Hello. Portfolio manager Heikkilä. From Proprios Partners.

Analyst Vilén from Inderes.

Sauli, we came here to the traditional spot to do this Heikkilä-Vilén show, but it seems all the bookcases, props, and everything else have disappeared from around us. Is the situation in the Finnish economy really so dire that we now have to start taking books and everything else to the second-hand bookstore, or what is this about?

Yeah. Fortunately, it's not about that. Nor is it about the fact that after the arrival of artificial intelligence, no one wants to read books anymore. Fortunately, it's not about that either. Well, good question. Fortunately, it's just that we had a bit of a slip-up. I had messed up a bit with the booking, and today was our studio's moving day to another room, right over there. But fortunately, Tomi kindly built us this makeshift studio here to record in today, so your visit here won't go to waste. The IPO market got underway, with five coming in on the main list. Let me see if I remember right. Was it, were there five?

That sounds about right.

Pretty big in my opinion. That seems to be the right number, we got it yesterday. Now that we're recording. So today is Wednesday, so.

Thursday, no, Wednesday, days get mixed up. That's right.

Wednesday is the right answer, and yesterday we heard that this Steady Energy announced its intention to list. So the second-half IPOs have gotten underway, and at least my impression is, from everything I've heard around town and what I've understood, it's going to be busy. So I've said that 10 is quite possible for H2.

That's quite a hefty package considering there were five in the spring, even though they came in pretty calmly then. But if 10 come, that's already.

We already know about a few spin-offs too, from these. UPM. UPM, Metsä and Aspo. Aspo is. Aspo's official spin-off will happen. Its trading starts in January, and I'm still counting this for the latter half of the year, and like Valmet, Valmet has also announced this. But Valmet, that will happen only later, just like Stora.

Stora Enso's forest we.

Will happen later. But in other words, we can now say that this next IPO cycle is getting properly underway, so we thought we'd do an episode like this – a post-mortem of the previous IPO cycle. Now enough time has passed so that we can make what you might call definitive interpretations. We can do that now. After all, it has been. So the previous IPO cycle, in our books. The years 20 and 21 are where we drew the line. It's been over five years since then, so there's really no room left for excuses after that. Isn't that right?

You could say that? Yeah, the market can be off by a year, for small companies even two. And. Stretched to some extent, three, as it finds its path. But five years is such a thing that excuses simply don't help anymore. That's right. That's just how it is.

Indeed significant. But before we start dissecting that previous IPO cycle, let's reminisce a bit about the mood. Well, we're in the year 2021. Above all, I think it starts around late 2020, when the worst corona mess was happening. That's right. I'll start recounting the atmosphere from back then. We have a strong economic recovery underway, accompanied by the bounce-back from corona. In the background, we have historically massive state stimulus. They really went for it. Central bank stimulus was no longer enough. So they went the state route, meaning they sent money to citizens. This famous helicopter money, exactly. That was extremely effective economic stimulus, when you send a thousand dollars to everyone. People in the US were consuming. It was truly unbelievably effective. The economy was spinning, you could say the economy was white-hot. It was. That's totally. That's completely clear, isn't it? What comes to your mind from back then?

Well, the economy was doing well, because corona caused such immense uncertainty and confusion. And then when stimulus measures started, we realized within half a year that we got through this really well. Massive amounts of money were put into circulation. People couldn't go anywhere, they were sitting remotely at home or wherever, and. Everybody was consuming. And then at the same time, of course, we had already been through 2018 and 2019. In an ever-accelerating listing boom, but suddenly companies and corporate finance dug up all possible Excels and spreadsheets by the autumn of 2020. Now, this window is open. Money is free. Investors have money. And then you have to remember that when I managed the small-cap fund at Taaleri. Back then, together with Olli Viitikko. Things had been going really well, small caps – exceptions aside for that corona spring. And then we embarked on a really hot boom, and maybe the thought was that everyone had investment money, and money was flooding into small-cap funds left and right, and everyone was buying those same small companies. When an offering came out, it was oversubscribed 8 or 9 times, and all the fighters. How much are we going to get now, five years later? Let's not spoil yet how it turned out, but back then we were fighting over who would definitely succeed, which also meant that if you were the one who threw shares out immediately as an institution, you weren't in very good standing. In the next offering – so everyone wanted to keep holding them because there was no need to sell, since money kept flowing into the funds all the time.

Yeah, what you said, I had also noted down the small-cap bubble in my notes. Small-cap mania. It was an exceptional time. Small caps were certainly doing well operationally in Finland too, but the inflation of valuation multiples was also quite wild, and we saw some truly, truly massive bubbles.

Then, if I remember correctly, in 2021, 29 companies listed on the Helsinki Stock Exchange on First North. I somehow have this impression.

In that ballpark, the total number was for those two years. It was, what I looked up. Or it was. Was the number 33?

Okay, could be in total.

That. They were heavily weighted. They were indeed heavily weighted toward '21.

And what else... Actually, back in the spring, there wasn't much time to do anything when you listen to the next, next, next. And this means that when you familiarize yourself with a new company on a very fast schedule, the risk that quality and those criteria become diluted is quite significant.

That's right, and indeed. One thing that you mentioned earlier was that money was free. That's one really huge factor that influenced the entire market environment. Absolutely everything at the time. The corona crisis was the climax when interest rates were hammered down as low as possible, and that was finally the moment when the vast majority of the last advocates of higher rates threw in the towel. The completely prevailing investment view at the time was that interest rates would stay at zero forever. I can proudly admit that I belonged to that camp. For example, regarding Europe, but not the US. At first, I wasn't entirely sure, but in Europe you felt it was a given that Europe would not see higher interest rates, and that Europe was stuck in this forever, and the market consequently held the view that shares are just fine to discount with that extremely low interest rate level. And furthermore, if the alternative is that the German government bond yields nothing, but you actually pay for owning it where everything trades at a negative interest rate. Yeah, well, then the fair valuation multiple of shares approaches infinity. Right. So in that sense, even in hindsight, it feels foolish. It looks like a terrible bubble there, but at the point when that discount rate approaches zero, the share valuation also rises exponentially. That's just how it goes. And we certainly had it across the board back then. We really had a truly wild party in the market. We sure did. We sure did. If you think about it, we had everything. We did. There was a crypto bubble. We had that back then. All the meme stocks were all the rage back then. Right? Those Gamestop things and such were around then.

So, a kind of massive, volatile churning everywhere and and and. The sentiment in the sense that making money is really easy, it's fast and easy.

Right. And it's certainly no coincidence in an environment like this that there are a lot of IPOs. There was a huge amount of them in the US too, and a massive number of SPACs were activated, a huge amount of listings, which are also one economic barometer. Well, they usually pop up at a certain time and so on. And equally in Finland, the IPO market was historically hot at that time. And uh, if we start picking this apart a bit.

I'll just say that now everyone naturally remembers that time and it's easy to say that we should have done this or that, but it had very similar features to previous peak bubbles, that I'll subscribe to this share issue and sell it on the first day and then I'm already in the next one. Quick wins, quick wins, and the world revolves around that all the time. And then at some point in '21. They stopped in the autumn, by the way. Shut down, and after that you know that there won't be any more quick wins or any share issues. Or there were some issues coming, but they came on the last fumes and they certainly didn't succeed. So that's not just something said entirely in hindsight. But whenever there is such a massive craze and boom where you have to hurry, it's always best to just be careful.

Exactly. Let's move on to the data. Do you like reading books?

Yeah, whenever I don't have time. Though nowadays it's more magazines and social media and or the phone. These, so the digital side. But I do like to read. I like reading.

Do you like reading horror books?

Yeah. Well. Not so much maybe now, but when I was young. When I was young, they were. Especially, yes.

Because now these next, next numbers. That I will list for you. You could write horror books about these. Practically these are pretty.

The Stephen King of the Helsinki Stock Exchange, or what was it? Is it Steve?

Yeah, nobody. Quite chilling reading that previous IPO cycle. Median share return over minus 50%.

There as the median.

As a median, weighted average it's like minus 25. It's not quite, well it's over minus 50. That is an utterly catastrophic number. Positive total return. If I've calculated correctly, in eight companies, so about a quarter. A fourth have made it into the plus side. Now we must remember that this is five years of some total return, dividends and everything included in it. And then you have a large group of companies. Actually more than those in the plus side that have practically lost their entire capital. There's one bankruptcy too, and then there are these whose losses are 99 point something. So the difference to bankruptcy is pretty negligible from an investor's perspective. So, what do you think about those numbers? Let's start with that.

Very sad figures. That's the first reaction. The second is of course that it shows that there have come. Quite a lot of either early-stage companies, a bit like from the venture capital side, and secondly that their pricing has been quite off when the development is like this. And perhaps as a fourth point, that the companies' own operations have also been weak, because quite many claimed that we are cycle-independent. This zero-interest rate period is not the reason. We have. We have our own product or service. I at least remember us being in a really strong position. And if after five years you're down 90, then it wasn't so, you can't blame valuation alone.

Yes, I pay attention to the difference between the median and the average, exactly what you referred to. The fact that you have a pretty large group among these that have completely crashed. That if you sort of. And which naturally shows that the companies that have crashed—we'll go through them in a moment—they are largely such pre-revenue companies, meaning companies that don't even have operations yet, but rather ones that are practically venture capital style in their nature. There are individual ones with clear operational business that have crashed for one reason or another, but in the big picture it has been just that crowd, and they skew this data quite insanely.

That's a good thing for an investor to keep in mind. First. First North, which has somewhat lighter requirements and where early-stage companies come, well, those early-stage companies actually came there and and and. On the VC side, somewhat typically categorized, you have a hundred companies, you invest in a hundred companies, one or two hit the jackpot, maybe one, and then just under 10 are in okay shape. They yield something and a whole bunch of them completely. Those funds are lost or they go under. First North got companies of that type, but you didn't get those hundred, and then you didn't get any such jackpot that would have made it. Good to remember again as an investor that even in the craze, no matter how much it feels like the neighbor or Sauli told me to grab it fast because there's a hurry. Or above all, the seller said so. Moderation is a virtue, and you should consider whether this is the kind of company and industry where you are ready to bear the risk. And then. Often they are such that this is just the IPO, it's an early stage. Capital is needed there. If things start going in the right direction.

What I myself noticed, which in my opinion shows when you review the data at the company level, and what I think has been a big problem, was that because the valuations were in such a huge bubble initially when they came. If you look at that sector across the board, there are quite few companies that came. Viewed in hindsight, with a reasonable valuation. In reality, there are. There are those among them too. But then, in quite many. The valuations were very stretched and they required top performance, so because of that, the situation has been such that even though there are companies whose operational performance has been just fine, at best they might have exceeded their financial targets. Yet it's still in the negative because the valuation has been what it has been. When I looked at the list, why a company like Merus Power, its revenue has increased sixfold. They have reached their financial targets. They have actually performed really well and the share price is still in the negative. So in a certain way, my assumption would still be that if a company reaches its targets and grows very strongly and so on, you should. Benefit from it, yet you've ended up heavily in the negative—well, it's not that bad, but it is in the negative, right? And in that sense, someone like Lemonsoft has also performed quite well. Not exceptionally well, but quite okay. And the share price is down 50 percent from when it came. SaaS. SaaS multiples which were at an absolute, absolute shock level back then and now they've obviously been beaten down really low. But also that, it's a company that has nonetheless grown and profitability is quite okay. Just as examples like this, that when the market situation was what we described, a red-hot, clearly overheated situation, it leads to a situation where your performance. When the bar is set up there, your performance has to be completely perfect for it to yield returns well, so it makes it much worse. If the valuation hadn't been that overheated, this data would look better, because then many companies there would—that would already help here, that's kind of it. And then since there came a lot, a lot of. There came a lot of such very high-risk stuff. Together those have led to those numbers.

I just have to bring up then companies when they consider listing and think about how we do it, what our goal is, even though you always say that hey, be moderate. At least we always say when it comes up that we like. Preferable moderate, because moderate. Pricing, moderate valuation. Because the IPO shouldn't be the exit or a dumping ground or the final destination, but it's a pole vault to launch into higher and higher heights. And in order for you to get there, you should float with a valuation where you can continue the development so that your old investors are satisfied. New ones gladly come along, that this has done what it promised. It's considerably easier to trade with those. Then if you have raised capital at a very high valuation and if things don't. If the capital isn't enough, raising funds the next times is really difficult. Really sluggish and you get more and more diluted and the old ones are even more dissatisfied and your share prices drop even lower. You're in a spiral that's really hard to get out of.

Yeah, and that spiral then eventually leads to you having to do those really brutal share issues and then that dilutes the old owners away from there. Yeah, that's what should be avoided, expectation management is extremely, extremely important there.

And in that sense, you'd rather sell the first phase at, so to speak, a bit of a discount or a clear discount, because you're not selling the whole company there. You just want to get listed for some amount, and then the future looks different.

Let's go through—of course we won't go through the whole list, we can't go through every company, but let's pick and go through some. Let's start with the top five. Right, I'll tell you what names we have in the top five. At least according to my calculations. We have Kreate. We have Puuilo, Alexandria, Musti, and Kempower. Are there any names? Surprising in your opinion?

Well, if one had thought so back then. Then maybe, maybe. If you think that Kreate is at the top, then it was. That is perhaps a surprise, but everyone's operations have been. First of all, the valuation was, at least with Kreate and. And why not with Alexandria, and and to some extent probably Kempower too, was quite moderate, and Musti and.

With Kempower it was in a way, since they came in when they were still really small. Yeah, there is definitely reason in that. It's a bit difficult to look at traditional ones and tell, but with Musti it wasn't anything too crazy either.

It probably wasn't, and I remember that. Kreate didn't. When I listened to it myself, I said that your company seems good, but your industry. You are a prisoner of your industry's multiples, so nothing can be done. And yet they came, and they have done quite excellent, systematic work in it. And of course, in the final stage, this data center boom as well. That has probably lifted them a bit further, but in any case, they have done systematic work. Puuilo has been, has been so, despite the fact that, that, that it feels like maybe they've hit their limits. It has gone absolutely, absolutely brilliantly.

Well, I have to say about those surprises. In themselves, those other names in my opinion, it's not that—those percentages are perhaps a correlation. Almost triple, making 300 percent, is true. It is. It is surprising, and so on. But I have to say that I wouldn't have. Back when the IPO happened, I wouldn't have thought that Alexandria would be on that list. I didn't think so back then when I took it under coverage. I've followed it from day one, and it has gone the way it has gone. Significantly better than what I thought and thought, thought. And it is, that it is. It has gone really, really. They have, they have done a really good job.

A job indeed. If one had to say in advance, one would have bet more on something that would have really taken off. Something that was a company of high hopes and expectations, but that didn't really happen.

Was closest to that. It came with a really small net sales still. And then it did. Those first years went fabulously well. Then there has been a lull. And so with Kempower you have to remember that it is still on this list, even though the share price is now, let's say, maybe 13 euros, the IPO price. The price has indeed been. It was something. It was something like seven euros or something. That in a way. And it did visit 50 euros in between. Even after that epic collapse, it is still on this list, so that's good to remember. And it is probably closest to precisely those big promises, which they have partly fulfilled too. It's just that market expectations got too carried away after that. But a thing that caught my attention when I looked at three of these five is private equity backing.

That's quite.

Of these, Kreate, Puuilo and Musti are purely private equity-backed. And in Alexandria, the second largest owner was the private equity firm Eqt back then. But of course the main owner is Onvest. Sonia's flower again then of course, that it's not, that it's not directly counted in that in my opinion. Kempower then came from a family portfolio back then, but three private equity companies. It is often criticized that for private equity firms the stock exchange is a bit. Do they use the word graveyard, you dump there at an overpriced value. Well, in all of those, it would have been worth it for the private equity to hold those first. Yeah, jokingly, right?

If I at least remember correctly, then in Kreate and and and. In Puuilo too, they held for quite a long time. So that was just part of What? With which they floated, so, so the continuation just tells that the groundwork has been done well there. And and of those, of those one must definitely tip one's hat in that sense. And generally speaking, to investor memory, those private equity firms are able to bring companies that continue good development, and despite the private equity firm, the private equity firm's involvement, you can look at companies from them in the future as well, if they bring them with a very positive stance. So in that sense, quite, quite, you can't, you can't always categorize that when a private equity brings one, it's overpriced, and to me this is a good, good observation that it is indeed worth looking.

Cash flow Maybe not private equity. Maybe I would pay attention to the fact that, fundamentally, a private equity has done its job well, then it brings a good company, because it should have succeeded in doing that. Good company. Yeah, indeed. But then where the, where the risk is, is that the private equity wants an exit. Its job is to maximize its own exit price, whereupon there is a risk that you end up paying too much. That's the bigger risk, but that you get in exchange however, yeah, you can get. You should nevertheless get a good opportunity to get a good company there. But that is private equity investing and risk. Well, if you think about what else unites these top companies, they certainly are united. So quite an excellent, obvious, but excellent operational performance. So, so, so practically all of them, with the exception of Kempower. Coming to the list, these have all had a very clear existing business. Provenly profitable. A good track record, right? So, or at least some kind of track record, for which Alexandria also had a pretty okay track record back then, back then. So that is what is so major, that these have been reasonably mature companies still, excluding Kempower. Which was back then, which was one that sprang from being small to being big right away in that. But that's, that's what these have been. If we return to that earlier risk profile we talked about, excluding Kempower still, the risk profile of all of these has been, has been quite moderate.

It has been quite moderate. So relative to the fact that the, the, the business has been. Still there has been net sales, there has been earnings, it has, it has like, it has been quite, quite, like an okay business previously. That can be quite clearly seen.

That in these, these of course one similarities, autumns were found, but of course certain, but of course still with these same specs you find from the minus side as well, if you look at a private equity backed one who has had a good track record and been good. Good development can be found there. Although something like Sitowise, minus 70 percent or something. So it's not quite, so you can also find them on the other side, you can't, you can't generalize, it just emphasizes that you have to look at them with an open mind, then peek into the other end of the barrel, into the well, let's look. There I put together this kind of bottom nine, nine which according to my calculations were the worst performing ones. They are not in order, but we have names there like F-Secure, Bioretec, Spinnova, Nightingale, EcoUp, Modulight, Betolar, Enfuce and Duel.

Not quite all, but because Duel isn't, but almost all, the others more or less this kind of startup-minded early-stage companies, which have had a big, big, big dream and big, big, big markets.

Starting with high, high goals.

Goals. Fundamentally on paper quite an ok product or innovation, but commercializing it in five years has practically not succeeded at all. Indeed.

That's right, that's right. As a side note about those, I'll mention Duel, which was mentioned—Duel was also private equity-backed. True. So it was, it had a good track record and everything. And it was very much this kind of serial acquirer model company, so that too, that it goes into that so it doesn't.

But it wasn't this kind of single innovation that.

No, but it had a proven one, it just. They just drove it really badly into a wall with a burden of debt.

But maybe maybe a thought like that, that from these. Actually, because like, I stayed at the time, at the time fishing, the hammock was in autumn 21, so quite many were brought in autumn 21, because I haven't heard of very many of these at least. So maybe or maybe sp Innovat came in the spring, but but. Quite many others came in that late-stage euphoria, yeah.

And I think like, just that, just in my opinion, the unifying factor in these, as you said, in the vast majority, is that there is that very early-stage stuff whose risk profile is high.

High risk high profit if it materializes.

Yeah yeah, exactly like that. And I think it's also important to understand here that the expected value is not that all of these would be. Everyone, everyone surely knew roughly every investor at the time, that if you got this basket of 9 companies, made that basket 9 9 don't go through the roof. From that you knew that there would be crashes. Sure you definitely knew that there would be several crashes. But the start, of course, that someone someone someone leaves from there And so these were now certainly these practically almost total losses of capital, so probably more than maybe investors had even initially thought. Then these have been quite wild. Wild.

Maybe. Maybe. In that sense, one can take comfort in the fact that at least some of those offerings were significantly oversubscribed. So at least retail investors didn't get a very large allocation of these. No, with absolute money it wasn't much, but but. But the fact is that they didn't. They didn't achieve the targets and somehow I feel like, if you listened, sell or have listened to those products at some point, the products themselves were probably technically quite okay, but commercialization has not succeeded, yeah.

I mean, of course these.

On a large scale.

I mean, for the vast majority of these companies, what has happened is that you haven't—so you haven't reached those targets. I mean practically none of these have reached your target. It has been very high, not even come close to them. And just like that, where you said, the commercialization has taken significantly longer and then at worst it has led to you having to finance it multiple times over again at some point. That financing. Investors conclude that now this is enough and after that you have to forcibly make that offering, which leads again to the fact that then the price, then the old owners are wiped out practically. This is indeed what has happened, that that's what they. It definitely doesn't go in such a way that the market necessarily from this first offering is just like that. You give opportunities to a certain extent and at some point that trust capital is used up and then it just practically ends. I will also say that these aren't either—so many of these. Well, many of these have traded after the listing and have also been significantly higher. That too, that if you were in the IPO, many people managed to get out of them. Afterwards it traded. Some of these, like moduls and spin outs and others, multiplied I remember even after that before finally heading in another direction. But yeah, that's the thing, that when you clearly compare this top and bottom, you can see the risk profile level and you can see that. You can just tell in these. And uh. Well, when you look at that cycle, it's pretty clear with those numbers. So the average share return is minus 50 over. And this, sorry, the median and even the average is somewhere around two five, two five five, it's not weighted. If it's weighted, it luckily looks a little bit better again, but if the average, then it's 20.25. So, a bad taste has indeed been left, quite rightly, hasn't it?

Well yes, it has to be and and and and. The thought that I don't. Not interested, Not and and this is this. It's good to think about companies, of course, that every company that comes along, so. Investors have these stories from five years ago where things were supposed to go and they have quite bad experiences, so you don't have to wonder why everyone isn't fighting over them right away at any price. That no matter how good the ideas are, but the world is always new and the world always learns and companies learn too. And investors learn. So so one shouldn't get stuck on 21 either, that bad ones came then so all from here on are bad, one shouldn't think like that.

Yeah, well I mean—so Joseph's cycle was too hot then, we came in at too high valuations and the world situation. But I looked a bit different. Well, I want to continue your thought a bit and emphasize that the world has genuinely changed a lot after 22. If you think about it, like Russia's attack on Ukraine, the energy crisis resulting from it, the deep slump of the Finnish economy. Yes. Probably the most important factor is the rise in interest rate levels. We lived in that zero-interest-rate world where we thought we'd be forever and ever and even our politicians tell us that money costs nothing and.

Now we are in a completely different world.

Now the tri body was at 3.3 last time and the direction still seems to be upwards. And so the interest rate level has returned with a roar and the risk-free rate is back. That's a good thing that it is. But it is, for example. Now let's take again, say, some Toivo Group, you were a housing investment company. You had a really interesting operating model, but if I remember correctly, you guys have also been so far.

At least.

In that.

Back then it was, it was. It was one of the last ones that was probably done with them.

They had a really good story in my opinion, but housing investment cases have changed a bit. Interest rates go from zero to three percent right there and in between we went even higher. That's also part of it, that the world has genuinely, genuinely changed. And in these, external factors have pulled the rug out from under certain cases quite substantially. And then I think it's fair to ask as well, when going through these, in which cases how much is it, say, the company's fault if, say, the interest rate level is now dramatically. But should the company have known in 21 that in a year's time Euribor would be 4 percent. So yeah, it doesn't quite go like that then. The world has indeed influenced, influenced this, that if none of these things. If it had happened that interest rates had risen much more moderately and there wouldn't have been. If we had a war in Europe and all, surely that data would look a little bit better, looking, nevertheless looking. But then another question that I? What I was pondering when I was going through these data, is that now this bad taste is of course among investors from the previous cycle, no two words about it. It has to be. But what you mentioned about VC investing earlier, that you put 10 coupons in and then one out of one ticket. The winner 9 doesn't win anything. What do you think? How would we think differently now and would the investors' feeling be different if one of these high-risk cases had succeeded in a big way, let's think that one of these, be it Betolar, Spinnova or whatever it might be, had really taken off properly. Market cap would be billions now, so would we think differently?

We certainly would think so, because we do from the private equity side. There are certainly Voltos and Wolts and Supercells and things like that spinning in the headlines, but there's a whole bunch of companies that don't spin in those, don't reach.

There.

The median. Right and and. It would be the exact same phenomenon here if even one of them broke out really big. So it would be, it would have become a billion-euro company and and and it would have done it on the First North journey. And I guarantee that that company's management would bask in the media and everywhere else as a true success story. So, most definitely.

So do I. I also think that the thought would be different and the narrative would also be easier after that, that hey, you just have to find that one, you know, that here is this ten to one ratio. That you just have to manage to find that one, that the discussion would be this and then those who have found it would give advice out there.

How.

They find for everyone.

To others, that what I paid attention to here and so on.

But in that sense, of course, the fact that it is also interesting in a way to think about what if one of them had really delivered on their redemptions, delivered on their promises in a big way. That probably among these kinds of early-stage ones, Igen Power was probably the closest, that they still leaped to the next level and so on.

It hit around a three billion market cap.

It hit that. I mean yeah yeah, and then it got a little a little a little over the top, but they still they still. The first financial targets they delivered just like that. Then the subsequent ones have then been left unachieved. But as an IPO itself. The early promises they have delivered across the board. Now if we think about some lessons as this next cycle starts from here. What investors should think about, I will throw one more data point on the table for you. Out of those just over thirty companies. 25 percent, meaning every fourth, has roughly reached their financial targets in part. I looked at it such that if there are qualitative targets like that, which I think I can comfortably say have been reached. Yeah, something like 20 percent had reached it if if a little, a little, a little, a little. Let's see, you know, sort of a little bit like okay, close enough. Still, we can say that they are somewhere in the same ballpark, whereas just over half have not reached them. And there, there a large portion is such that the targets are up there, but we are down here, so it is nowhere near that. So what do you think about that ratio? Is there some kernel of wisdom in it?

Well, that is not. That is not now in my opinion, considering that these are small companies and considering the change in the environment, that is not in my opinion terribly bad. So when you look at it from the company level, it sounds to me like, considering this surrounding world, still moderate, that at least what it does is that not all companies are completely, completely like worthless investment targets, if roughly a quarter make it. That is. That is my first feeling.

Yeah, in my opinion this data is not bad at all, that in itself if you would still adjust, of course you can't do it like this, but just that if you removed from this data those companies, such as these super high-risk ones where the targets are. More like visions, that we will reach a billion in revenue by then. Those are just good guesses, so if you took those that have a proven operational business and certain targets for it, then quite a decent percentage of that group has actually reached their targets. I think it is actually even. It is even like it is even a bit higher figure than what I initially would have thought, because usually reaching targets is really difficult. But but. This in my opinion also underlines what we said earlier, that even though you have reached it, it doesn't necessarily show in your wallet. It shows. It can still be a minus line in the portfolio, because the valuation has been so brutal there. Indeed it is. This just tells us about that. But maybe so, maybe that wisdom. In my opinion, the lesson in that is that. Like if a company's business is still somewhat under construction and it has no revenue yet. The target is hundreds or hundreds of millions or billions. Whatever the revenue is, reaching those is quite. Probably everyone guesses and knows that it is quite quite quite tricky and it is just the best. It is. It is only the best guess. Whereas then if you have an operational business with a long track record, they say that hey, we are targeting. We have now made 30 million in revenue. We are targeting 60 million in five years, then there is a pretty good chance. We will reach it anyway, so it is. It is probably at least 50-50. They will reach it after all. That is always worth remembering with these targets, what they are built on, they are built. And of course if those targets sound like utopian ones. Of course we often then then are. We are, and mostly, I mean a company has to have targets or none at all. At least I am of the opinion that you should still give some targets that give a bit of an indication, but you should definitely take them with a pretty hefty pinch of salt, right?

And a target is different from an achieved situation, what is realistic. A target is always kind of up there in the clouds, which we strive towards by default. But now I believe that this year now like you said, if we had five coming, this looks like the economic situation. Finland is recovering. The stock market has done well. Money has come to investors and and many companies have had to wait in the hallway for quite a few quarters or even years. So we are going to get a lot this autumn. Meaning we are now heading into that IPO cycle. And and. Previously it has always been that in the early stage there come quite good companies, until the quality starts to drop a little and and I cannot say yet, since I don't know much more than the fact that those who have announced spin-offs. And from those companies you can already see what will be on offer. But but from these new ones. Well. what are the things that catch my attention? Without a doubt what the company does. That is a good thing. Trying to understand as much as you can understand and how realistic it is to achieve the targets they state. And then in my opinion it is essential that if we move to these companies with really high growth expectations, then that growth needs to materialize. No, it is not enough that well it comes in the next quarter or it gets postponed for us or something else, but it needs to materialize. That is. That is the prerequisite for continuing with it. And then if it is this kind of static, more moderately growing one that is already making quite good profits, those are of course nicer to own, because then you just see that they utilize all the prerequisites of a stock exchange listing. They have new owners, they dare to take more risk, they seek new markets and so on.

Yeah, I am completely of the same opinion. I believe that this first wave here, just like it has gone before, that usually comes. The stuff is on average quite high quality. That is how it goes, that it weakens little by little. If the market heats up and there come a bit, people come to try it with a bit bolder stories then. And not And not. And there it is. Or I don't know what you think, but I still think. You are allowed to come to the stock exchange as such. You are allowed to come to the stock exchange, right? It is not. There is nothing wrong with that. And then then. As long as they. As long as it. As long as we are honest about the story, we are realistic and honest and so on, then you are welcome here. And then those certain types of investors who seek very high risk, the stock exchange as such, doesn't? This is what we have been shouting in Finland for a long time too, that we have too little growth company financing and so on. So this is indeed growth company money, this group that we just criticized a bit too, so it is genuine growth company money. What also largely united that group was that. They were seeking genuine growth capital. Yeah, it just for one reason or another, those cases didn't materialize, but they were seeking growth capital for big things.

And.

And they tried to do big things.

It went to the companies themselves, meaning that the money was indeed used to expand the company's operations and undertake growth projects. It didn't go to old sellers.

And they tried to make that, the next unicorn, right? Really big things in the sense that I think a company like that definitely. Like generally even early-stage companies. They should definitely be brought to the stock exchange.

And if we could get some big success from there, then after that state that you can also grow significantly in the stock exchange. And then you have to. I never belittle when we talk about capital maintenance, but the change in the ownership structure. Meaning that you move from very few owners to diversified ownership, where a few perhaps get some financial security so that they dare to take risks, because new markets always involve risk and you require it, because everything doesn't go smoothly and and when the ownership is diversified, hopefully everyone bears that risk themselves so that it is not very large, but they dare to take that risk and move forward. That is often what it is about, and then it is always nice when it is in a liquid form, where you state that I want to take my money out of this company now, then it is possible at the given price. If if it is at all liquid. There are many securities from which you don't get money even if you would like to take it out. And indeed, liquidity and open trading must be given a certain value. That is. That is still a good objective metric that we should aim for, so the stock exchange definitely. In my opinion it has many good sides, even if it is work and a certain regulatory obligation, but it also offers quite a few opportunities.

Definitely. And if we still think about those lessons from that cycle, indeed. Meaning that valuation matters and we lived through. We lived through an era where valuation was completely secondary. It could be a quite good company, but the valuation was at a wild level.

10 years from now someone makes models, so no. So so. And it could be that at least Olli and I have gotten a reputation for being too stingy, that they always want to get things cheap. But our benefit is the unitholders' benefit and we want to be that. Because we don't know the company's history, we don't know. So we prefer to start from the fact that we have at least some safety and that is the valuation compared to those companies that we already know, which we can buy on the stock exchange every day.

A cheap valuation is after all one of the investor's best safeguards, whatever else there is - not the best + the best is of course a good business, but it definitely is. So you can lower your own risk profile with it, especially in businesses where valuation can be reasonably determined in these more mature businesses. That is what these, these like when we go to VC-side companies, in those is the fair value of the company 100 or 200 or 350 million? Then. Then it is like.

If you take now.

Like.

Creatiini and Puuilo and Aleksandria too, all listed at low valuations and have performed quite okay. And the owners have gotten more, because both have won. They have gone well in the sense that both valuation and the company met.

Yeah, absolutely not. And I definitely think if a decision-maker of a company going public is watching, I think my absolute advice in that direction is—and I'll repeat what you said earlier at the start—that going public is the wrong place to maximize the valuation. You drive yourself, you paint yourself into a really bad corner if you shoot the valuation up there, drive expectations up with it, and then, even if you perform okay, it's hardly enough. Then the end result is that your share price drifts, drifts, drifts, your investor base dwindles, investor interest fades, investors get disappointed. After that, you gradually drift into a pit where investors aren't really interested in you anymore. And then you can only get out of that pit in one way. That is excellent operational execution. It takes time. Whereas if you do it with a sensible valuation, do good work, take a valuation that can withstand minor disappointments if things happen in the next quarter. That opportunity didn't turn out quite as expected. Or next year there's a small hiccup, it can withstand that. After that, investors are satisfied. The story goes forward and everyone is happy. So that's how it is. You can end up digging a surprisingly big pit for yourself in that IPO anyway.

And then uh. If you think from an investor's perspective, new companies are always interesting. They hopefully have something new to bring. They have bright eyes or a high brow, and big goals, and one of them might even succeed. So, it's always possible, and in that sense, an investor's basic attitude should be curious, that hey, you should always give a chance, not just destroy it from the start. And investors have their own strategies. Some participate in IPOs and sell them on the very first day. They just take quick profits, some stay longer to watch. Then it's good to follow whether it has lived up to any of the expectations, and sometimes it succeeds and sometimes there are clear disappointments. Perhaps you shouldn't put all your money all-in at the first stage and conclude that this is a surefire thing, because there is no such thing, but rather when you've walked a slightly longer path together, then you see where things stand.

Absolutely. Absolutely. Yes. Yes and no. Let's hope now that this. That the market. I mean genuinely. Yes, I still. I think there are all signs that if this world just holds together now, without any really big shock, then stuff will definitely come from there, and they say there is a backlog in the hallway. People have been talking about that for a long time. I've been talking about it for a long time, that there are a lot of people, and genuinely, as I've also often talked about in these videos of ours, I think in the previous cycle what was really good about it was that companies found the stock exchange as a capital channel. The Helsinki Stock Exchange, before that for a long time, it didn't grow much and so on. Since our stock exchange was still a rather rarely used channel, the use of the stock exchange as a capital supply channel became more common, because we don't have a single bit too much equity available in Finland. And now, I think as this next cycle starts, it proves that claim. I believe it will be proven right as more companies come. We've had a few quiet years there, and those have been. That's largely due to these external factors. When interest rates went through the roof and the Helsinki Stock Exchange was out of favor and such, now these brakes have finally been removed.

Indeed, and perhaps this too. As a reminder at the end, the Finnish economy and this ecosystem need a viable stock exchange, a new company, a new entrant there, and. And while it sometimes seemed in public as if everything is happening on the unlisted side, private equity also needs those exit locations where they've had a bit of trouble, so that the journey continues to the next generation, they need it. So it's not an either-or, that we only invest on the unlisted side, but it's a both-and, both need each other, and Finland's capital market needs a good listed market, and of course growth companies are sought there through the private equity market or venture capital market. They are sought there, very early-stage companies, but we need both stock exchanges. The stock exchange is an excellent channel for a company in terms of reliability, visibility, raising capital, and bearing risk. And then one must always remember what has been hammered on endlessly, that if the stock exchange is allowed to wither away, it cannot be resurrected by any government decree telling people to start investing. This is pure market economy in the sense that people come to the stock exchange if there are interesting targets, and from there it goes. Today, all the world's stock exchanges are more open than ever before to the Finnish investor, so competition can also be found elsewhere than the Helsinki Stock Exchange.

How about that? Yeah, that was excellent. Excellent. I subscribe to every word. I mean excellent. An excellent defense of the Helsinki Stock Exchange.

And I don't even work for the stock exchange.

I wouldn't go—just saying that it's not even an ad paid for by the stock exchange, but you can use it if you want. But now, as this cycle comes and we make the next video in five years. Reviewing this cycle again in connection with that. How big of a risk is it, in your opinion, that we'll note in that video too that, boy, the atmosphere in the market was a bit hot at that time again? Do you see the same? Yes, every bull market and hype is different, but do you see a risk here that we are in a hype that you only notice afterwards?

Well, referring to what we've talked about this autumn regarding small caps and their valuations, I don't see it there.

There is no bubble. We can agree on that and.

A bubble and and. If a company is like under a billion or something like that, it belongs to this small cap category. And then you can always say, why should I pay double for your company when I just say it because this should be here. Not really. It has to breathe and live on the market's terms. And since small caps are in the trough and swamp where they are, I don't see a bubble there. No, I think at least. And there are private investors too, but professional investors at least. The memory trace is then. It's only been five years, so the memory trace requires about 15 years. 10 years at least before the next phase comes where we go into a frenzy again. That hype might be somewhere else, but it's not necessarily specifically in these IPO companies. And this doesn't mean that every company that lists will soar. But they have been quite modest. The developments themselves that have come so far. So I do expect that even better developments might come. Than what we've seen so far?

Yeah, I don't—I don't see it either. I mean we have. I mean we have a hype going on. So if we look at US tech, the stock exchange, for example, everything AI-related, our valuations are really high and quite. There is. There is that development going on, and I see that it's possible that from this development, where. From this development. In a way. If you fall under that umbrella, you can bring it to the Helsinki Stock Exchange too. Stuff can come here with things that have caught on from there. If you have a hot enough story and then you are sold to the stock exchange at EV/Sales multiples of 100, that is possible and so on, but the bar is really high on that side too, that you actually really need to have a very, very good story. You can't come with something half-baked.

You already need to have a customer base and customer segments that are actually, actually buying. Really, really.

Top notch. So I'm of that, of that, of that. And then again when we move to this, let's move to businesses, just basic businesses. So to speak, ones that make a profit and so on. So that there, peer groups where valuation doesn't run away, which are not very high. So there are. And, and you know what is a thing, that over three percent Euribor is a pretty good brake for this general, general heating up of the market. It really is. When every analyst has to punch in a higher discount rate, it really does. It puts ice in your hat anyway, so I am quite confident in that sense. Even though the Helsinki Stock Exchange has risen well and so on, the stock exchange valuation is quite okay as a whole. That interest rate really keeps a brake on it though. No. No, no, no, no. I would be very surprised if in five years our video would review again how that cycle, oh what a bubble-valued cycle that was. We might review if the stuff that came turned out to be of very poor quality, that's possible.

Yeah yeah, exactly.

Of course we hope the stuff is of very high quality.

If we made a comparison, that if in '21. The IPO bar was lowered to the floor level, there was none. You could just roll right over it, now it has been raised again. We at least notice listening quite closely, quite critically. And to quote Olli here again, we are under no obligation to participate in a single offering. Nobody is forcing us. We already have a position on, so whenever a new company comes, it kind of takes the place of an old one, because then we have to consider what to do. And we still have, especially at the small end, quite a lot of very attractive cases in valuation, so it has to be so attractive that. So in other words, the bar has now been set much, much higher than it was in '21, and that's a good thing, that investors' bar and requirement level is much higher.

And that bar has above all been raised by the interest rate level. That's right. It has been raised by the ECB's Frankfurt office, and good for that. But hey, we look forward to the IPO cycle. Really nice that companies are coming. Really great that they are coming. It's going to be an exciting autumn. Let's see what the final number is. But indeed, I wouldn't be surprised if now, as we turn almost towards the middle of September, I could imagine that announcements should start popping up almost weekly, since the window is open again after Independence Day. Not then anymore, no.

Inderes analysts are working long days here. Nobody's around because the bookshelves have already been taken and. And and and. Emptied, so that's quite alright. We are eagerly waiting. Eagerly for lots of new IPOs and good companies.

Exactly. Nothing else. Hey, thanks for watching the video again. We'll be back. Back on screen again in a few weeks.

And if this comes over the weekend, then have a good weekend. If it doesn't, then have a good rest of the week when it does.

Have a good weekend! Bye. Bye.