A healthy stock exchange is defined by excitement. Since the days when Venetian merchants hurriedly scrawled trades onto slates, the thrill of betting on a company’s future has moved markets and made and unmade countless going concerns regardless of prominence, connections or basic financial standing. In an age where shares can be listed almost anywhere in the world, too, it is excitement about the bourse itself that sustains it as a place of business – a quality that, sadly, seems altogether absent in the London Stock Exchange (LSE.)
That absence is visible in the numbers. 88 companies have delisted or transferred their primary listing from the London Stock Exchange this year – the biggest net outflow and the lowest number of new listings in 15 years. At the turn of the millennium, businesses listed in the UK accounted for 11% of the MSCI World index. It now has just 4%.
Multiple causes have been identified for this decline – most notably the lack of liquidity coursing through the LSE, cited by Revolut’s founder Nikolay Storonsky as one reason why listing on the bourse was “not rational.” Other critics have described the exchange as routinely outclassed by its North American cousins on valuation ceilings, the simplicity of its trading rules and quality of its market information.
Every single one of these factors has been cited as a contributing factor behind the LSE’s litany of aborted tech listings and delistings. This includes the UK’s chip champion Arm, which chose to list on the Nasdaq instead of its home market, and biotechnology firm Abcam and food delivery giant JustEat, which fled for New York and Amsterdam respectively. Elsewhere, Deliveroo’s IPO was broadly considered a disaster, while the declining share price of e-commerce giant THG serves as a cautionary tale for any other e-commerce businesses looking to set up shop on Paternoster Square.
But change may be afoot. The UK’s new Labour chancellor, Rachel Reeves, is eying market further deregulation to support growth – watering down rules on sovereign fund investments, liberalising disclosure standards and making trading more tax-efficient. But at least one corporate finance expert believes that the LSE’s fundamentals are stronger than others would have you believe. For one thing, argues BCLP partner Tom Bacon, the liquidity gap between the bourse and its American cousins “is less than reported.” So is the will to make the London Stock Exchange a destination for the UK’s most vibrant tech startups. As such, argues Bacon, it’s beyond time for critics and investors alike “to stop talking down our own market.”
Previous London Stock Exchange reforms
This isn’t the first time the UK government has attempted to spark new life into the LSE. The Sunak government’s Edinburgh Reforms were another attempt to ensure technology sector investment in a more competitive market and a better bridge between public and private markets. Earlier still, the Alternative Investment Market (AIM) was meant to provide capital opportunities to scale-up companies with less restriction. But it, too, has become porous, losing almost 400 listings across the last nine years.
Why, then, have previous governments’ reforms proven so ineffective? One reason might be because they’ve only nibbled at a much larger set of dysfunctionalities in the UK economy, says Benedict Macon-Cooney. According to the Tony Blair Institute for Global Change’s chief policy strategist, the struggles of the LSE mirror the lack of modernisation of services across the country, not to mention the paucity of investment in “dynamic and well-funded firms in the high-growth sectors of the future.” These problems, Macon-Cooney adds, can’t be solved by “marginal or incremental” tweaking but much more comprehensive policy shifts with implications for the entire country. “This is a huge issue,” he wrote. Any solution, he added, would have to be “radical.”
Macon-Cooney suggests going ‘all in’ on support for potential high-growth technology rather than paying mere lip service is critical. He takes aim, too, at AIM – which has struggled with fraud and liquidity issues – arguing rather than being propped up it should be cut for a new rapid route into the market with a revamp of the investment and governance avenues alongside it. This is something that Reeves, for her part, seems to be attempting. “If we are to create new jobs, revitalise growth and have some say in the technologies that will be critical in the coming decades,” says Macon-Cooney, “we need to make this our new national purpose.”
Such reforms would naturally take time to formulate and implement. In the meantime, several recent developments might give heart to those who believe in the LSE’s potential to attract new tech businesses. Canal+ recently listed, for example, while Shein is still planning to and Raspberry Pi – the low-cost computing firm based in Cambridge – has witnessed its share price surge after a recent LSE IPO.
For Rafael S. Lajeunesse, CEO at ReachX, a platform connecting growth companies with financial advisers, these kinds of listings – which, he argues, offer high growth potential to investors – could reignite the London market if it set up mechanisms to attract more of them, rather than doubling down on traditional commodities (mining) or chasing Google-sized software giants. “It’s difficult to reproduce what the NASDAQ has with companies at a trillion dollars,” he says. “That would be an ambitious goal and not pragmatic.”
Instead, Lajeunesse believes recent tech success could be built on if LSE leverages what it does have: deep knowledge of running markets, great technology, and good connections with many countries. He believes opening up dual market listings with emerging markets that have potential high-growth tech firms within them, like Nigeria or Morocco, could reinvigorate the exchange. “If an investor wants to invest in a data-centre company in the Middle East and that firm wants to eventually come to London via [that] pathway,” says Lajeunesse, “that would be an interesting strategy.”
It’s the ReachX boss’ view that this so-called bridge-building would start to give LSE investors access to new, high-growth markets that are often inward-looking, such as India. Indeed, India’s tech sector recently grew 3.8% year-on-year and offers, in Lajeunesse’s view, a great opportunity for investors as well as for LSE. “And in 20 years,” he says, “the best companies could come out of India…and it would be sensible for the UK to give investors proper Indian exposure.”
Harnessing the LSE’s tech potential
Similarly to Lajeunesse, Bacon believes that the UK already has some of the factors that make it appealing for tech companies in the $500m-$1bn range that might struggle on bigger exchanges. “We need to sell it to founders that many tech companies have grown here without having to go for private investment,” he says. This is an appealing prospect for firms like Darktrace, perhaps, but a realm that ultimately offers less fundraising flexibility for most tech startups.
Bacon also wants lessons learned from those who have had success on the market – not least, in businesses understanding the need to build leadership teams that understand the practicalities behind IPOs and the benefits they can bring. “Raspberry Pi have had success but their team know how it works having done a listing before,” he explains. “They understand the route to growth.”
Lajeunesse also believes that more might be done to appeal to founders who worry about the reporting and agency restrictions on the market. “We could have dual share classes to give more voting rights,” he says. “We need more coverage for smaller [potentially high growth] firms, a lower cost of listing.”
But even he believes there’s no single panacea, not least because of perceptions of political regimes’ openness to business (US vs UK) to the domestic capital gains regime. Instead, argues Lajeunesse, reversing the LSE’s decline in the eyes of tech businesses will involve being open-minded and honest about what is working, and incorporating the lessons learned from the successful listings of Canal+ and Raspberry Pi. Only then might that spark of excitement return to Paternoster Square.
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