IPOs attract a lot of money for the companies going public, but the location of the offering can make a substantial difference in how much is raised and how the company is perceived. While some companies seek out the London Stock Exchange (LSE), more seek out U.S exchanges. But Britain hopes to change that, and to that end is considering mimicking key provisions of the U.S. Jumpstart Our Business Startups (JOBS) Act, including offering more lenient rules on IPOs.
Bloomberg reported Wednesday that while London requires a startup to offer a minimum of 25% of its equity at an IPO, it is considering wooing startups—particularly tech startups, which anticipate fast growth and usually want to sell a smaller stake at an offering—by cutting that requirement to only 10%. Still, that may not be enough to lure companies in search of ready cash to fuel expansion.
Rohan Silva, who advises Prime Minister David Cameron on technology, was quoted saying after a meeting last month with entrepreneurs and investors that “[t]he U.K is looking into adopting elements of the U.S. JOBS Act, relaxing rules including equity listings.”
Neil Rimer, co-founder of Index Ventures, the biggest venture capital fund in Europe, said in the report that the British government views more relaxed rules for IPOs “as part of the broader effort to create a fantastic ecosystem for startups. “You really can’t be a contender for those businesses unless they have the ability to access public markets.”
Rimer added that although there are already easier requirements on London’s Alternative Investment Market, all that’s done is draw companies who really aren’t quite ready for prime time. Stronger companies, as a result, have tended to avoid it in search of a market whose companies have a better reputation.
Britain hopes the move will make enough of a difference to startups that they will be persuaded to offer on the LSE. According to London venture capital firm Balderton Capital, Europe could lose companies worth as much as $15 billion if the region’s 20 to 30 biggest IPO-ready technology firms were to list in the U.S.
But how much equity a company must offer is not the only factor it considers when deciding where to go public. According to Alexander Shulgin, chief financial officer of the Russian search engine company Yandex, a lack of support for startups coupled with a lack of ready investors form a larger roadblock. He was quoted saying, “For us, the choice was very straightforward. The U.S. market is the most liquid in the world.”
Axel Dauchez, CEO of the French music streaming service Deezer, which boasts approximately 20 million users, says the company doesn’t even do any business in the U.S.; nevertheless, to him the path is clear. NASDAQ would be his market of choice. “Is it easier for me to be global coming from Europe or is it easier for me to be global coming from the U.S.?” he asked in the report. “There is a very clear answer in terms of access to capital: It is the U.S.”