"LSEG is one piece of the puzzle, rather than all things to everyone."
John Millar, Head of Primary Markets
From Silicon Fen to Silicon Glen, tech clusters are springing up all over the UK. London Stock Exchange Group is actively supporting their development, as Fiona Walsh reports.
It might only be a short stroll from Tech City to the City of London, but to the digital entrepreneurs who work in the UK’s answer to Silicon Valley, the financiers of the Square Mile have traditionally seemed a world away.
Now, however, the ties between the two are strengthening, thanks to a series of initiatives from the Government and London Stock Exchange Group (LSEG).
As the UK consolidates its position as an international centre for tech companies, there has been a surge in the number of tech IPOs in London. In 2013, more than two dozen companies joined the London markets, many of them floating on AIM, LSEG’s market for smaller, growing businesses. Raising some £1 billion in total, this marked the strongest year for tech floats in London since 2007, both in terms of numbers and the amount of capital raised.
More companies are lining up to take the same path, spurred on by the success of recent IPOs and attracted by the fact that London now offers a wider range of funding choices than ever before, as well as support for ambitious tech companies.
“AIM is ideal for smaller businesses but slightly larger tech and internet-driven businesses often have pre-IPO shareholders who want to continue to support the business and participate in the growth alongside public market investors,” says John Millar, Head of Primary Markets at LSEG.
That led to the launch last year of the High Growth Segment (HGS) which offers another route to market for companies that aspire ultimately to a Premium listing on the Main Market. Businesses that meet certain growth criteria are able to float just 10 per cent of their shares when they join the HGS, rather than the 25 per cent required on the Main Market.
The right signals
“These businesses, which feel they are too big for AIM, need capital but their investors also want to remain part of the ownership structure. This new segment sends the signal that we are keen to attract these businesses, understand their needs and can offer them greater flexibility while still maintaining LSEG’s hallmark standards of governance and regulation,” says Millar.
LSEG is also playing a wider role in the development of Britain’s high-tech sector and educating entrepreneurs about the options available to them.
“The markets we operate sit towards the top of the financing chain, but have an important influence on the whole financing ecosystem in the UK. It’s important to make sure that businesses have access to the right sort of funding and that they feel confident in their ability to raise capital at every stage of their development,” says Marcus Stuttard, Head of AIM.
Being aware of the equity financing options available to them – whether it be business angels, crowdfunding, venture capital or an IPO – could help save UK companies from selling out, often to an overseas buyer.
“Many entrepreneurs start thinking about finance relatively late in the day, and if they need cash, and an attractive bid is put on the table, they may feel they have little option but to take it,” says Millar. “If they get bought by a US company, then jobs will shift across the Atlantic.”
One of the recent successful tech floats in London has been Blur Group, the business-to-business online procurement company. Despite being one of the few UK tech entrepreneurs to have been CEO of a major Silicon Valley tech company, founder Philip Letts chose to float in London rather than on NASDAQ.
“To be successful on the US markets you really need to have a big business in the US; otherwise you won’t succeed. For earlier stage companies, it has to be the UK. London Stock Exchange has a little jewel with AIM,” he says.
Blur floated on AIM in late 2012, when it raised £4 million. Within a year, its shares had jumped from 82p to 485p. Letts is excited about prospects for the UK’s tech sector and is setting up a new research and development centre in Exeter. He believes the south west of the country shares many of the same characteristics as Silicon Valley in California and is in a “prime position” to become the UK’s leading tech region.
“We looked at cities all over Europe – Dublin, Belfast, Cambridge, Berlin and also Stockholm. But none of them ticked more than half our boxes. Then we went to Exeter and it scored on nearly every count. It has a track record of innovation and the right kind of universities,” he says.
Much of the focus in recent times has been on the London tech cluster located around Old Street roundabout in Shoreditch, also known as Tech City or Silicon Roundabout. The first digital companies sprang up here in 2008; two years later Prime Minister David Cameron outlined the Government’s ambition for London’s East End to become “a world-leading technology city to rival Silicon Valley.”
But the thriving community of fast-growing tech businesses based in London’s East End is not the only high-tech hotspot. There are more than a dozen growing tech clusters around the country, from Cambridge – nicknamed Silicon Fen – to a trio of cities in Scotland – Glasgow, Edinburgh and Dundee – also known as Silicon Glen. Other hubs include Oxford, Southampton, Newcastle, Leeds and Sheffield. LSEG plays its part in promoting the UK tech industry, supporting roadshows around the country, hosting its own events and working closely with bodies such as the Tech City Investment Organisation, which was established to support the East London tech cluster. LSEG also operates a scheme to provide coaching and mentoring to small tech companies, helping them to build their business plans.
“Tech businesses are very different, they develop much more rapidly than traditional bricks and mortar companies. We sometimes need to change our approach to meet their needs and we’re committed to playing our part in restarting the debate on how to fund these businesses,” says Millar.
“LSEG is one piece of the puzzle, rather than all things to everyone. A lot of what we are doing is providing connectivity.” And in the fast-moving digital world, connectivity is what it’s all about.