Camel Investing at Gorilla Capital | Petri Lehmuskoski | Negotiator 179

Summary

Gorilla Capital’s founding partner explains a strategy built deliberately against the venture capital mainstream. Where VC prioritises growth at the cost of profitability and goes hunting for the one unicorn, Gorilla looks for camels: capital-efficient companies that are cash-flow neutral and do not depend on an unbroken series of funding rounds. Duunitori reached its exit on a single round and AutoVex on a couple of small ones. Lehmuskoski gives the fund numbers in his own words, sets them against the observation that only six percent of the world’s VC funds return even their own capital, and describes the MVIR reporting model that arrives by the fifth of every month. The episode also asks why Finland has no compounders, why the buyer is always found abroad, and why the buyer — never the seller — decides when the exit window is open.

What is discussed

• Camels, not unicorns. We hunt camels, while the others are out hunting the one unicorn. The term is not Lehmuskoski’s; he credits a Harvard Business Review piece from four or five years earlier. Asked whether camels are the placid, plodding sort, he says no — a camel moves very fast when it wants to.
• What capital efficiency looks like in the portfolio. Not a principle but two numbers: Duunitori reached its exit on a single funding round, and AutoVex had a couple of small ones. Both were effectively cash-flow positive, or at minimum cash-flow neutral. That is typical of Gorilla’s cases.
• The guest. Toptronics, founded at eighteen, importing computer games. Then Turun Tietokeskus, in whose sale Miettinen was arranging an alternative transaction; it went to Vaaka Partners. He was among the founders of FiBAN in 2008, and learned angel investing in Sitra’s angel network — where the observation was that as an angel it is, in a certain way, hard to make money.
• Where Gorilla came from. The state-backed Vigo programme, which included Lifeline Ventures and Vendep. There he met his current partner and a couple of former ones, and they set up an investment company — and an accelerator.
• The lesson that inverted the accelerator. It arrived fast: the companies you have to help are not worth investing in. The investable ones learn so quickly that you do not get to help them for long — they take everything you know and execute on it almost immediately. Needing help is a negative signal, not a business opportunity.
• The arithmetic that pushed him into a fund. Touring angel groups in the United States, meeting mathematicians among others, produced the number: in Finland an angel would have to get into roughly 40 startups to make money. Below forty, the likely outcome is not getting your own capital back. Miettinen’s own workaround is to go into a few Open Ocean cases and let the lead do the screening.
• The three fits. Problem–solution fit, product–market fit, scaling fit. A company approaching VC funding is typically approaching the third; Gorilla enters at the first. And problem–solution fit is the foundation of everything — even a company at scaling fit must have both found and understood it. Many times, even if you find it but do not understand it, you drift off that path fairly quickly.
• What gets measured early. Not revenue, not MRR, not ARR, but how the company learns and how well it can develop its idea. Nobody is born a cobbler.
• Duunitori. Finland’s largest job portal on at least one measure at the time of recording, started by three friends. The insight was freemium — a genuinely good free service with premium on top. It was not there at the start: the model emerged from a series of small realisations, each built on the one before. By the time the company was sold to Intera it was already using GPT-3 for customer sales scripts and communication.
• Exits. Seven last year: one IPO, Duunitori to Intera, and five other trade sales. AutoVex had opened in Sweden the previous autumn — still very small business — when Norway’s Schibsted bought it, seeing a proof of concept and proof of capability and bringing the machinery and the scaling finance.
• The most eliminating founder criterion. Many companies would have growth potential, but the founder cannot recruit good people. They recruit only people worse than themselves — or cheap, low-skill hires, when the level should be rising all the time.
• The compounders Finland does not have. From Miettinen’s Translink work — the Tamtron listing, and Nettix, sold to Otava, scaled, then sold on — comes the structural point: Finland almost entirely lacks listed serial acquirers. Sweden has about ten of them. Finland has only Boreo. In Sweden acquisitions belong in a manager’s toolkit; in Finland they are not in it even at the largest companies, which is why Gorilla’s exits go abroad.
• And when Finns do buy, it goes over the top. Stora Enso’s Consolidated Papers and Fortum’s Uniper are the examples both men reach for — big failures that make it look not worth trying, when small tactical acquisitions supporting organic growth would do a great deal of good. Underneath sits ownership: Swedes hold a six-figure sum more per adult in personal wealth, whether one or two hundred thousand depending on the statistics.
• The engineer’s original sin. Asked whether this encourages the Finnish habit of polishing the product, Lehmuskoski says it is the original sin and they encourage it in no way. Product-led growth is rarely reality; it is very rare for a product to be so innovative it brings customers rushing in. What decides is customer understanding — who buys, why, what size of job they get done. Gorilla lists eight criteria on its website and does not fund product-driven cases; the team DD asks whether there is actually a customer or whether this is a daydream.
• The owner’s burden. From an interview around a book on owner intent, and a remark by Filip Aminoff: in the startup and scale-up phase the owner is the source of credit and confidence — and Finnish founders are themselves usually capital-poor.
• Saying no to a follow-on. Co-investment is always a condition and Gorilla takes at most half; every round is analysed against accumulated portfolio history for growth and exit potential, and sometimes the answer after a long internal discussion is no. The portfolio holds cases that later took the unicorn path — perfectly fine, but not what we invest in. Positions are sold willingly to the lead; one secondary was done this year.
• Angels invest on feeling. We have a duty to our own investors — we have to analyse it and work it through. Structured processes, fair documents for every party, DD on every investment, and cases where DD turned something up and they declined even though the case was otherwise good. Miettinen adds that exit and leaver terms are worth agreeing in advance.
• The benchmark. Only six percent of the world’s global VC funds manage even to return their own capital. Against that: Fund I has returned capital 2x at 24 percent IRR; Fund II has returned a little over 30 percent of invested capital while slightly below its halfway point, with IRR currently well above 40 percent but expected to fall toward the 20 percent target. Early exits go straight back to investors rather than being recycled.
• Volatility by construction. Fund II has made investment decisions in 78 companies, so any single failure barely moves the fund — and the upside comes off with it. Miettinen offers Jyri Engeström’s deck as the counterweight: in a large VC fund one in twenty should return a hundredfold and the others barely matter. Lehmuskoski confirms the shape: in typical VC 70 percent of the fund goes into two companies, the winners are sought there and the rest dropped or left to follow-on funders.
• Founder age, and who is standing behind them. Lehmuskoski started at eighteen, Miettinen at thirty-eight, and American research puts the right age at about 42. Gorilla’s founders skew clearly older than most portfolios. His Silicon Valley point is precise: we look at two impossibly young founders and forget to look at who was behind them — experienced serial entrepreneurs behind Zuckerberg at Facebook, Markkula helping at Apple, and Sculley hired from Pepsi once it started moving. Those people never make the headlines.
• Boards, by stage. Every stage needs a different kind of expertise, in founders and in boards alike. Many boards never ask what this particular stage requires — and a board heavy on scaling-fit experience placed over a company at problem–solution fit goes badly.
• MVIR. Gorilla stays strategic, sometimes tactical, never operational, which is why it wants other investors alongside. 95 percent of portfolio companies report monthly, by the fifth day, on a minimum viable investor report with versions by stage — M2 and M3 look at whether the bookkeeping is current or real-time. Early questions are qualitative and become quantitative toward product–market and scaling fit. The reason for the fifth: a report produced two months late has no value left, and the ability to report at all is itself a signal.
• The clock, not the money. They analyse willingness, capability and speed of learning. The typical mistake is doing the right things at the wrong time. We have no case where money would have solved the problem. It is always solved by the clock. Money buys a little more time, not a great deal.
• Two companies that grew without scaling. Miettinen’s first, an investment bank that did nearly a million in year one on the contacts of four experienced bankers — but only so many projects fit in a year. Lehmuskoski’s equivalent did 14 million in revenue and a couple of million in profit the year after founding, by repeating what had been done before slightly better. It doesn’t innovate, it doesn’t disrupt. A good run-up that still needs a bigger vision on top.
• Graph paper versus a finished map. A startup team has paper, a pen, a compass and a ruler, and has to set off for Stockholm drawing the map as it goes. A team at scaling fit is handed the map and asked how it gets to the top of the route. In one you search, you try, you find; in the other you simply execute.
• Markets are chosen for the exit. Gorilla is a temporary investor seeking exits, so it works out which markets a company should enter so that its exit options grow. AutoVex went into Sweden before Schibsted bought it. Miettinen adds the familiar failure from the advisory side: the client has the perfect industrial buyer worked out, and that buyer could not be less interested.
• The exit window. You do not get to decide when the exit window is open. The buyer decides. So you need capability and readiness, and you protect the company’s customer cash flow you can live on — for a small founding team that means not sacrificing the base to, say, a move to Sweden.
• Internationalisation costs hours. It cannot be patched by adding a foreign board member or investor: operational management analyses, executes the corrective actions and analyses again. If the hours run out, that is where it stops. The second obstacle is commitment — the team wants to go to the US and the founders do not want to move, at which point the probability of success approaches zero. Lehmuskoski logged 175 travel days in his heaviest year; Miettinen recalls a 200-travel-day club with Stora Enso’s communications director Ulla Paajanen and Olli-Pekka Kallasvuo.
• Founder mental health. One of the things Gorilla watches. Far too often investors put too much pressure on the entrepreneur at the wrong moment — the clock does not stretch, and eventually the founder says they cannot cope. At some points Gorilla tells them directly: forget running the company, focus on yourself or on your family. The image is driving — knowing when to accelerate, when to brake, which way to turn — while the entrepreneur remains the centre of success, because it cannot be produced from outside.
• Geography, and an honest closing qualification. Finland, Sweden, Denmark and the Baltics; broadly across Finland and, in his account, probably more broadly outside the capital region than most, though two partners live in Helsinki. The profile sought is a founder capable of international growth whose priority is cash-flow neutrality. And then: if you want to build a good business, we are the right partner. If you want maximally fast global market leadership, we are not the best — and there are better partners in Finland for that.

Watch

The recording lives on the Neuvottelija channel: Kamelisijoittava Gorilla Capital | Lehmuskoski | #neuvottelija 179. A Finnish edition of this episode is published at www.neuvottelija.fi.