State of European Tech

Today at Slush 2019, the VC firm Atomico publish their 5th annual State of European Tech report. It’s a comprehensive research report, exploring Europe’s tech and investment ecosystem, and marks the 4th year that London Stock Exchange has collaborated with Atomico providing its public market data for this report, complementing the rich range of data mined by Tom Wehmeier and his team. London Stock Exchange Group, like Atomico, believes that data itself can be used to bust myths about Europe’s, often misunderstood, tech companies listing ecosystem.

Here’s just one example: over the last six years, Europe has had 96% more tech listings than the US, with more European tech listings than US in each of the last six years. This emerged as a clear trend in 2018 and although the European tech sector has not been so buoyant in terms of listings in 2019, it still remains ahead of the US. In the first nine months of 2019, there were 33 European tech listings as opposed to 29 from the US.

This performance has been led by a larger number of smaller companies listing and it highlights an important point, that Europe’s vibrant ecosystem has something to offer smaller tech companies that the US does not - the environment to list and to grow on a public market. This year, Atomico has found that while the number of US tech IPOs with a market cap of less than $1bn has declined, Europe has seen the opposite trend. At the heart of this ecosystem is London, with 101 tech IPOs over the last 6 years.

It is fair to say that this year’s Europe’s tech IPOs have not received the same attention as those in the US. This notwithstanding, they have been marked by companies with recurring revenues, strong gross margins and robust business models. They are good businesses doing well and using the IPO process to fund their next phase of growth. For example, 2019 has seen successful IPOs from companies such as Trainline and Network International in London and Nexi in Milan, the biggest European tech IPO in 2019. The appetite among investors for such companies has been underlined by their post-IPO performance, compared to the underperformance of US listings such as Uber and Lyft. According to Atomico’s report, Europe’s crop of 2019 tech IPOs have seen weighted average growth of 18% while those from the US declined 6%.

Lesson for Tech Companies

While many tech companies will - and in many cases, rightly - focus on VC and equity as their fundraising and routes to liquidity prior to coming to public markets, there are other methods for them to raise capital.

London Stock Exchange’s capital markets have supported companies such as LendInvest, who have accessed a variety of methods such as securitisations and retail bonds to build their balance sheets and provide growth capital. Since listing on AIM in 2016, Blue Prism Group has seen its market cap grow from £48.5 million to almost £700 million, raising further capital in 2018 and 2019 to expand the Group’s activities globally and for research & development. London Stock Exchange Group can provide a wide range of knowledge of all these different forms of finance, enabling companies to make the best decisions for their growth journey.

What is important is that tech companies can raise capital in the methods that are most appropriate for them at the key points in their development, rather than following the sector’s prevailing orthodoxies of the time.

The vibrancy of the small cap markets in Europe proves it is never too early to discuss an IPO and to start charting a pathway to the public markets.

We spend a lot of time talking with companies about how they can work with advisers to prepare a clear roadmap towards their IPO and putting the foundations in place, such as developing the equity story, preparing historic financials, building a robust business plan, identifying the KPIs for the business going forward and building out the company’s board to prepare for life as a plc. In addition, it is critical to identify key investors and start to educate them on your story and build up trust and relationships with them. This long-range education of investors has been a major development in the IPO process over the past decade; it is an important process in which London Stock Exchange and professional advisers can help. London Stock Exchange also hosts twice annual IPO Forums to cover these wide range of topics, and where issuers and other market participants can come together to discuss their listing experiences.

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James Clark
Head of Tech & Lifesciences, Primary Markets