Tech executives and investors have urged the government to speed up and deepen reforms to the UK listings regime to attract fast growing firms to London given concerns that momentum could slow this year for IPOs.
Last week, bosses of tech groups such as Checkout.com, Klarna and Graphcore were invited to Downing Street to meet City minister John Glen and officials to discuss the progress made in attracting founder-led tech companies.
The mood, according to those present, was bullish, underpinned by London Stock Exchange data that more than £6.6bn had been raised by tech and consumer internet companies last year, double 2020 levels.
But many tech executives expressed doubt over whether the bold words would be sufficient to turn the London market into a destination with more global heft.
This concern was highlighted when GP Bullhound, a London-headquartered venture capital group that invested in Revolut and Klarna, last week raised €200mn for a blank cheque company. Rather than London, it turned to Amsterdam.
Reviews by Lord Jonathan Hill, former EU financial services commissioner, and former Worldpay boss Ron Kalifa, who both attended the meeting, kicked off a series of reforms last year to make the market more attractive to founder-led tech firms — an area prioritised by chancellor Rishi Sunak as part of the City’s future post-Brexit.
“The first reforms have scratched the surface but not changed any of the fundamentals of being listed in the UK,” said one attendee. “We need to encourage more capital into listed tech equities.”
While the government said the surge in listings followed the reforms of dual class share structures and free float requirements, one executive pointed out most were done before reforms were enacted.
“They were keen for us to drink the kool aid,” said another. “But the clear message from our side was there is more to be done.”
The performance of tech IPOs has also been far from spectacular, even before the recent sell-off of tech stocks in many markets. Many investors said this was leading to scepticism among the next batch of entrepreneurs considering where to bet the future of their start-ups.
“Last year was a banner year for tech IPOs but it hasn’t changed all that much — in fact, the performance of the stocks has just confirmed the bias against the sector,” said Hussein Kanji, partner at Hoxton Ventures and investor in companies that listed last year such as Deliveroo and Darktrace.
“You are left wondering if this is a place to do tech listings over the US,” he added.
The IPOs last year defined by the government as “tech” included online consumer brands such as Victorian Plumbing and whisky seller Artisanal Spirits.
Their combined share price since each listing has fallen by about 12 per cent, according to data from Dealogic. Only 11 of the 37 are currently above their IPO price. Some have done especially badly: AlphawaveIP, down 60 per cent, Trustpilot, a third under its IPO price, and InTheStyle, which has more than halved in value since listing.
Other executives say short term share price movements should not sway opinion and point to the poor performance for US tech IPOs over the past year.
But others worry the UK in particular needs to prove a point — with valuations much lower than the US — and are worried the changes to the listings rules so far are not enough to spark a new wave of tech IPOs this year.
The Nasdaq Composite is trading at around 25 times forward earnings, compared to around 16.6 times for the FTSE Techmark All-Share, according to data from Refinitiv.
“The question remains — what next?” said one attendee. “How do you create a tech ecosystem where companies can thrive? The US is still seen as more attractive given valuations on offer . . . it’s a market that gets tech.”
Lord Hill’s reforms so far were described as “gimmicks” that may make a difference at the point of flotation but do less to keep tech companies in London for the longer term.
Another tech executive was blunter, talking about a “meeting to get tech firms to float in London at a time when floating a tech firm in London looks pretty terrible”.
The wider IPO market has been slow to get going in the new year, dampened by uncertain markets and worries over the economy and interest rate hikes.
Some of the more promising tech IPOs have been delayed. Gousto, the meal delivery firm, raised cash from investors including SoftBank last month, which is likely to set back any flotation by a year, according to those close to the company.
Officials who attended the meeting last week reassured tech bosses the government would introduce further reforms, noting the importance of access to capital.
Julia Hoggett, chief executive of LSE, said it was working closely with the government to help “identify the changes necessary”, adding that “capital markets don’t and shouldn’t stand still”.
Tech executives used the Downing Street meeting to call for other practical reforms, including further reform of Mifid II market rules to help encourage analyst research for companies.
“Investors rely on research but that work is just not being done any more in the UK,” said one boss.
Another area raised was encouraging more retail investors into the market, with the UK trailing the US in attracting such money.
“We need to focus on what the next 10 years will be like for listed British growth companies,” said Romi Savova, chief executive of PensionBee, who was at the roundtable.
“If Britain is to maintain a world class environment for public companies, we need to enable more research coverage of our corporates, deeper institutional markets and active retail participation.”