As Arm, the British chip designer, shuns London in favor of a New York listing, concerns have arisen that the UK may miss out on more blockbuster tech IPOs. According to venture capitalists, the London market treats high-growth tech companies poorly, and institutional investors in the market lack a good understanding of tech. Furthermore, Brexit has only clouded the outlook for tech listings. While the UK may be an excellent place to build a tech company, floating a business in London is not an attractive proposition, as investors punish firms that take this route, and the market is inefficient. Wise, Deliveroo, and numerous others have taken this path, and they have been punished. As a result, the broad consensus is that London is failing to attract some of the massive tech companies that have become household names on major US stock indexes like the Nasdaq.
It is a known fact that London is a “very problematic market,” according to Harry Nelis, general partner at VC firm Accel, making it unattractive to globally important businesses like Arm. According to Herman Hauser, the man who was instrumental in the development of the first Arm processor, the decision to list in the US rather than in the UK was due to Brexit “idiocy.” The UK regulator and government must progress rapidly with their regulatory and market reform agendas, including addressing the amount of risk capital available, to ensure UK capital markets offer the best possible funding environment for UK and global firms.
– Funds raised by companies listing in London fell by more than 90% in 2022, with the market cooling due to slowing economic growth, rising interest rates, and fear about the performance of British firms, according to KPMG.
– Previously published figures for the first nine months of 2022 show a 76% to an 80% annual decline in European funds raised, indicating a less severe decline than the UK’s 93%.
The UK’s institutional investors lack a good understanding of technology and prefer dividend-yielding stocks over high-growth stocks, according to venture capitalists. This, coupled with Brexit and an ineffective market, has resulted in London being a “very problematic market” for tech firms seeking an IPO. The UK government must act quickly to reform the regulator and the market to ensure the best funding environment for global and UK firms.
The UK may be home to many outstanding tech companies, but listing in London is not an attractive proposition for these businesses. The institutional investors that dominate London’s market lack an understanding of tech and prefer dividend-yielding stocks, and Brexit has made matters worse. There is a danger that the UK will miss out on more blockbuster tech IPOs unless swift action is taken to reform the market and regulator.