For all Jeremy Hunt’s Budget day promise to “make the London Stock Exchange a more attractive place” to go public it is impossible to legislate against one giant block on progress: founders simply don’t want to list their companies here.
Streamline prospectuses, crank up voting rights, soften governance rules, bring back independent equity research - none of that matters unless the culture changes, upwardly mobile entrepreneurs say.
If they must lift the veil of private finance, they look straight past Paternoster Square to the bright lights of Wall Street, where the microchip designer Arm will hunt for fresh backers later this year. Early-stage UK tech investors even describe their portfolio companies as “Nasdaq-ready” when the time comes to widen the share register.
Unable to source the growth capital from unadventurous pension funds at home, founders are fleeing stateside, where the media is easily moulded, analysts all have brilliant minds and market optimism is indefatigable.
Except that isn’t exactly right. The London market has plenty of founder-led businesses, if you know where to look. Take Alpha Group, set up by online gaming entrepreneur and British GT racing driver Morgan Tillbrook. It helps devise hedging strategies for clients to navigate volatile currency markets and its shares are up ninefold since floating six years ago.
Or listen to the story of Ian Lankshear, the engineer who runs EnSilica, a microchip design house working in the automotive and healthcare sectors. Its humble beginnings – four men in a barn – are reminiscent of Arm’s start and its shares have doubled in a year.
Let’s not be complacent. Companies are disappearing from the London market at the rate of one a week. And let’s not forget the excessive burdens placed on them that contribute to an estimated extra £500,000 in running costs versus a similar sized private business. The Financial Conduct Authority and others must know you can’t regulate risk out of the system.
But Tillbrook and Lankshear are not alone in recognising that a share quote gives them access to funds in a timely fashion, an easy route to incentivising staff and a kitemark that helps to win contracts the world over.
The challenge is to attract more founders to the market so more investors can follow their growth path and share the upside – as well as quash the idea that London only features stodgy firms run for cash.
The latest downbeat narrative seems to be coloured by the negative experience of two high-profile founders in particular - Deliveroo’s Will Shu and Matt Moulding of The Hut Group – whose initial public offerings (IPOs) have proved to be disappointments.
Two City factions are complicit here: the bulge bracket bankers who marked up the price of the shares at the outset, and the institutional investors who agreed to pay it. Both should know better. For a time it has poisoned the pool for everyone else.
Better to bring companies to the London market sooner, so their debuts do not become winner-takes-all thunderclaps, the end of the story instead of the beginning.
To do that, we need public companies to take back the language of growth from private firms. We need that last slice of pre-IPO money to come from local sources, not US funds who bring with them US non-executive directors who best know Nasdaq. And we need more liquidity in the market, a lot of it patient capital.
It’s 10 years this summer since AIM shares could be owned through ISAs, a masterstroke in introducing retail investors to growth stocks. What if there was a similar grand gesture from the Chancellor in the Autumn Statement - when he has said he will return with a detailed plan - to incentivise more institutional funds to go where they are most needed, where founder-led companies are already, or easily could be?
Some founders might worry about what headlines they generate in going public. Really, it’s manageable. They are also practical people - they follow the money.
