New wave of Tech IPOs should find their home in London, says Head of Tech Sector at the London Stock Exchange
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Despite comprising only 1.4% of the 503 companies in the S&P 500 index of the largest US-listed businesses, the 'Magnificent 7' (Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta, and Tesla) were responsible for over 50% of the index's total gains - and over 75% of its earnings growth - in 2024.
It's sometimes hard to believe how small some of those companies were when they first went public, especially when high profile US IPOs are now reserved for companies with revenues in the billions, not millions. "When I started out in investment banking at Thomas Weisel Partners in 2009," continues Shah, "there were software companies going public in the US with about $40 million in revenue. It is a very different picture today, that would just be impossible. It would probably still be impossible at $400 million in revenue. $400m of revenue a quarter, maybe, but not annually."
But it is still possible in London. This may come as a surprise to the average Brit who may only come across the London Stock Exchange in the evening news summary of the FTSE 100 with its big banks, big pharma and miners. The London Stock Exchange team gets as excited about early stage growth companies as they do about unicorns. Most stock exchanges have left the messy business of young, growing scale ups to VCs or Private Equity. Not so in London.
"AIM turns 30 this year. It is the world's most successful growth market and is run by the London Stock Exchange. Nominated advisers closely support companies not only through the IPO process, but thereafter. And some of the work required by a company to go public could potentially be done at a tenth of the cost of a US listing."
"When companies choose to list in London, they can benefit from a full-time fundraising team in the form of the house broker retained by the company, meaning there is less of a burden on a company founder. And as public companies, they can also attract and incentivise talent in a liquid, transparent way that private companies cannot."
Shah also believes that (along with a range of high-quality small cap funds and investors) Venture Capital Trusts, or VCTs - a unique British invention that combines the best of a Silicon Valley VC and a traditional small cap fund - offer an attractive alternative to more fashionable venture funding sources.
The traditional venture capital model has fueled household name successes like Uber, Facebook and Zoom. But it has also given the world high profile failures like WeWork, Theranos and 23andMe. London's approach, where sensible valuations, supportive institutional investors and quality growth companies mingle, could be having its moment.
AIM has supported some fantastic founder-led companies such as Craneware which went public with $15m of revenue in 2007 ($200m today) and Cerillion, which went public in 2016 with £14m of revenue and a £22m market cap. Today, it's worth over £450m.
Nvidia founder Jensen Huang took to the stage at London Tech Week in mid June, saying "The UK has one of the richest AI communities anywhere on the planet... and the third largest AI capital investment of anywhere in the world." If Huang or Bezos were taking Nvidia or Amazon public today, they may be looking to the City, not Wall Street, for support.
"British investors are really well-travelled. More than a third of our [London-listed] companies are international," says Shah. "It doesn't matter where you're from, you can be successful here."
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