Last year, we witnessed a rather successful period for investment, seeing the highest amount of global IPO activity in a decade. This flurry continued into 2021, where the UK alone saw more than 50 companies go public, which was more than we saw in the whole of 2020. With the spate of floatation’s this year, are we seeing a healthier investment landscape?
What’s particularly interesting to see is that the second quarter of 2021 was the busiest in the US for tech listings for two whole decades. This is perhaps not surprising seeing as there has been a huge shift in the digital transformation during the pandemic, and a lot of the companies assisting us with this shift were able to attract new investment following their rapid growth during this period. This gust of IPO activity wasn’t solely in the US, as the UK experienced its own busy period seeing more IPOs during the first two quarters of 2021 compared with the whole of 2020.
Despite seeing a healthy market for IPOs in the UK, there still seems to be a redundance of tech companies coming over to list in the UK. It is well known that tech companies are put off by London’s stringent listing regulations and prefer an easier journey across the pond, but earlier this year, star players made their debut on the London market. Trust Pilot, Darktrace and Wise are a handful of firms that are paving the way for other tech companies to join them, following their successful IPOs which saw some of the stocks more than double in value. Unfortunately this wasn’t the tale for all tech listings in the UK after the highly anticipated listing of Deliveroo tumbled seeing the share price fall more than 30% on its first appearance. Luckily for them, shares have now somewhat recovered, finally creeping above its original listing price.
To assist with attracting more tech investment in London, UK regulators have now planned to reduce some of these rules, making it easier for tech companies to list in the UK to compete with the US and Europe post-Brexit. Along with this, here are our thoughts on why the UK is heating up as a top tech listing destination:
Dual-class share structures
Dual-class capital structures have been used in some of the most high-profile IPOs by technology companies, including the offerings by Facebook, Google and LinkedIn. Although there is an argument that dual-class structures destroy shareholder value, there is compelling evidence that these structures can benefit companies, shareholders, and capital markets. Some critics argue the listing rules applicable to the premium segment should be amended to permit dual-class share structures, alleviating the risk of a founder being derailed and removed as director. When a company’s reputation is tied to its founder, it means that the communication efforts to put a face and expertise to a brand isn’t lost.
Continued digital shift
The digital shift we are witnessing has been a long time coming especially with the accelerating effects of the pandemic. While the impact of Covid-19 has had a negative impact on many businesses, tech stocks have continued to boom. Whilst we are all keen to see the back of Covid, the efficiencies we’ve seen from moving many aspects of our lives online has been undisputed. If this digital wave continues to take off, we are likely to see more activity on the UK stock exchange as investors will back these techies who are experiencing rapid growth.
Leading tech eco-system
Companies will be attracted to list in London, with its lively tech scene, and access to all the right people in a diverse and strong talent pool. In addition to this, access to high-quality funding also demonstrates the depth of capital in the ecosystem, with the average seed round in London standing at £470k, compared with the global average of £360k. Entrepreneurs must innovate faster as we launch into a new era of digital transition, and many are flocking to build within the UK economy. In such a high-paced environment, tech firms will need to balance communications strategies carefully to engage with all stakeholders – potential new customers, existing customer, future workforce and investors.
London has already been crowned the tech capital of Europe, and with the market already looking healthier post-Covid-19, we are hopefully waiting to see more homegrown tech players make the transition from private to public.