When tech start-ups are looking to go public, is the States their best option?
It’s not always easy to decide the best route for a fast-growth company. Earlier this month, Bruce Aust, vice-chairman of the NASDAQ, recommended that UK tech firms looking to go public should float on his exchange rather than selling shares on a domestic exchange. Perhaps none too surprising. In other news, McDonald’s recommends people eat Big Macs.
But does he have a point? The US investment ecosystem is undeniably more flush with capital than its Britain counterpart. There are more investment opportunities for later-stage enterprises in the States and naturally this has led to quite a few UK firms floating across the pond; Candy Crush Saga creators King and financial data company Markit are just a few recent examples of companies that have listed stateside.
Conversely, there are plenty of firms who have found success on home turf. Former Elite Business ‘one to watch’ Fever-Tree floated on AIM, London’s junior stock exchange, at the beginning of November; its share price has risen from 134p to 180.5p at the time of writing. And Zoopla continues to go from strength following its listing on the London Stock Exchange this summer.
Ultimately, enterprises will have to make the decision as to what is right for them. But given the fact that boosting the health of the UK entrepreneurial ecosystem will require more successes on the home front, can we afford to have many of our biggest businesses floating in the States? What’s going to be the best option for UK enterprise in the long run?
"The US offers richer valuations", Mehdi Nayebi, CEO, KweekWeek
Most European-based companies face the important choice of keeping their main base in the UK or moving to the US, the latter being a near unanimous decision. As the companies continue their growth, the funding environment in the US always offers richer valuations and when ready for a public offering no company thinks of crossing back the pond for their listing.
The UK’s main weakness at this stage is therefore a lack of sufficient funding sources during series A/B rounds to support promising start-ups with a strong proven concept. This problem is compounded by the relative lack of experience of UK based funds in taking companies global, something US VCs and specifically Valley based ones excel in. If the UK could create an ecosystem able to support tech firms from seed stage to series A/B/C and eventually IPO, we would certainly see a much higher number of promising start-ups keep their headquarters in the UK and float on British exchanges.
It is therefore a gap in the support and funding environment for growing UK based start-ups that creates the need for the usual US exodus and eventually deprives the UK from high profile IPOs. Once a company has made this move, the eventual successful ones have no reason to ever look back at a UK flotation.
"The UK leads much of the world’s technology innovation," Gerard Grech, CEO, Tech City UK
The British digital economy is one of the fastest growing in the G20 with a record number of new businesses started in 2014. What’s more, the UK is one of the leading destinations for digital entrepreneurs and from April 2015 it will have the joint lowest rate of corporation tax throughout the G20.
This year the London Stock Exchange implemented new parameters designed to assist mid-sized European and UK companies that require access to capital and a public platform to help continue their growth. This includes the introduction of the ‘High Growth Segment’ [a new segment of the main market], the establishment of the Elite management training platform and an initiative working with the government to abolish investor stamp duty on traded AIM shares.
In the first six months of 2014, London tech firms attracted a record $1bn of venture capital investment and fundraising in the sector is currently up over 30% on last year’s $719.3m. This is addition to $1.45bn in new funds that have been raised this year.
The UK government has rolled out everything from new visas, to funding programs and tax relief on early stage investment to fast track the growth of digital businesses. With 11 of the world’s top universities based here, UK minds have led much of the world’s technology innovation, from early hardware and web breakthroughs to recent strides in big data and fintech. The UK was also recently named the most entrepreneurial nation in Europe in a GEI survey.