‘A very problematic market’: As Arm skips London, tech investors question UK as IPO destination


Billionaire Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp, speaks in front of a screen displaying the ARM Holdings logo during a news conference in Tokyo on July 28, 2016.

Tomohiro Ohsumi | Bloomberg | Getty Images

The UK can be a great place to start a tech company – but the picture is not so rosy when it comes to taking the key steps to get your business running.

This is a lesson many high-growth tech businesses have learned in London.

When deliveroo In 2021, the company’s stock goes public at the height of a pandemic-driven boom in food delivery quickly tanked 30%,

Investors largely blamed the legally precarious nature of Deliveroo’s business — the company relies on couriers on gig contracts to deliver food and groceries to customers. This has been a matter of concern as these workers want to be recognized as workers with minimum wages and other benefits.

But for many tech investors, there was a more systematic, reason at play — and it’s been cited as a factor behind chip design giant Arm’s move. Decision to stop listing in UK in favor of market debut in the US

According to many venture capitalists, the institutional investors who dominate the London market do not have a good understanding of technology.

“It’s not the exchange, it’s the people trading on the exchange,” Hussain Kanji, founding partner at London VC firm Hoxton Ventures, told CNBC. “I think they’re looking for dividend-paying stocks, not high-growth stocks.”

“Two years ago, you could have said, you know what, it could be different, or just take a chance. Now some people have taken a chance and the answers have come back. It’s not the right decision.”

Several tech firms listed on the London Stock Exchange made moves in 2021, leading investors to expect more prominent tech names to appear in the blue-chip space. FTSE 100 Benchmark.

However, the stocks of firms that have taken this route have been penalized as a result. Since Deliveroo’s March 2021 IPO, the firm’s stock has declined dramatically, with the price of its shares falling by more than 70% to £3.90.

behaviourThe UK money transfer business has fallen by more than 40% since its 2021 direct listing.

There have been some outliers such as cyber security firm darktraceWhose stock has climbed nearly 16% from its listing price.

However, the broad consensus is that London is failing to attract some of the big tech companies that have become household names like the major US stock indexes. nasdaq — and Arm has opted to make its debut in the US rather than the UK, leading some to fear that trend may continue.

“It is a known fact that London is a very problematic market,” Harry Nellis, general partner at VC firm Accel, told CNBC.

“London is creating, and the UK is creating, globally important businesses – Arm is a globally important business. The issue is that London’s capital markets are not necessarily efficient.”

The London Stock Exchange was not immediately available for comment when contacted by CNBC.

the ‘b’ word

Brexit has also clouded the outlook for tech listings.

Funds raised by listed companies in London fell by more than 90% in 2022With markets cooling due to slowing economic growth, rising interest rates and caution over the performance of British firms, according to research by KPMG.

Pre-published figures for the first nine months of 2022 center the fall in European wealth 76% And 80% annually, indicating a less severe decline than the UK’s 93%.

Hermann Hauser, who was instrumental in the development of the first Arm processor, blamed the firm’s decision to list in the US instead of the UK on Brexit “stupidity”.

He told the BBC, “The fact that New York is certainly a much darker market than London, partly due to the folly of Brexit, has caused a lot of damage to London’s image in the international community.”

Cambridge-headquartered Arm is often referred to as the “crown jewel” of UK tech. Its chip architecture is used in 95% of the world’s smartphones.

softbankThe company, which acquired Arm in 2016 for $32 billion, is now looking to float the company in New York after failing to sell it to US chipmaker Nvidia for $40 billion.

Despite lobbying three British prime ministers to list in London, Arm has opted to pursue a US stock market listing. last week it registered confidentially For US stock market listing.

Carrying out research and development for state-of-the-art chips is a costly endeavor, and Japan’s SoftBank is hoping to recoup its seismic investment in Arm through the listing.

hoping to get arm roughly $8 billion in proceeds and a valuation of between $30 billion and $70 billion, Reuters reported, citing people familiar with the matter.

Arm has said it would eventually seek a secondary listing, where it would list its shares in the UK after the US listing.

Is an IPO everything?

Still, regulators have sought to attract tech companies to the UK market.

In December, the government rolled out a set of reforms aimed at wooing high-growth tech firms. The measures include allowing firms to issue dual-class shares – which are attractive to founders because they give them greater control over their business – on the main market.

Last week, the Financial Conduct Authority also Proposal to simplify standard and premium equity listing segments As a single class for shares in commercial companies.

The regulator said it would remove eligibility requirements that could deter early-stage firms, allow more dual-class share structures and remove mandatory shareholder votes on acquisitions.

Despite the negative impact of Arm’s decision, investors are largely bullish about London’s prospects as a global tech hub.

“Luckily for us, that doesn’t mean the UK isn’t attractive to investors,” Nellis told CNBC. “It just means that where you IPO is just a funding event. It’s just a place, a place where you get more money to grow.”

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