A blog series exploring stock market life from a listed company CEO’s perspective.

At a board meeting in June 2021 at the Billnäs ironworks, we were deciding the parameters for Inderes’ upcoming autumn IPO. Chairman Kaj Hagros raised the question one more time: wouldn’t it make sense, as part of the listing, to give existing shareholders the opportunity for small “pressure-release sales”? Hagros had brought up this concept repeatedly throughout Inderes’ journey.

“Absolutely not! This has to be a completely clean IPO.”

I was firmly against selling anything in the listing. Share sales in IPOs have been widely demonized in Finnish public discourse. Institutional investors understand the logic when it’s properly explained, but there’s little point trying to justify sales to the general public. They get branded as cashing out, a shadow that lingers for a long time, especially if things don’t take off.

So we wanted to do the opposite: we put in what were probably the longest lock-up restrictions in Finnish stock exchange history, three years for existing shareholders. And not just for the main owners and founders, but for the entire staff. We were playing the long game, and no one would have anything to grumble about, no accusations of cashing out and short-termism at the listing.

I sometimes feel the urge to do things in a deliberately different way from whatever unwritten convention or market practice dictates. Sometimes that leads to great insights. Sometimes it goes completely off the rails.

This time it went off the rails. First, the solution wasn’t the smartest from a long-game perspective. Very few people have the financial means to treat a holding worth hundreds of thousands of euros as entirely separate from their personal wealth. Second, with every company that lists, someone always crawls out of the woodwork claiming the IPO was a scam or wrong in some way. In Finland, someone always takes offence, especially if someone else gets wealthy, and those people shouldn’t be allowed to influence decision-making.

Hagros was right many times as chairman, while I, somewhat idealistic as an entrepreneur, occasionally pushed back against him. The most frustrating thing about Kaj was that you often only realized he’d been right years later.

I’ve talked with many entrepreneurs who brought a private equity investor along on their growth journey. When they come on board, PE investors often buy a portion of shares from key people and inject money into the company. Doesn’t the PE investor see key people’s share sales as a terrible signal about their commitment?

“When key people can pay off their mortgages and secure their financial footing, they’re better able to take risks and focus on the actual business. There’s less white-knuckling, and the already-demanding life of an entrepreneur is better balanced.”

I unfortunately only heard this perspective later, from one PE investor. And then I heard it again from several entrepreneurs who confirmed it had played out exactly that way for them.

The PE investor’s idea is to avoid a situation where the company’s strategy calls for taking risks and pressing the accelerator, while the team executing that strategy is simultaneously hitting the brakes because they can’t afford to put the bulk of their personal wealth at risk. On top of that, we all have lives to live, which might include a building renovation, constructing a house, or a dream of a summer cottage. None of that takes away from your commitment to the company.

I do understand the public frustration that occasionally surfaces around share sales in IPOs, though. When 80% of a listing transaction is existing share sales and only 20% goes into the company’s coffers, it genuinely feels like a rip-off if the company’s communications have been marketing the IPO with a story of “we’re raising money for growth.” An honestly transparent message would work, even if it doesn’t sound as grand as a growth investment.

The renewal of the shareholder base in step with different stages of development is a natural part of a company’s lifecycle, and a listing is a natural discontinuity point for that renewal. The ownership base needs to have the risk appetite that the strategy presented at listing requires. If the selling pressure latent in the shareholder base doesn’t release during the listing transaction, it will inevitably release in the aftermarket over time. And that means persistent selling pressure on the stock.

Since the listing, I’ve bought more Inderes shares on the market myself, and I’ve never really thought about my ownership in terms of euros. Still, I sometimes wonder whether the option for pressure-release sales would have led to a more relaxed grip on the bat. After the autumn 2021 listing, we at Inderes started pressing the accelerator harder, at the same time as the market fell away beneath us in 2022. Our listing price was €25, and when trading opened the price shot up to €50. Many people had their entire net worth locked up in the company’s stock, and now that capital was being exposed to enormous personal-level risk in the business, at a time when the world was already completely upside down. It was a brutal first year on the exchange, but we got through that too.

The stock exchange has done its job, though, and Inderes’ shareholder base has renewed itself and lives every day in the market. The idea of Hagros’ “pressure-release sales” concept is something I now pass on to every entrepreneur thinking about listing, even though I used to advise the exact opposite.