Capman Founder Vesa Vanha-Honko invested in Gorilla Capital - interview

“Goril­la surpri­sed me - you have brought a comple­te­ly new way of doing ven­tu­re capi­tal to the Nor­dic markets.”

Vesa Van­ha-Hon­ko has an excep­tio­nal 30-year jour­ney of value crea­tion and inno­va­tion in Fin­nish pri­va­te equi­ty fund mana­ge­ment. Vesa uses this exper­ti­se and know­led­ge in the invest­ments of his own fami­ly office. Through Vesa’s rigo­rous selec­tion cri­te­ria and scree­ning process, Goril­la Capi­tal’s vc fund was selec­ted as a new invest­ment for the port­fo­lio. In this inter­view Vesa gives his thoughts on alter­na­ti­ve invest­ments and what con­vinced him to invest in the Goril­la III fund.

Buil­ding the fami­ly office portfolio

Vesa is a true pio­neer in Fin­nish pri­va­te equi­ty and has had an inte­gral role in buil­ding Cap­Man into the lea­ding pri­va­te asset mana­ge­ment com­pa­ny in the Nor­dic region. The accu­mu­la­ted lear­nings and expe­riences Vesa applies to his per­so­nal invest­ments, which are concent­ra­ted into his Fami­ly Office Vesasco.

The Vesasco port­fo­lio con­sists of three parts. One part is stra­te­gic hol­dings Cap­Man and Access Capi­tal, which are for long term and yield divi­dends. The acti­ve port­fo­lio con­sists of tra­di­tio­nal lis­ted instru­ments as the second part  and the third is the alter­na­ti­ve port­fo­lio. The sha­re of the alter­na­ti­ves is over 40 % of the acti­ve portfolio.

Vesa has built Vesasco’s invest­ment port­fo­lio patient­ly, relying on qua­li­ty and diver­si­fica­tion over time. The stra­te­gy is not to seek the hig­hest return but to build a port­fo­lio that deli­vers con­sis­tent returns and cash flow over cycles. Vesa belie­ves that such a port­fo­lio is best built by com­bi­ning lis­ted mar­ket instru­ments with unlis­ted alter­na­ti­ve invest­ments. In Vesasco, diver­si­fica­tion is done not only across asset clas­ses, but also across asset mana­gers and the alter­na­ti­ve pro­gram­me is built for a very long-term horizon.“We at Vesasco tar­get for ove­rall rea­so­nable stea­dy return, it is enough. It would be har­der to do this with only liquid port­fo­lio because of the vola­ti­li­ty. If the inves­tor is wil­ling to com­pro­mi­se on liqui­di­ty and the invest­ment horizon is long, the alter­na­ti­ves not only sta­bi­lize but also enhance the yield across eco­no­mic cycles”, Vesa says. 

The total num­ber of alter­na­ti­ve funds in port­fo­lio is 33 of which 17 are pri­va­te equi­ty (of which rough­ly half are fund-of-funds), 6 pri­va­te debt funds, 4 funds in infra and real esta­te and 5 ven­tu­re capi­tal funds inclu­ding Goril­la Capital. 

Vesa stres­ses that if alter­na­ti­ve asset clas­ses are to beco­me a sig­ni­ficant part of an invest­ment port­fo­lio, it is advi­sable to build a long-term pro­gram­me for the who­le, which is fol­lowed sys­te­ma­tical­ly. Vesa con­ti­nues that when star­ting to build a port­fo­lio one should have a clear 7-8 year plan, during which the port­fo­lio will be run up. After buil­ding period new fol­low-on invest­ments and their capi­tal calls can be financed by cash flow from old ‘vin­ta­ge’ investments.

In Vesa’s view, the diver­si­fica­tion is the key. It is good to have single-actor funds and a fund-of-funds struc­tu­re, as well as pri­ma­ry funds in addi­tion to secon­da­ry funds. Vesa also high­lights the impor­tance of cash mana­ge­ment. “When the cycle is down, you have to hold onto the invest­ments a bit lon­ger and be pre­pa­red for addi­tio­nal capi­tal calls coming in”, Vesa reminds. 

The rea­sons why Vesasco deci­ded to invest in Goril­la fund III 

During his 30-years as a pri­va­te inves­tor Vesa has gai­ned a wealth of know­led­ge and succes­ses but also expe­rienced disap­point­ments along the way. The big­gest disap­point­ments have come from direct angel invest­ments “I do unders­tand that the­re are angel inves­tors, who have been very success­ful, but it’s almost a full-time job as you need to have enough start-ups in the port­fo­lio to diver­si­fy risk.  And you also often have to pro­vi­de somet­hing more than just money. In Vesasco we have deci­ded not to make direct invest­ments, only funds”, Vesa concludes. 

When choo­sing the VC fund mana­ger or any other alter­na­ti­ve fund mana­ger, Vesa focuses atten­tion on the team and stra­te­gy. As Vesa was int­ro­duced to Goril­la Capi­tal through his long-time acquain­tance, Gorilla’s part­ner Kir­si Vine-Haa­pa­rin­ne, what first struck him was how dif­fe­rent Goril­la Capital’s invest­ment stra­te­gy was. “Gorilla’s port­fo­lio angel inves­tor approach was new to me and very dif­fe­rent from other VC’s. But from the start the stra­te­gy made sen­se. It is very clear and it is very rigo­rous­ly applied”, Vesa states.

Vesa finds Goril­la’s stra­te­gy very cre­dible. Vesa belie­ves the same as Goril­la that pic­king up the futu­re unicorn among the ear­ly sta­ge start-ups is ext­re­me­ly unli­ke­ly but star­ting from the most like­ly outco­me inc­rea­ses the like­li­hood of success. Vesa says he was even a litt­le surpri­sed to hear that the median deal size for disclo­sed tech­no­lo­gy com­pa­ny exits is below €20 mil­lion. And if the star­ting point is that with the exits that are most like­ly to hap­pen the inves­tor gets a rea­so­nable return, one has to invest ear­ly and in very dif­fe­rent types of com­pa­nies than tho­se tra­di­tio­nal­ly selec­ted to VC funds. Vesa apprecia­tes the clear scree­ning cri­te­ria and that it is fol­lowed with discipli­ne with no excep­tions. “And then you are the only one doing this and tar­ge­ting the­se com­pa­nies in the Nor­dics, so you get to pick the best deals. Just as with Cap­Man in its ear­ly days, you cur­rent­ly face no com­pe­ti­tion. It’s one of the rea­sons for an inves­tor to con­si­der joi­ning now, because you have a rat­her unique situa­tion. It might not be the same in 10 years’ time”, Vesa adds. 

Vesa points out that ear­ly-sta­ge inves­ting is often percei­ved as very ris­ky, but at Goril­la Capi­tal, diver­si­fying into a hundred com­pa­nies per fund chan­ges this. “Usual­ly, inves­ting at seed or pre-seed sta­ge is percei­ved as ext­re­me­ly ris­ky. But loo­king at Goril­la Capi­tal, I don’t see risk being any hig­her than inves­ting in a buyout fund. Diver­si­fica­tion is very high in Gorilla’s port­fo­lio. If a typical VC-fund has 25 invest­ments, you have 100. I don’t see a real dif­fe­rence in risk pro­fi­le between this approach and buyout risk. That’s why I think you don’t even need to achie­ve 3x mul­tiples. Of cour­se it is great if you do”, Vesa laughs.

In selec­ting fund mana­gers, Vesa feels that the team, stra­te­gy and execu­tion in ope­ra­tio­nal acti­vi­ties are emp­ha­sized in PE and VC funds com­pa­red to lis­ted funds – and the­re­fo­re one must iden­ti­fy the top-per­for­ming quar­ti­le of teams. “The team is cri­tical in all pri­va­te equi­ty. With lis­ted funds, the choice of mana­ger is less cri­tical. Eve­ry now and then one of them per­forms bet­ter than the index, but not for too long. But on pri­va­te side you can find teams that year on year, deca­de over deca­de pro­duce supe­rior results. The human fac­tor is much more sig­ni­ficant on the pri­va­te invest­ment side.” Vesa adds that the impor­tance of a good team can never be unde­res­ti­ma­ted. And that the­re are dif­fe­rent rea­sons for success, but the one con­ti­nuo­us rea­son seems to be that success typical­ly hin­ges on a core group of great people wor­king well toget­her. When eva­lua­ting a team Vesa focuses in par­ticu­lar on atti­tu­de, ent­repre­neu­rial background and discipli­ne. “All of the­se ele­ments are visible in Goril­la”, Vesa says.

Vesa sees that Goril­la dif­fe­ren­tia­tes from other VCs also with focus on exits and buil­ding the port­fo­lio com­pa­nies in a way that also an ear­ly exit brings good returns. “In the Goril­la stra­te­gy your exit win­dow can be more exten­si­ve than in tra­di­tio­nal VC because your com­pa­nies are near or alrea­dy cash flow posi­ti­ve.” Vesa conclu­ded that this is the same as in buyout as they too can go lon­ger and wait for the exit win­dow. In terms of exits Vesa also sees anot­her major dif­fre­nece with tra­di­tio­nal VC funds as a lar­ge part of Goril­la port­fo­lio com­pa­nies are sold at an ear­lier sta­ge than when many VC inves­tors would even enter, befo­re the so-cal­led second val­ley of death. “You take exits with rea­so­nable mul­tiples befo­re the main sca­ling pha­se”, Vesa says and high­lights the dif­fe­rent game of searc­hing the pro­duct-mar­ket-fit and pro­ving the ‘play­book works’ ver­sus the sca­ling pha­se with total­ly new problems and risks.

Vesasco inves­ted in Goril­la fund III and sum­ma­ri­ses the rea­sons why he deci­ded to invest “Goril­la surpri­sed me – you have brought a comple­te­ly new way of doing ven­tu­re capi­tal in the Nor­dic mar­ket. You go in the ear­ly sta­ge, have strict pre-scree­ning cri­te­ria, sup­port the com­pa­nies in the jour­ney and exit befo­re the second val­ley of death. You bring money, know-how and sup­port to the deve­lop­ment of ear­ly sta­ge com­pa­nies that typical­ly don’t get money or help from VCs. The model itself is qui­te bril­liant. A lot of things have to go wrong in order for it not to work. And then you face no com­pe­ti­tion”, Vesa sum­ma­ri­ses.

Vesa Van­ha-Hon­ko

• CapMan’s foun­ding part­ner; Res­pon­sible for Cap­Man’s Nor­dic expan­sion and the establish­ment of Cap­Man’s real esta­te invest­ment business
• Access Capi­tal Part­ners; Board Mem­ber since incep­tion until 2022, Board Mem­ber of seve­ral GP com­pa­nies wit­hin Access group 2005 – 2019, Advi­sing Part­ner 2011-2019
• Board Pro­fes­sio­nal
• Pri­va­te Investor

Goril­la Capital

• The Nor­dic Ins­ti­tu­tio­nal Super Angel
• Invest­ment stra­te­gy roo­ted in mat­he­ma­tical pro­ba­bi­li­ty focusing on pro­bable success and diver­si­fying risk by inves­ting in approxi­ma­te­ly 100 com­pa­nies per fund
• With two pre­vious funds Goril­la has vali­da­ted the effec­ti­ve­ness of the stra­te­gy in the Nor­dic mar­ket and achie­ved ear­ly DPI and mul­tiples in line with expec­ted returns
• Cur­rent­ly Goril­la is rai­sing its third fund, with the first clo­sing in August 2023, tar­get being 40 M, hard cap 50 M