Why do European startups always end up being bought by American rivals? And even when they grow big enough to go public, why do they often end up listing in New York?
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