Redefining Ambition: The Role of Public Markets

At Tech Tour we are, and always will be, unashamed about our promotion of European tech entrepreneurs. This is deep rooted in both our belief, and the evidence, that Europe has the strength and depth to produce world class tech champions. And while it can be argued that Europe may not have fully fulfilled its potential in digital technology, we stand at a historic momentum of opportunity, particularly as breakthrough technologies are increasingly based on “deep-tech”. An undoubted strength of the European innovation eco-system.

 

Grasping this opportunity to take the global pole position in building tech “super scale-ups” will not of course be easy, but given the last decade’s achievements in producing vibrant tech hubs that now rival their counterparts in Asia and the US, coupled with an unprecedented growth in entrepreneurship, and seasoned investors to match, it is there to be won.

 

One, not inconsiderable, hurdle that we must overcome is the access to capital to make our “super-scale ups” truly massive companies, the decacorns or $10bn valuation companies. And while some European companies have attracted the attention of global mega funds such as SoftBank’s Vision Fund, it may be time, once again, for the most ambitious CEOs to look to the capital markets.

 

We acknowledge that listing itself is not without its challenges, nor is running a public company, and acquisitive large corporates are of course vital, and in many cases an ideal way for both investors and entrepreneurs to realise the value of their endeavours. But given the numbers involved, there is a strong case to look to the capital markets.  

 

Globally private assets under management have increased considerably since 2015, reaching a record-high of $5.2 trillion in 2017, up 12% from $4.7 trillion in 2016. However, only $1 trillion is held in venture capital or growth equity, and of this $100 billion is held in European venture and growth capital funds and their underlying companies[1].

 

So while private markets attract increasing interest from long-term investors such as pension funds and sovereign wealth funds, approximately 80% of this is allocated to Buyout funds, Real Estate, Private Debt and Infrastructure. As such the vast majority of global capital allocated to equities remains in the public markets with an estimated global $73 trillion market capitalisation. 

 

We also know the success breads success. And the publicity, and continued independence for entrepreneurs, can only encourage others to follow. Take for example the sheer weight of press coverage for former TTG50 company Adyen, the Dutch payment services company, when it listed in Amsterdam in 2018.

 

To illustrate the potential of going public from the 121 companies in the first four editions, 11 are now listed with a combined market cap of over €25 billion, and on aggregate have outperformed the NASDAQ since listing by a factor of two.[i][2]

 

Headline numbers, of course don’t tell the whole story, and given the rigorous selection process for the Tech Tour Growth 50, and their stage of development, you would expect these companies to do well. In fact only 3% have ceased trading, compared to an industry average of 18% of venture backed European tech companies[3].

 

At first glance listing venue appears crucial. The four TTG50 companies that have listed in the US have increased, on average, their share price by 123% since IPO, compared to an increase of 13% for the Nasdaq over the same time period. Conversely the seven TTG50 companies that have gone public on European markets have an average share price decrease of 21% versus an increase in the Nasdaq of 15%. So, should the ambitious entrepreneur “go west”, or does size matter?

 

Only three former TTG50 companies have listed at a valuation of over $1bn, (Adyen in Amsterdam, and Elasticsearch and Farfetch on the NYSE) with an average uplift since IPO of 42%, Adyen being the stand-out performer with a 137% increase in share price. The Nasdaq in the corresponding time period (for all three) has increased by just 1%. As the earliest of these listings was May 2018, it’s perhaps too early (and just three companies) to draw any conclusions.

 

When we look at the companies listing below a $1bn market cap (2 in the US and 6 in Europe) there is an average share price increase of 13%, with a corresponding increase in the Nasdaq of 24%. However, removing the companies that listed below $500 million i.e. < $1bn and > $500 million, paints a very different picture: there is an average increase of 68% versus an uptick in the Nasdaq of just 28%. Of these 5 companies three listed in Europe, with two in the US, and four have been public for three years or more.

 

We are acutely aware the sample size is small, but from the Tech Tour Growth 50 experience we can draw at least the thread of a conclusion, that size, or dare we say it ambition, means far more than location, or country.

 

As part of our long-standing work to foster the European eco-system, The Tech Tour has recently teamed up with IESE business school in Spain, and PME Finance, a French think tank, to run a project funded by the European Commission’s research programme Horizon 2020. We will engage with CEOs and investors across Europe to conduct a deep and systematic examination of the how the European capital markets can better work for our tech companies and their investors.

We encourage all of you to get involved, you can find out more at www.techcapitalmarkets.eu.        

 

[1] McKinsey Global Private Markets Review 2018

[2] Based on average share price increase of 11 past TTG50 companies that have listed v. the NASDAQ share price movement over the equivalent time period (IPO date until 15/01/19). TTG50 average share price increase is 31% v. NASDAQ increase of 15%. These figures have not been weighted by market cap.  

[3] Source Invest Europe: Divestments by number of company 2007 – 2017.

 

 

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