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What’s the state of the UK public markets? How can tech founders access a deeper pool of investors? Julia Hoggett, CEO of the London Stock Exchange, reveals the latest opportunities for growth-stage companies.
The UK tech ecosystem is the number one ecosystem in Europe and third in the world after the US and China, boasting a combined market value of more than $1trn. The London Stock Exchange serves the UK’s thriving tech sector as Europe’s leading exchange, with more than £10bn of capital raised so far in 2024.*
More than 600 UK companies have listed on the London Stock Exchange in the past decade, 250 of which raised over $100m during their IPOs. Over the last five years alone, 185 UK companies have IPO’d in London raising over £23.5bn, and since 2020, 54 tech companies have raised more than £10bn through their London IPOs.
The number of tech IPOs has fallen in recent years, largely due to a volatile macroeconomic environment, which has seen IPO markets largely shuttered globally, compounded by the fact more companies have chosen to remain private for longer. Still, Julia Hoggett, CEO of the London Stock Exchange plc, says that is set to change. The London Stock Exchange has raised 2.7x more capital so far in 2024 than the next European exchange, Frankfurt (£3.9bn), as more companies look to public markets for the capital to fuel their growth.
We caught up with Julia to discover the latest trends in UK public markets, plus exciting new market opportunities for growth-stage businesses.
What’s the state of the public markets in the UK today?
Companies are accessing public markets at a later stage in their lifecycle, but public markets remain the best way for companies to raise money quickly and at scale in the most equitable and transparent way possible. We have had six IPOs and a few hundred million raised so far in 2024, but more importantly, 150 public companies and their shareholders have used the market to raise over £10bn of capital.
We understand the focus on IPOs, but on average over the last 10 years, 73% of capital raised is via follow-ons, where listed companies need to raise additional capital post-IPO and they return to the market to do so. That is, after all, one of the huge benefits of being a listed company – readily accessible capital, at scale.
Total capital raised on the London Stock Exchange in Q1 2024 was up 115% year-on-year, more than any of our European neighbours and more than four times the global average – and this is not just a 2024 story. Similar was true in 2023 when total capital raised was up at a time when global markets were seeing a decline. Companies have been able to raise capital when they most need it at a speed and scale that is difficult to match in private markets.
Before going public, how else can founders access growth capital and support?
The UK has the second most active and capital-intensive venture capital market in the world. In recent years, VC, PE, and growth equity have been seen as alternative sources of capital to that available on public markets. Whilst we are seeing somewhat of a reset with the largest interest rate rises since 1998 and the VC model being tested, the UK still provides an attractive environment for those companies who wish to remain private.
The Mansion House Compact agreed last year (and which key industry players are continuing to work on building out) is already seeking to enable greater investment by large institutional investors in companies that are not public: either entirely private or those admitted to growth markets like AIM. DC pension schemes in the UK have agreed to allocate at least 5% of their default funds to unlisted equities by 2030 which is predicted to unlock up to £50bn of investment into high growth companies.
We recognise that both public and private markets have an important role to play in our economy and there are good reasons for companies wishing to remain private – either because they are in their early stages of growth and not yet ready to go public, or because that is simply the preference of their shareholders. We therefore need to ensure that the UK has the right solutions for every company, at every stage of their funding journey. That is why at LSEG we have partnered with Floww, a platform that connects investors with private companies, streamlining data sharing and capital raising processes to support private companies in their capital raising journey, and support investors to manage their investments in those companies.
However, the real boost is from the entire ecosystem working together across private and public markets and that is why we have also been working with the UK Government and regulators to support the development of a new intermittent trading venue, PISCES. This will be the first regulated crossover market between private and public markets, designed to allow private companies the ability to create liquidity events and more easily diversify their cap table by providing a broader group of institutional and sophisticated investors an intermittent opportunity to buy those companies’ shares.
It will also serve to provide employees and early investors in the company with the opportunity to sell shares without the need to wait for an IPO. Critically, the market has been designed to ensure that companies remain in full control of their information, which will remain within a data room, and to ensure that outside of the auction windows, companies are able to operate just as they normally would as private companies.
How else do founders benefit from scaling their businesses in the UK?
One of the strengths of London’s ecosystem is how tight-knit and superbly qualified it is. The speed at which our financial industry connects people to ideas and ideas to capital is one of our greatest competitive advantages.
That is why we have the leading capital raising venue in Europe by pretty much any measure and the London Stock Exchange’s market cap is over £1.9tn more than the next largest European venue in Paris. We have the second largest investment management centre in the world, accounting for approximately 11% of global AUM. £11tn of assets are managed for clients in the UK and internationally and many overseas investors already operate offices in London and other UK cities. Companies scaling in the UK benefit from readily accessible investors managing huge pots of capital and they are also able to easily attract capital from a global investor base.
The London Stock Exchange is recognised as the most international market in world, both in the composition of the companies in its markets and the investors that invest in those companies. That is why international companies perform better in London than they do in other large global markets like the US, which tends to prefer domestic companies. Since 2018, international companies in the US are down around 35% at a time when their domestic competitors are up 13%. In London, international companies are up 29%.
In addition to our capital markets ecosystem, scaling in the UK means having access to a disproportionately high number of globally leading universities which produce remarkable amounts of high-quality research. It means having easy access to a well-qualified workforce, access to generous start-up and scale-up tax incentives, and being part of an economy which is a world leader in life sciences, fintech, the creative industries, and which creates more unicorns than anywhere outside of the US and China. Rather uniquely, the UK is also a country where both major political parties are aligned in the drive to proactively support our entrepreneurs and the UK’s competitiveness – which gives us rather more policymaking certainty than in other jurisdictions, notwithstanding it being an election year.
What’s next for the London Stock Exchange?
We are incredibly excited about the largest and most ambitious reform agenda coming to fruition this year, which we believe will noticeably build on the competitiveness of the UK’s capital markets.
From making our listing environment more accessible to fast growing and founder-led companies, to enhancing the speed of M&A activity on our markets, resetting corporate governance and stewardship expectations to remove unnecessary burdens on companies whilst improving outcomes for both companies and investors, improving the quality of sell-side investor research on UK companies, launching a regulated cross-over market in the UK for private companies, and last but definitely not least, increasing the amount of domestic risk capital being invested in the UK from pension funds – all put together, we think it will be a once in a generation boost to our markets. Coupled with a very active IPO pipeline and stabilising inflation, we are very excited about what is to come.
Click here to learn how the London Stock Exchange can support your business.
This article is sponsored by the London Stock Exchange.
*Data as of 29 May 2024
