let’s say, partial exit. Now you can have a little bit. risk out of the table, and you can focus on the growth of the company and may take more risk.

Antti: That is one thing that many, let’s say entrepreneur driven companies are not willing to take that much in some cases, because they have so much to lose and so much wealth tied to that company because it’s already, let’s say, succeed quite well. So in some cases, it makes them a little bit careful and that is really understandable.

Antti: But if they can make a, let’s say, small exit at one time they are financially secured after that. [00:20:00] And then they can, let’s say, focus on, let’s say, building a company and making, making a lot of wealth to themselves because they don’t, it’s not everything they own at that time. And that is very important discussion, which we have before the investment.

Antti: So what is important for the entrepreneurs and what kind of plan we are able to do together. And we, Commit to exit the company at some point of time. And if we are able to, let’s say, do all of these, then we end up doing an investment together with the entrepreneurs.

Josua: Okay. It has to be an agreement.

Josua: I’m guessing these things are hard to get on, in a contract maybe legally, but nevertheless at least Yeah, they,

Antti: they are in contracts, and they are in legal contracts.

Josua: There’s legally binding in some way, at least. Some things, yes. Some of the things, yeah. Yeah, of course.

Josua: So essentially, you’re looking at people who are who want to exit, exit in, in, in a, let’s say, a five year period.

Josua: Willing to take a little bit risk off right now, but then. Yes. Willing to commit to work really hard another five years. Or do you also do you do any investments where there’s, the [00:21:00] founder makes Complete exit and you take your minority stake and external CEO

Antti: and we can do what we haven’t done in some of the cases we can take a majority of the company together with our co investors and advisors.

Antti: So in some cases, the company is just so valuable that management stake may be. 30 percent or 40 percent and we actually have a majority with the with the co investor, but still usually the entrepreneur is the largest owner, but not the majority owner in some of the cases.

Antti: But Yeah. Usually they are entrepreneur driven at the time of investment.

Josua: And that goes probably to your point about you need people who really understand the business and it’s not something you read up on or you’re learning terminology. It’s can be decades of experience in a specific technical field, for instance.

Antti: Yeah. And the industry, it’s very important that. They actually know the industry.

Josua: How important is [00:22:00] is the, let’s say the personality of the founder? Because some people are maybe they are very they want to make all the decisions themselves. They’re maybe not so coachable. Maybe they don’t really necessarily know the edges of their own competencies.

Josua: So do you make that assessment of Oh, this is a person that we can, we think we can work with? Or this person, great business, but maybe. The personality is not really one that we can work with. Do you look at that part as well?

Antti: Of course we look and, but there are. all, let’s say, very strong personalities.

Antti: And that is say like our magic force that we are very good in working in different type of entrepreneurs. But that is something that comes with the model that, that the entrepreneurs are really different. And, Usually they are very strong minded. That is the reason they have succeeded so well.

Antti: And it comes with the territory that we want to work. With those, [00:23:00] because they are usually very genius people as well. They are very interesting personalities. Most of them. It must make for a very interesting job. It’s actually it’s a one of, one of the best things in the, in this whole work is to work with different kind of entrepreneurs because they are not, let’s say, the average people.

Josua: And you probably get to learn a lot because they have they have strong opinions. They have specific domain expertise and you get to challenge them a little bit, but then also learn tons in return.

Antti: Yeah. In some cases we’ve been very good friends with many of the entrepreneurs and they have invested to our funds.

Antti: And since even through we have exited the company, we have remained as let’s say partners and we have done different things after the. to the passport exit. And that is something we want to build. So we want to build wealth to them. And when they sell the company, they can continue as our investors.

Antti: And we can do some something. other things together with them.

Josua: Yeah. That’s a vote of [00:24:00] confidence and shows, shows then I guess also then future entrepreneurs that you are a really good partner. That the fact that you have them people investing with you after the exits and so on.

Josua: Yeah. Yeah.

Antti: We are very proud of that. Many of them have actually invested to our funds.

Josua: Yeah. Speaking of exits, when you make the investment, obviously, like you said, strategy or the goal can be to triple, double the value in a certain number of years. There’s two components that obviously one is just growing the business, specifically the bottom line or EBITDA or whatever the basis for the valuation is.

Josua: And the other part of it is obviously increasing the multiple. So how, what are the kind of key actions that you take to focus on the specific on the other side of it? Sorry, on the second part of it. Because one thing is, yeah, you’re helping grow the business, but you’re also making, I’m guessing your goal is to make the business more attractive to a future buyer, like more sellable to a larger number of potential buyers to increase the exit multiple.[00:25:00]

Josua: So what are the criteria that, that makes, takes a business? From being a low multiple investment to a then, or by to a higher multiple sell. Are there specific things that you focus on? Yeah.

Antti: We have actually a very detailed list of the issues which make a company much more valuable in multiple wise.

Antti: And that is something, of course, we don’t calculate inside our base case, but that is something that we want to.

Josua: Yeah,

Antti: build, and actually we want to build a strategic value for the strategic buyer, and most of the companies we build have been sold to the strategic industry or buyers.

Josua: Is that the kind of a goal for you at the very beginning, or are you like financial, strategic, buyer, doesn’t matter?

Antti: Of course we can, we don’t know. in advance, what will happen. But in most of the cases, when you build a strategic value, then it’s not based only for in Excel.

Josua: Yeah.

Antti: Yeah. And the valuation multiples can be much more. If the buyer is looking for some [00:26:00] technology or market share or other things, which are much more valuable to them and they are able to, let’s say multiply that business.

Antti: With their own resources.

Josua: What are some of what are some of those criteria that you look for? Or what are some of the criteria that makes 400 multiple?

Antti: It’s very simple. Of course, if you have a continuation business, you have subscription model type of business or Then you have a let’s say diversified customer base, or the size of the company, or the profitability of the company.

Antti: 40 is really important. If you combine the growth and the EBITDA margin,

Speaker 3: then

Antti: And it goes beyond 40. You get a really good valuation, and if it goes beyond 80, then you are in a hit business.

Josua: Okay, so you can play with those two things, the growth rate and the margin.

Antti: Yeah, but basically there are a lot of, let’s say, details.

Antti: Let’s say how, let’s say [00:27:00] do you have many similar type of assets? In that category, if you’re thinking about industrial buyers, is it the only asset in the actual country that you can buy if you want to enter to that market? And a different type of thing, what kind of management the company has what kind of products it manufactures.

Antti: So there are a lot of details that we will go through. Bye bye. together with the entrepreneurs that if you can do this, you can do this, you can do this, then most likely you will end up in a much higher valuation category. And that, that we’ve been also succeeding quite well in the, in, in the history.

Josua: That’s probably a huge part of the value add to the entrepreneurs, because these are things that they don’t know how to necessarily do themselves. And if you can take the multiple from like a six, sorry, like maybe a seven to a nine. That’s pure.

Antti: Yeah. In many cases the entrepreneurs hear them first time when we, [00:28:00] when they go to talk to investment banks, when they are, let’s say selling the company.

Antti: But if you have five years time to build those so We will have the discussion at the time of the investment, and then we will try to this and this and this. And then we, when we go to the investment banks and say that now we are let’s say more or less selling selling the business.

Antti: And these are the KPIs which we develop. And here you can see the data, how it has been evolved. Yeah. From, let’s say this. One business, one customer type of low margin business to, let’s say, multiple customer international business with a larger scale and a higher profitability. And these has been the drivers.

Antti: And that is the story we want to build.

Josua: I think story is really interesting. I remember reading from a, he was a VC investor in the United States, but he said that like storytelling. It’s a very valuable skill because it can obviously it helps with recruiting and stuff like that, but [00:29:00] sales, but also that it can lower the cost of capital, because if you can pitch, if you have same asset, but you can tell a different story you will have access to capital at better terms.

Josua: So how do you think about, because we talked about Excel, that’s very important. Talked about developing

Speaker 3: KPIs,

Josua: but the story aspect of it, is that also something that you start working with the entrepreneur or how is that. that narrative and framing, how is that developed?

Antti: It’s never easy, but it’s very important.

Antti: And of course we try to, let’s say, vocalize the story as well as we can. And that is something we do, of course, by ourself. So it’s a very important that we are able to sell, let’s say our own fund, and we are able to sell the company and we are all people. And the better story you have and the simple story you have and it’s very important that actually the people get it, that what the company is doing and actually that [00:30:00] employees that are working inside the company, they actually understand.

Antti: the company, what we are doing. That is something that not all of the employees understand actually that that is why we are doing and what we are doing and what is the company for? Because they only do the very minor part. And that’s why the story is very important.

Josua: Do you have a specific format that you like?

Josua: Is it like a document presentation? How do you The how do you communicate how should the story be communicated? Should it be told in any specific way? Should it always be by the entrepreneur? Is there anything, any kind of,

Antti: it’s always best if it’s done by the entrepreneur. Yeah. And it comes, if it’s comes from the, let’s say the personality and the history of entrepreneur, if there is some story, how he has been.

Antti: Let’s say founding the company and what has been the involvement and his story as an entrepreneur, [00:31:00] how it has been evolved to this kind of business as it is today. And that’s usually the best. Of course, we can build that story. Together with us and with banks and do a lot of beautiful presentation.

Antti: But if there is this personal touch from an entrepreneur, then it’s much more interesting.

Antti: To, to all of the, let’s say, different parties around the company.

Josua: So ideally you have the entrepreneurial to the personal touch. You have the you have the business case and then you haven’t developed the metrics that actually show that this is not just a story.

Josua: It’s true.

Speaker 3: Yeah.

Josua: Yeah.

Speaker 3: Yeah.

Josua: So when you. Take make those investments you have you partner with the entrepreneurs and you set this five seven, whatever it is your target Are you then planning typically for the entrepreneur to make that full exit and to cover the company? When you’re selling it to the future buyer are those buyers typically gonna be?

Josua: Coming in with their own management team or is the founder committed to? [00:32:00]

Antti: Depending a lot. Yeah about the let’s say the age of the founder and his own Preferences and of course the buyer usually we let’s say have a discussion that if he sold the company to another private equity, then it takes that that management needs and the entrepreneur needs to continue.

Antti: And if you sell to the industrial buyer, then it’s more or less about the transformation and what do you agree with? But that is something that it’s, you can have a discussion, but it’s very, It’s difficult to say in advance because the exit can be after two or three years, if something happens positive or negative, or it can take, let’s say five to seven years.

Antti: And then the age of the entrepreneur and the changes in management at that time can be Very different. In many of the cases, we have started with the entrepreneur as a CEO of a company. And at some point of time, [00:33:00] we have agreed that now it’s time to take the outside management for the, for running the day to day business and the entrepreneur.

Antti: can, and it can be as a board member or take separate roles that interest him the most. And in those cases you always need to case by cases.

Josua: Yeah. Yeah.

Antti: But usually, of course, we have had a discussion that if it’s needed, then they are continuing.

Josua: Got it. Okay. But it would depend on the buyer and exactly what to buy, Exodus and so on.

Antti: You get a decree, anything, everything in, in, into hands.

Josua: Yeah. Yeah, the future, next month is uncertain, so five years is like an eternity. Yeah, it is. One thing that obviously has a huge impact on the exit multiple is just the general market condition. We see that, in the stock market, like multiples just, They fluctuate wildly depending on the interest rates and political factors and so on.

Josua: So how do you take that into consideration knowing that, okay, we want to make this exit in a [00:34:00] certain number of years. We don’t know what the, if we’re going to be in recession then and so on and so forth. So how do you build that? Do you build any sort of resilience into the fact that, okay, if market conditions are really bad, then five years may actually be eight years or maybe even 10 years.

Josua: Or do you have that kind of flexibility?

Antti: Yeah, of course we have the flexibility and we don’t, let’s say, think that much about the market condition. We focus on the own plan and see more or less when we are ready with the plan. And in many cases when the company is performing well, you have, let’s say, investors or industrial buyers are starting to knock to the doors.

Antti: Yeah. And then you know that. maybe it’s time to let’s say start thinking of something at that point of time. But we don’t try to, let’s say focus on the timing because it’s impossible. There’s something happening all [00:35:00] the time in the world. So we’ve been basically working from COVID and Russian invasion and everything is happening all the time.

Antti: And the market is going. Yeah, up and down. So I would recommend the focusing on the own business and the timing will be, let’s say that the separate issue,

Josua: right? So you build a really good business, create a lot of value there and, yeah, exactly.

Antti: Yeah. And in many of the cases, especially if it’s an industrial buyer it’s a very depending on their own interests.

Antti: internal strategy. In some of the cases, it may take years for them to, let’s say, figure out that this is actually something that we need. And then they are ready. So they can be quite a long processes.

Josua: Yeah, for sure. Yeah. You recently closed your third and biggest fund growth fund.

Josua: Congratulations. Thanks. In, in these market conditions, I’m sure. It was wasn’t necessarily super, super easy. And you [00:36:00] already made one investment out of that fund. What are you what are you looking at when you think of the Finnish kind of landscape of businesses, is there any sector, any type of companies any specific place that you’re looking to invest?

Josua: To spend that or invest that money?

Antti: In history, we’ve invested, let’s say, basically on three different sectors. We have these tech enabled services. So we’ve been investing in ServiceNow company, HubSpot company cloud. Services every, let’s say you have a global growing technology and we have been building a local or Nordic service companies around those technologies, or then we have these tech com tech companies, software companies with their own technology on IBR because in semiconductors of Eno in, in the software.

Antti: So that is something that of course we are looking for. Those best companies. And third one is healthcare and especially services in healthcare. So actually our biggest exits is in healthcare. So those are the sectors we are still looking for. [00:37:00] But Finland is a very, small market. And let’s say our strategy has been that we try to make as flexible solutions as possible.

Antti: And if there are some industries that are really interesting to us, and we have some knowledge throughout some advisor, or we have a trust in the entrepreneurs, of course, we look at us. At thought as well.

Josua: Okay. So you’re willing to be opportunistic

Antti: if, yeah. It’s very important in small market that you have a flexible mandate.

Antti: Because you may have some opportunity in, in, in quite small company that is looking prob permissable or in much larger company, for example, with 200 million if in, in sales.

Speaker 3: Yeah.

Antti: And we’ve been very good of finding. different type of solution of getting into the best companies.

Josua: Is it what your, is your sweet spot or your dream case? Is it like a a Finnish company [00:38:00] that’s doing maybe 10 or tens of millions of revenue? And you see that, wow, if we do, if we bring in a little bit capital, we bring in this advisory board and these connections, then we could like 5x this.

Josua: Is that kind of like the, Would

Antti: it be your sweet spot? Of course, the sweet spot is that you have a, let’s say, small for example, software company is growing very steadily and you don’t need to do anything, but it’s impossible to find that kind of companies. But usually we want to find, let’s say, company with 10 plus million of sales and to be able to multiply that company, maybe even to 50 or 100 million euros, but that, of course, doesn’t happen every day.

Antti: But for example, if we invest in a company with a hundred million in revenue, and we are able to grow that to 150 million. That is actually quite a lot of value if we can, at the same time, improve profitability. That can be a really good case as well. In all of the cases, you have very [00:39:00] different, let’s say, risk and return profile.

Antti: In larger companies, you usually have a much smaller risk, but of course, it’s a small growth potential. because you cannot multiply hundreds of millions in that fast. And in smaller cases, you of course try to look for the higher growth but the risk is of course much, much larger. And it depends, the dependence on the entrepreneur is much, much higher.

Josua: Any, are you looking private companies, any other tech privates on the horizon? That I

Antti: cannot comment.

Josua: What about what about other countries

Antti: outside Finland? We look all of the Nordic countries. Yeah. Let’s say we have had two investment in Sweden, which have been quite good. Both but I would say we invest 80 percent at least to, to finish markets because it’s very local.

Antti: If you, let’s say, talk about minorities in cross companies connecting with the entrepreneurs, cooperating with entrepreneurs, it’s usually in these kind [00:40:00] of deals that the investors are quite local. It’s a day, different, let’s say game. If you go and buy majority of the company or buy the whole company, then it’s usually the big who pays the most gets to the company.

Antti: But we are let’s say long term partners. We can have a quite small minority in the company. And usually we are invited to the company because entrepreneur wants something. Expertise or networks or other things or besides the money. And that’s why we have a, let’s say, much more stronger position in Finland and we focus here.

Josua: Got it.

Antti: But we have office in Stockholm and in all of the Nordic countries and we have had personnel in in, in Sweden as well. So yes, we look at the other Nordic countries and also let’s say most of our. companies are growing outside Finland. So that’s why it’s really good that we have presence in the other Nordic countries.

Josua: For sure. It seems from the outside [00:41:00] that the private equity market space in Sweden is 10 times larger than in Finland. Like a big fund here is like hundreds of millions and there’s like billions. Do you think that Finland, the private equity growth investing in Finland has the potential to Expand a lot that we could see like finish.

Josua: Investors investing really aggressively heavily outside of Finland, Baltic countries or even in Europe, do you think we have that kind of cause obviously we have a lot of like industrial expertise, for instance. And do you think we could combine that with. even like broader capital markets and more active investing outside of Finland?

Antti: Yeah, it’s a good, let’s say, question. There isn’t anything that would, let’s say prevent Finnish private equity to grow like in Sweden. Swedish market is, I would say four times, five times bigger, let’s say. the final sale industry in Sweden, but private equity markets, it’s much more bigger, like [00:42:00] you said.

Antti: And it’s a shame that none of the, let’s say, Finnish funds have been able to reach the 1 billion dress mark. So all of the Finnish marks funds are quite small. The biggest ones, I think, are in a level of 350 million euros. And if you look at it in Sweden, you have 20 billion funds in equity.

Antti: So the scale and the difference is huge between these markets. It’s much bigger than the size of the difference with the with the economies. And that is something that of course. We as an industry need to do better. We could do this, let’s say, same. Of course, they have been the world class and best in the whole world of building those branches, but it’s all about the profits and the story.

Josua: Swedes are very good at storytelling. Branding, media and just in general. And like you said, EQT is I think a top three [00:43:00] in terms of assets, private equity, and it’s from Sweden. Yeah. You’re competing with the US and England. Yeah, and it’s

Antti: not the only one there. It’s at least five players that are really global and really big.

Antti: It’s

Josua: Profits and story and then Finland can, we can do the same thing. Yeah, but it’s

Antti: a very simple industry in that sense that if you are able to do constant profitability and you have a good story, you are able to grow. But for some reason it has been very difficult for Finnish funds to go beyond the Finnish borders and do that successfully.

Josua: Final question for Jonte. We talked a lot about growth and growth in companies. Is there any kind of, any books, any podcasts, any blogs any resources that you’d recommend or that you pay attention to, if you’ve learned a lot from when it comes to the whether it’s the financial side of things or the people side of things any, anything that comes to mind?

Antti: I think the last book was Elon Musk.

Josua: The Arabic, or the, sorry, the biography.

Antti: Yeah.

Josua: Yeah, I read [00:44:00] that too. And that was

Antti: really interesting. And I think that’s something that everybody should listen because, It just shows that if you are bold enough, you can do anything. Of course, he’s an exceptional guy, but eventually if we look at the, let’s say, which are the companies that has succeeded the best, they have the boldest entrepreneurs.

Antti: So it’s, really a lot question about that. If they believe themselves and if they don’t have the boundaries that no one has done it or it’s difficult or they just go, then they might actually succeed. And that’s why I think I like the Elon Musk quote. book a lot.

Josua: I, yeah I just read it recently.

Josua: I thought it was obviously Walter Isaacson’s great author. It was really good, interesting book. And like you said, I think maybe you can look from the outside as companies are the companies they just look like brands and [00:45:00] organizations, but when you look inside, There’s individuals with skin in the game making, taking risk and making those tough decisions.

Josua: And that without them, it wouldn’t be, I think it’s easy to look at a big organization and think there’s thousands of people working there, but really it started from probably just one or a few people. And if it wasn’t for those people making certain decisions, then it would not have grown into what it was.

Josua: So it’s, I think it’s, You get to probably see that from the inside. Yeah. How these things are actually built.

Antti: Yeah. Companies are big, but still they usually have some heart. And usually it’s one person who is, let’s say, taking the direction and a lot of people are working towards that. And if that direction is right, then anything can happen.

Josua: I think that’s a very good note and very good note to end this on. Antti, thanks a lot for coming on. And make sure I’ll put your link to the, to LinkedIn. That’s where you’re most active, I think. Yeah. I’ll put that in the show notes. People can follow you and look forward [00:46:00] to seeing the investments that you make out of this new fund.

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