There is no specific legislation on venture capital investments
or venture capital funds in Finland. Nevertheless, the Finnish
legal environment has proven itself relatively advantageous to
private equity and venture capital.
In general, the structure utilized for private equity funds in
Finland is a limited partnership (kommandiittiyhtiö) with a limited
liability company as the general partner and investors as limited
partners. This structure has proven its usefulness as it gives
considerable flexibility for drafting the necessary documentation
for the creation and management of the funds. The structure's
further advantages are limited liability and tax transparency for
investors. There have been no plans to create a specific structure
aimed at private equity funds and management companies or funds are
not considered as investment companies or other entities subject to
a specific control by the Finnish Financial Supervision
Most funds are closed-end funds with an average term of 10
years. For technology-oriented funds there is, however, some
pressure to shorten the funds' term. Normally, the fund pays a
management fee calculated on the basis of the commitments or the
capital invested by the funds. The management company also receives
a percentage of the profit of the fund exceeding a certain hurdle
rate. Quite often the management company sees itself under the
obligation to deposit a percentage of its carried interest into an
escrow account in order to ensure the reimbursement of any excess
amounts it has received.
Investments by venture capital funds are carried out using a
variety of instruments such as share capital, convertible
debentures, warrants, subordinated or profit loans. There are funds
specializing in mezzanine financing, while others are active only
in the field of equity investments.
The corporate tax as well as the capital gains tax rate is 29%.
The avoir fiscal system is used in order to avoid double taxation
on corporate income and dividends.
In 2000, Finnish venture capital investors made 418 investments
for a total value of FMK 2.4 billion ($359 million). Initial
investments formed approximately two-thirds of all investments and
nearly 80% of the invested capital. Private independent funds made
up 88% of all investments while the government-related sector
accounted for 12%.
In 2000, venture capital investors raised at total of FMK 3.3
billion in new capital. The sources of this new capital were:
insurance companies (FMK 1.136 billion, or 34%); pension companies
(FMK 598 million, 18%); special government financing institutions
(FMK 529 million, 16%); funds of funds (FMK 295 million, 9%);
capital markets (FMK 210 million, 6%); companies (FMK 186 million,
5%); and banks (FMK 152 million, 5%). Over 85% of the funds came
from domestic institutions and only 15% were raised from
At the end of 2000 the total volume of all venture capital under
management (including both investments actually made and capital
available for investments) amounted to FMK 13.1 billion. Most of
the capital under management is in the form of investment
commitments from institutions. This means that the investor makes
the investment in the fund merely when a suitable target has been
found. Only a part of the capital is actually held by the venture
capital funds. FMK 11.2 billion of the capital under management was
held by private venture capital funds and FMK 1.9 billion by public
In 2000 the number of divestments amounted to a total of 142,
whereas the value of all divestments was FMK 586 million (at
Competitiveness and profitability has remained strong in Finland
over the past few years, and the growth in investments has been
relatively fast. However, while companies increasingly aim at
strengthening their position on the international markets by
investing abroad, the domestic investment has been hampered to some
extent. In the medium term, the investment rate is projected to
grow as long as the competitiveness remains good.
Although figures for private equity investment and divestment
across Europe in the first six months of 2001 generally show a
decrease in investment activity reflecting in part the economic
downturn the figures for private equity investment in Finland have
continued to increase rather rapidly. In 2000, Finnish venture
capital and private equity investments grew 40% by the amount
invested. Investment in Finland is holding up reasonably well
compared to other European countries, which according to the EVCA
mid-year 2001 figures, have generally suffered a rather large
decline in investment activity in 2001.
There has been some growth in the allocation of investment to
high-tech and computer related businesses. In Finland the emphasis
seems to be increasingly set on early stage investments. A change
of localization towards seed and start-up investments is clearly
perceptible. Additionally, the percentage share allocated to
high-tech investments was 54% of the total amount invested.
The present trend in the Finnish venture capital industry
appears to be increasing activity abroad. In practice, at least the
medium-sized funds as well as some management companies tend to set
up operations abroad. The main rationale being the desire to
attract foreign investors with more flexible taxation.
Several cross-border investments, including both investments by
foreign private equity in Finland and Finnish investments in
foreign companies, have taken place. However, the first financing
rounds have so far customarily been made by Finnish investors.
Additionally, foreign investors normally prefer to have a Finnish
investor as a co-investor.
The Finnish Venture Capital Association (FVCA) was established
in 1990 by 18 founding members. Its membership is open to equity
investors and risk financiers representing public and private
investment capital, captive funds and corporate ventures. Associate
membership can be given to organizations and individuals with an
interest in the venture capital industry. The FVCA´s objective is
to develop the venture capital activity and practices in Finland by
the following means:
- representing its members' views and interests in debate
with the government and other institutions;
- providing a forum for an exchange of views and experiences
- spreading information on matters relating to the interests
of the members and companies funded by venture capital;
- organizing courses and seminars and improving professional
- liaising and cooperating with international and national
venture capital associations.
The FVCA has 44 full members (30 full members in 1999, 41 in
2000) and 43 associate members (a year earlier 38 associate
RECENT EVENTS AND TRANSACTIONS
In April 2000, a Finnish private equity firm CapMan PLC launched
a major reorganization. The project culminated in the company going
public on the Helsinki Stock Exchange in April 2001. The first step
in CapMan's reorganization was to merge Vestcap, a listed company
formed in the demerger of Finvest, to CapMan. The remaining Finvest
has thereafter reinvented itself as a listed fund of funds being
managed by Linna Advisers (with an advisory agreement with Swiss
partner). Finvest had to cancel its FMK 240 million secondary
offering in February 2001 due to the market turmoil and is now
expected to resort to private placements.
The merger of Vestcap and CapMan (former CapMan Partners) was
registered in the Finnish trade register and took effect on April 2
2001, on which date the trading in CapMan B-shares on the Main List
of the Helsinki Stock Exchange started.
CapMan is one of the leading private equity investors in the
Nordic countries with approximately euro 1.15 billion ($1.02
billion) under management in 12 different equity funds. In
addition, the fundraising for CapMan's seventh private equity fund
CapMan Equity VII started during 2001. The funds managed by CapMan
have invested in about 100 companies in Finland and abroad and have
to date exited from almost 30 companies, of which six are listed on
the Helsinki Stock Exchange. In addition to investments in the
portfolio companies, CapMan also invests in equity funds via its
affiliated company Access Capital Partners. To date, Access Capital
has invested in about 20 European equity funds.
In April 2001, CapMan announced that it had decided to acquire
the Danish private equity investor Nordic Private Equity Group
(NPE). The company became a wholly-owned subsidiary of CapMan on
September 28 2001. NPE specializes in mid-sized buy-outs and
manages two equity funds with approximately euro 35.4 million in
capital. These funds have invested in nine companies and three
companies still remain in the portfolio. The funds will not make
any new investments. The acquisition was carried out as a share
exchange with NPE's three owners and key personnel.
In January 2001, Eficor, an investment bank with focus on
technology companies, and Holtron, a Finnish venture capital and
ICT company, merged their businesses. Eficor offers internet and
mobile financial services for corporate finance, venture investment
and stock trading activities to both private and institutional
investors. The services of the Holtron Group range from business
development to venture capital financing to seed companies. The
assets of the two funds managed by Holtron total euro 10
In early 2001, CIM Creative Industries Management established
its first fund, Venture Fund for Creative Industries. The fund had
its first closing at approximately euro 22 million. The fund makes
equity investments mainly in growing and international companies
active in the fields of entertainment, education and IPR
industries. The primary focus of the fund is not dependent on a
specific technology or distribution channel.
In January 2001, the Danish/American venture capital player 2m
Invest announced the acquisition of Menire Advisors, the venture
capital management company of the listed Menire Company, creating a
Pan-Nordic venture company.
In March 2001, the first closing of Access Capital II, a fund of
funds with parallel Guernsey and French vehicles managed by Access
Partners (a joint venture of a French-Italian management team and
CapMan), was made at euro 200 million.
In spring 2000, a Finnish venture capital broker, Privanet, was
founded. Privanet connects companies seeking venture capital and
eventual investors by providing a continuous funding channel for
growth companies and alternative investment opportunities for
investors. Privanet Capital Group consists of three companies:
Privanet Capital Corporation and its fully-owned subsidiaries
Privanet Ventures and Privanet Securities. Privanet Ventures is the
corporate finance unit of Privanet, whereas Privanet Securities
acts as a broker/dealer. The parent company of the group, Privanet
Capital Corporation, is a full member of the FVCA.
In August 2001, the Cabinet Committee on Economic Policy of the
Finnish government approved the sale of the state-owned shares of
Kemira to Dynea owned by the Swedish Industri Kapital. The
objective of the restructuring was to form a new Nordic chemical
industry group in which the state of Finland would have a 34%
holding. The government had been vested with the power to bring the
Kemira as a condition precedent, shareholding down to 15%. The
government was to obtain the necessary power from the Finnish
Parliament to renounce all the state's interests in Kemira.
However, on December 3 2001 the Finnish government decided to
withdraw its proposal for the Kemira restructuring from the
parliament and the transaction will therefore not be completed.
Apparently the public debate on the transaction threatened to cause
unreasonable inconvenience for the operations of the companies
involved in the arrangement.
Borenius & Kemppinen
Tel: 358 9 615333
Fax: 358 9 615 33499