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There are lots of startups in Europe. Some of them get big enough to go public. And when that happens, nearly all of them opt to do it in New York, not nearby London. It’s a pattern of behavior that some European investors want to change, and for the past few months we’ve been following the debate.
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