John Newton of Alfresco asks why are there so few British tech IPOs?
Silicon Valley seemingly dominates the global technology market churning out tech success story after tech success story. However over the past few years the UK’s technology scene has grown at an unprecedented rate with London’s Tech City at its heart, acting as the launch-pad for many innovative start-ups which are changing the tech landscape. But will we ever catch up with the likes of Silicon Valley?
The UK has invested heavily in Tech City and this has been highly beneficial for driving forward the whole tech community, both inside London and throughout the UK. This investment has allowed us to creep slowly closer to our neighbours across the pond and promote the importance of UK tech companies in the wider business landscape and the investment opportunities available in the sector.
Where are the UK tech IPOs?
However, despite the success of the companies coming out of Tech City, it still remains quite far behind Silicon Valley in terms of providing a decent “inital public offering “(IPO) exit path for high growth tech companies to float on the stock market. How can we truly claim to be nurturing home-grown companies when our most successful start-ups continue to head to the States in order to benefit from its IPO market?
The IPO ecosystem in the US offers a number of benefits to technology companies. The investors, the analysts, and the liquidity that exists in the US make it highly attractive. When we made the decision to go public with Alfresco, we did initially consider the UK market and it might have happened if the conditions had been right.
The UK was looking relatively competitive – but the government has taken some backwards steps, including the reintroduction of regulation and the changing of the Capital Gains Tax, which has seen us fall further behind the US.
Despite the recent launch of the London Stock Exchange (LSE) High Growth Segment, capital markets are still too immature in the UK to encourage IPOs. Last year there were only four technology IPOs in London compared with over 40 in New York. When compared to the established routes into the London Stock Exchange market, the High Growth Segment may be a step in the right direction, but it still does not come close to the success of NASDAQ or even NYSE.
There also hasn’t been a good balance between investor demand for IPOs and supply since 2007 and whilst I’m cautiously optimistic that we’ll see this trend reverse over the next year we aren’t there yet.
Take for example the current $5 billion content management industry which is seeing a lot of IPO activity. Cloud file-sync and share companies like UK-based Huddle, along with Box and Dropbox have all publicly commented on plans to go public within the next year and have, like Alfresco, chosen to do so in the US.
For Tech City and the UK to continue to expand its role within the global technology community the government needs to start looking at the long-term impact of its financial efforts. Only if we take a long term view and provide credible exit options for companies, we can continue to develop home grown start-ups into global success stories without losing them to the US.
John Newton is CTO and chairman of open source content management firm Alfresco. In 1990, he co-founded, designed and led the development of Documentum, the content management firm acquired by EMC. He has also been an entrepreneur-in-residence at Benchmark Capital and was one of the founding engineers at relational database pioneer Ingres. You can read his IT Life here.
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