“The relationships and partnerships we build along the way add so much more to the picture than just financial returns.”
Getting Things ‘Finnished’
Inspired by last week’s Slush (both the event and, let’s be honest, the weather), I figured now’s a great time for me – the only Finnish team member at Endeit – to hop on the blog train. Yes, I’m totally piggybacking on the buzz Slush brings to Finland.
If you don’t know me yet, my name is Tuomas, and I’m an investment manager at Endeit, working at our Stockholm office. To make it easy, I’m a Finn, living in Sweden and working for a Dutch fund, very international. I’ve been an investor for half a decade, investing from seed to Series C across various industries and business models (AI, IoT, hospitality, VR, marketplace, D2C, you name it). My main focus has been the Nordics, especially Finland, and now, at Endeit, I’m expanding my scope.
Speaking of Finland, a couple of exciting exits have recently made headlines: Silo.ai (sold for $665M) and M-Files (undisclosed, but I’d wager it’s a pretty comfortable number). Congratulations to the teams and investors behind those successes, including my former firm. Here’s hoping we see a few more exits coming down the pipeline – hopefully, some from our portfolio!
With that in mind, I thought I’d share a few thoughts on what it really means to get things Finnished from my perspective. (I promise that’s the last pun)
Lesson #1: What’s the big deal?
Especially in today’s economic climate (hello, uncertainty, turmoil, and the occasional market rollercoaster), it’s important to remember the ultimate goal: the Finnish line, the exit.
In simple terms, as investors, we want to exit from our portfolio companies. The specific route to exit may be unclear, but the direction is always the same: find a deal, support the company as it grows, and eventually, cash out. And sometimes, the journey continues even after the exit, as some of our former portfolio company founders return as Limited Partner (LPs). (The circle of life, in the venture world.)
At the core, our goal as investors – the one we’ve promised to our investors – is generating returns from our investments and distributing those returns back to our investors. The whole idea is to return significantly more than what’s been committed to us. Sure, there are bigger economic benefits to fostering innovation and technology companies, but let’s be honest: our model is a pretty straightforward one: money in, more money out. That’s what we’re paid to do.
Despite this rather cold, hard fact, I like to think we’re still human. The relationships and partnerships we build along the way add so much more to the picture than just financial returns. Helping entrepreneurs create something new (maybe even world-changing) is rewarding, no matter how you slice it.
Lesson #2: The implications – high risk, high reward?
To achieve our goal of profitable exits, we have to be comfortable with the risk-reward equation. High risk, high reward? Well, not always. Sometimes, or actually, quite often, it’s a high risk, low to no reward (at least monetarily).
That’s where valuation becomes crucial. There needs to be enough upside between entry and exit to make it worthwhile. Investors and founders often have very different views on the potential and current valuation of a company, and it is critical to have conversations during fundraising on the potential. The reward needs to make sense, both for the investor and for the company. Raising high valuations can get companies a lot of attention, but it also puts enormous pressure on a company to grow enough to justify those inflated valuations and reach an exit that is suitable for investors.
If we, as investors, don’t believe a company can return multiples on our initial investment, it’s tough to build a solid investment case. I’m not going to go deep into the economics of funds, but let’s just say that a 2x return doesn’t quite cut it to make a fund “work” as intended.
Ultimately, balancing risk and reward is an art. While the allure of high valuations can be tempting, it’s essential for both investors and founders to align their expectations, build a common foundation, and plan for realistic outcomes. This ensures that the journey towards a profitable exit benefits both founders and investors.
“Exits don't just happen by accident – they take work.”
Lesson #3 – Food for thought
You may have heard the saying, “Good companies are bought, not sold.” I tend to agree. If you’re building a strong business, your chances of achieving a successful exit are much higher. But here’s the thing: exits don’t just happen by accident – they take work. And no, the work doesn’t all happen during a live sales process.
A lot of the preparation happens before you even start actively thinking about or pursuing an exit. Growing a business is key. A profitable, high-growth company is attractive to financial acquirers. But it’s not just about being big – it’s about achieving critical mass in specific markets, customer segments, or technologies. Suppose you’ve already partnered with a potential strategic acquirer, even better. Whether it’s through technology or as a distribution channel, those partnerships can pave the way for a smooth exit.
As investors, we think about exits right from the start. We consider the potential exit route, timing, and size when we make an investment. I believe the same holds true for entrepreneurs – especially when you bring in a financially-driven investor. Having an exit in mind from the get-go isn’t just smart; it’s necessary.
So, there you have it – a little peek into the world of exits from an investor’s perspective. Thank you for bearing with me to the Finnish (that is the last pun, really).
If you’re curious about how we think about exits or have thoughts on the topic, feel free to reach out. Let’s get those investments Finnished! (I couldn’t help myself, I had to add one more).
Don’t hesitate to reach out tuomas@endeit.com and connect with me on LinkedIn. I’m always happy to meet founders and other investors!
