Much of the public debate pushing for London’s resurgence has been steered by Index Ventures, probably Europe’s leading venture firm. Neil Rimer, one of the firm’s founding partners, argued back in May that the circular argument is the result of a defeatist mindset; a couple of months later his colleague Robin Klein suggested that London’s huge, dominant financial community needed to step up its game.

Now a report from Bloomberg looks at the issue and suggests that the British government could relax some of its rules on IPOs. Right now, for examples, companies listing on the London Stock Exchange are required to sell at least 25 percent of their shares, compared to just 10 percent on the Nasdaq. Lowering that number may be on the cards.

To attract more technology firms […] Britain is considering new rules that would make the London Stock Exchange (LSE) more attractive to startups. Taking a page from the Jumpstart Our Business Startups Act approved by the U.S. Congress this year, the government may cut the minimum stake IPO candidates are required to sell, from 25 percent to 10 percent.

“The U.K is looking into adopting elements of the U.S. JOBS Act, relaxing rules including equity listings,” Rohan Silva, a technology adviser to Cameron, said.

The result, perhaps, may be to claw back some of the ground lost. According to the report, tech IPOs in the U.S. accounted for $18.7 billion raised in the past 12 months, while the entire IPO market in Western Europe — technology or otherwise, across a number of exchanges — accounted for just $5.6 billion. In fact it seems only Russian companies are interested in floating in London — and even then, not very often.

So will it work? There are reasons to be hopeful, but it’s going to be difficult.

For those championing London as a place to go public, the arguments are deep, philosophical, heartfelt. It’s about what Europe should do if it wants to build a better startup culture and turn towards a technology-based economy.

But the counter-argument is simple and practical: why bother? The New York exchanges have greater access to capital and better liquidity; companies going public want to maximize their returns; from a corporate perspective, anyone choosing to go elsewhere is putting a fuzzy principle above the interests of their business. That’s tough to beat.

Bull photograph courtesy of Shutterstock/SeanPavlonePhoto

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It was the venture capitalists’ equivalent of the St Crispen’s Day speech from Henry V, intended to galvanize the troops and ready them for action (though perhaps a little less poetic). Now it looks like Index — which has backed the likes of Skype, MySQL and Dropbox — is putting the next piece of its strategy into place.

Robin Klein, a venture partner at the firm and chairman of high profile British startups including Wonga and Moo, has outlined exactly what he thinks it might take to increase the number of technology IPOs happening in London.

In a post on the Index blog that was published over the weekend, Klein said that the City of London — the financial heart of Europe — needed to recognize that the “new economy” was taking over.

Those of us working in the tech world or, more accurately, the tech-enabled sectors, have known for some time that the Old Economy is being slowly replaced by the New Economy. Retail is being replaced by eCommerce, Old Media by New Media, enterprise software by SaaS.

It just does not seem right to me that the City of London, with all its smart investors, would allow the largest seismic shift in the economy to take place without their active participation. Particularly when evidence of this shift can now be found in the buildings outside their back door.

Our sense at Index is that a collective effort needs to be made to kick-start the IPO season for tech companies. And so, in an attempt to invigorate companies, policymakers and the City alike, we’ve put together some recommendations. All it will take is a three-pronged attack from policy-makers, entrepreneurs, and the City alike to make this happen, but it will only work if all the pieces come together.

You can read the recommendations yourself, but the crucial points are probably threefold:
- Government should slacken its requirements for companies going public (including the fact that a company must list at least 25 percent of its shares)
- Existing investors should be better prepared to IPO
- Institutional investors should work harder to specialist units that understand the needs and wants of venture-backed companies

It will be interesting to see if this turns into more public offerings, or just offers Index companies an excuse when they don’t list in London. There have been reports that Wonga, for example, has been rumored to be looking at New York for a listing.

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The company — which now has major presence in Geneva, London and San Francisco — is best known for investing in European internet businesses like Skype, MySQL and Lovefilm. But over the past few years it has expanded its presence elsewhere too, with significant moves in San Francisco, New York and Tel Aviv.

It’s three years since Index last raised an early stage fund, which was around the same size.

Partner Neil Rimer told me that the new money would be invested in around 35 companies over the next three years — linking up with entrepreneurs at the very beginnings of their business, and (where possible) following them all the way to an exit.

“In terms of where the rubber meets the road in our business, it’s really early stage,” he said. “It’s meeting two guys with an idea and an early version of the site and deciding to help them. This is our core, this is really what we do.”

Europe remains a focus for the company, not least because Rimer recently railed against ‘defeatist’ European companies who shied away IPOs in London in favor of New York. His argument centered around the idea that this created a vicious spiral in which the fact that few successful tech IPOs happen in Europe causes to discount going public in Europe.

So will he be making sure that Index’s European investments stick by their guns?

“It definitely struck a chord,” he said. “When I called people defeatist, they thought I was calling them wimps — but I’m calling myself a wimp too: unless we fix this thing, we’re being defeatist. We can’t just assume that all of our great companies, all of this work will go into enriching American investors, and all of our great companies will move to the U.S.”

Index’s focus will remain on areas where it is already active: things like fashion, marketplaces, big data and knowledge. And the money is already starting to be distributed, so keep your eyes out for new funding announcements coming soon.

And what about long term vision? Venture capitalists have investors of their own to worry about — and getting returns on €350 million is no small feat in an industry that many say is broken. So what’s Index looking for this time?

“The best funds return between three and 10 times the fund, and sometimes more than that,” he said. “We’re shooting for 10x.”

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We recently spoke to a couple of local entrepreneurs who voiced some of the same concerns you hear a lot when you travel around the continent: Europe is risk averse, Europe is short on capital, Europe doesn’t have enough big successes to build on.

Here, you can see what they said:

“I think that the visions in the U.S. are a lot bigger, right from the beginning,” said Stefan Jørgensen of ItemBase, a Danish startup that wants to help you keep track of what you own. “The culture in Europe is that you don’t dare to dream as big.”

Belgian Pieter Dubois, founder of online payment plaform Paycento, agreed that the scale of people’s ambition was too small. “What you see is that in Europe people want immediately to see cashflows, they want immediately to have these customers,” he said. “That’s important, but sometimes an idea needs some time to really come to fruition.”

They are not alone. These complaints, or variations of them, have been echoing round for years — and show no signs of going away.

But…

Now, however, you can see a growing number of people who are starting to buck the trend and try to fix the problems they see around them.

Last week I reported the comments of Index Ventures partner Neil Rimer, who thinks that big European companies should stop being “defeatist” and consider going public.

“My sense is that if the right company were presented in the right context and at the right valuation to the right investors, there would be a meeting of minds and the company would be able to sell its shares to the public and complete an IPO in London.

I am also convinced that these companies exist, are ready to go public and are simply waiting for their management teams, boards and advisors to have the guts to do pull the trigger. My prediction is that a few days after some of these companies complete their offerings, boards and management teams will be advised that the London IPO market is now miraculously open again.”

He’s joined by a cohort of others who aren’t moaning, they’re just getting things done. There are dozens of startups we’ve reported on that are building global businesses from London, Berlin, Paris, and elsewhere

For example, Stefan Glaenzer, a prominent entrepreneur-turned-investor with Passion Capital, told me recently that Europe should stop constantly looking to California and recognize the successes that have happened at home.

“I’m not aware of a single European founder who made it big in the Valley,” he said. “We have created at least five to 10 billion dollar companies in the past 10 years here in Europe, so let’s build on that — let’s not lose out to America.”

And then, of course, there’s Germany’s Rocket Internet. Love them or hate them (and most people hate them) the Samwer brothers aren’t asking for anyone’s permission to make significant web-based businesses in Europe: they’re out raising money and launching dozens of companies across nearly 60 countries.

At the heart of this movement is the idea that European businesses can turn their weaknesses — facing a fragmented market with lots of linguistic and cultural boundaries — into their strengths: gathering the skills to go global early.

That’s something that ItemBase’s Jørgensen agreed with.

“The world is my market, because there’s no difference if I launch in Germany or France or Brazil,” he said. “There’s no difference because the challenges are more or less the same. If I want to launch in the US that would be the same as going to France.”

Between them, all of these people see that complaining that Europe isn’t Silicon Valley is beside the point. Focus on what you can, not what you can’t.

Still, I don’t know whether this will put to bed the entire discussion about Europe’s weaknesses — clearly it’s a subject people have a lot of affection for (perhaps affection isn’t the right word). But it’s certainly a sentiment that’s gaining momentum.

Is this the beginning of something?

Photograph of Neil Rimer used under Creative Commons license courtesy of Lift conference;

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In a stinging blog post, Index Ventures partner Neil Rimer tackles the idea that Europe can’t support tech IPOs — and lays the blame for this situation squarely on the doorstep of Europe’s “defeatist” entrepreneurs, investors and bankers. He says they’re moaning about the lack of a European IPO market, while at the same time creating the problem by heading overseas or choosing acquisition over going public.

Sadly,the last major tech IPO in Europe was Mail.ru Group’s debut in London in 2010, and not one of the 10 largest IPOs in Europe was by a technology or media company.

What is more alarming than the track record is the defeatist attitude that is being taken by european companies considering IPOs. The common sentiment in the boardrooms of these companies is that while in the US the IPO window is open, the London market is shut tight like a porthole.

Bulge bracket investment bankers file through in the perfunctory beauty parades lamenting the fact that european institutional investors are not interested in buying IPOs and doling out the same patently impractical advice; “Wait or consider going public in America.” Consequently, the forward-looking picture is even bleaker; in the US there are currently 196 companies that have filed plans to go public on Nasdaq or the NYSE while there are almost none that have announced plans to float in London.

It strikes me that this is like saying that there is a bread shortage because there are no buyers of bread. Bakers might stop producing bread if people completely lost the taste for it, but that certainly doesn’t seem to be the case: Shoreditch is as vibrant as ever;  there is no shortage of interest in Seedcamp and we have certainly never seen better companies being built in London.

So why is it that these companies are not tapping local public markets? Perhaps it is that their management teams and boards are dutifully heeding this advice and perpetuating its circular logic.

Rimer, who I interviewed a few weeks ago, thinks London is the place for this to happen. He’s certainly right that the confluence of advertising, technology, finance and market size makes the British capital the most appealing place in Europe for technology businesses to float (already plenty of Russian companies choose London — including, if reports are correct, mobile operator MegaFon.)

There’s a certain irony in Index putting this argument forward — after all, it has made big returns selling companies like Skype and MySQL to American companies. But the point stands.

And he’s clearly setting out a plan of attack for Index, which has some pretty big companies in its portfolio right now that could go public relatively soon.

I’d love to see Europe’s startup community pay it back by trying to take on this chicken and egg issue.

The question is whether anyone has the guts to.

Image courtesy of Shutterstock/Ljupco Smokovski

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This is despite the fact that he’s one of the driving forces behind what must be Europe’s leading venture capital firm, certainly as far as the web is concerned. As one of the founders of Index back in 1996, he is intimately responsible for a business that has scored major coups with companies like Skype, MySQL, ASOS, Betfair and more.

So what is he interested in right now? What trends is he watching closely?

I caught up with him to find out where he plans to invest — and hear about the smart money in big data, the problem with Europe’s clone culture — and find out about the investments he wishes he’d made.

Index has invested heavily in online fashion in the last few years — most recently with money put into Nasty Gal. What is it that attracts you there?

The thing is that we’re big in marketplaces. We didn’t wake up and say “let’s do fashion because it’s sexy” — it just happens to be an amazing category for e-commerce. The things I’m really interested in are marketplaces, and the notion of using social networks to do much more valuable things.

I mean it’s valuable to connect people and keep in touch, but that’s just getting to know each other. So we’re in a company called Funding Circle, which isn’t that well known but is really transforming the way businesses finance themselves by connecting them directly with investors in the U.K.

I think that’s a very powerful application of a marketplace, and that’s just business finance. There are lots of other financial products we buy, like insurance, that I think could be transformed by these kinds of things. So marketplaces is still something I’m going to put a lot of money into.

Another hot marketplace you’re involved in is travel. You’re an investor in Housetrip, which is targeting the European hotel market in an Airbnb-style way. Meanwhile another European Airbnb competitor, the Rocket Internet-backed Wimdu, is doing well. How do you see this panning out?

Housetrip are leading in Europe and they want to own that space. But they’re focused on family travel, holiday rentals, and that’s different to Airbnb.

All these other guys saw Airbnb and just copied it. I mean that’s clearly what Rocket does — and I don’t think you get the best people by doing that. Eventually your own people clone you. But Airbnb is a different thing from Housetrip, it’s typically more social, you’re staying with someone, usually while they’re there. They also have whole places, but that’s not really in their DNA.

But even if you believe the market is different enough today, the reality is that Airbnb will need to expand — especially if they go public, which is clearly where their investors are pushing them.

Yeah, they want to be in this market too. There are very few markets where it’s one player takes all, and we look at it from a DNA standpoint — where are they coming from and what’s their guiding vision? They’re very different, and I believe that Airbnb is more in the eBay of resources: eBay for houses, eBay for cars, eBay for boats — rent everything. Housetrip is more like the Conrad Hilton of the 21st century.

You don’t get that when you’re defining yourself by those guys in a different market and saying “they’ll come and buy us one day.”

You’ve started investing pretty heavily in big data companies, too. What drives you there? Do you think there are payoffs we can’t see yet?

I think we are trying to be very pragmatic about all this.

Let me give you a counter-example: our foray into clean tech — which was really not a foray, since we entered the forest, took a look around and said it wasn’t for us. We are not ever keen to invest in an area because think it will be a good idea at some point in the future, but we don’t know how. So when we invest in big data, it’s Kaggle, it’s Factual, and it’s Alertme: businesses where we can actually see and touch the way they are acquiring the data and turning it into something valuable that they can sell and scale. We’re not doing a lot of speculative stuff in big data.

What about those who criticize big data, and are concerned that it can deliver lots of information, but not really produce useful insights?

I was surprised to hear that there are a lot of skeptics of big data. I don’t know how you can be skeptical of it: more data is better than less data, and more ways of extracting insight from that data is better than fewer.

So: you’re excited by marketplaces and big data. What other trends do you think will become more important over the next few years?

The other one is education and knowledge, which where we’re just getting started in. I led an investment in Stack Exchange, and I really love that company… they’ve kind of cracked the best way to aggregate and curate knowledge about a wide array of topics. Everyone knows Stack Overflow, but few people know about photo.stackexchange.com or gardening or DIY, but they’re very good sites and they’re infinitely better than the crap Google used to point you to.

We can do a lot with that, and they pay nothing for that content, and they pay nothing for their traffic.

We’re going to look a lot more around education — the technology just enables this stuff. Teaching stuff online, this stuff wasn’t usable for a long time. Like video conferencing 10 years ago wasn’t usable, but today I’m avoiding travel because of it.

You’re not alone in thinking that — but doesn’t change in education take a long time? It can take a couple of years, five years, 10 years — even a generation — for the impact to really shake out.

It depends. All the vocational stuff, where you’re trying to learn a skill or achieve a level of proficiency in a language, or coding, or in English — we know in China what a big deal learning English can be, and what a difference that makes for someone in terms of their earning power. That’s measurable.

People make these decisions over a long period of time, but I think there’s less stickyness that we think — a lot of these things have been institutionalized, but people aren’t happy with them. There are a lot of degrees you can get in the U.S. that are worthless, but they are companies that make a lot of money.

The technology and these platforms for exchanging knowledge and helping people get to a different place in their life, I think that’s going to be a big area for us.

So what’s the company you wish you’d invested in right now?

Kickstarter, honestly. I think Kickstarter is a profound, profound company. The execution’s obviously great, and we’re just at the beginning. Most people don’t even know it exists yet.

We didn’t see it, so it’s not like I’m kicking myself for making the wrong call… but I think that’s a very, very important company — not just in what it’s doing, but in the theme it’s unlocking. It changes the social dynamic, and it shows also how much pent up goodwill there is among people to fund stuff with no financial return. Imagine what they’d be willing to do, by the way, for financial return.

Photographs used under Creative Commons license courtesy of Lift Conference

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