London IPO trends in 2021 – Q&A with First Sentinel

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Q: Last year we saw a surprising global bull rally in markets across the world – on the face of it, 2020 should have been a terrible time to take a company public but in fact we saw dozens of successful debuts from companies like AirBnB, DoorDash and Palantir. Where do you think we’ll be by the end of 2021?


A: You’re right that 2020 was a good year for IPOs globally, but if you look at where most of that action was happening, it was really focused in the US and China. London has suffered a bit in the last few years from being perceived as a staid market and a bit heavy in old-economy stocks like oil and banking. In fact, if you think back over the past decade, a lot of the hottest tech IPOs have gone to Wall Street, Hong Kong, even Frankfurt.


So what I think we’re going to be seeing in 2021 – and we have seen it already in the first few months of the year – is the City come roaring back as the place that brilliant, innovative, successful tech companies want to list. If you look at TrustPilot, for example, you’ve got a Danish company making a conscious choice to list in London, just a few months after Brexit, and that choice very much paying off for them. They raised GBP468 million, they now have a market capitalisation of GBP1.1 billion and all in all it was an extremely successful performance.


At the other end of the scale, we just helped NFT Investments, who specialise in investing in non-fungible tokens, go public on the Aquis Exchange, which is for smaller growth companies. They raised GBP35 million and the share placing was massively oversubscribed, over three times the amount we initially planned. That was a huge success from a company whose focus is a type of investment that lots of people do not fully understand, in a space where there is a lot of scepticism.


Q: And what about the next few months, do you feel like this momentum is going to continue? Do you think the disappointment around the Deliveroo IPO will have an effect?


A: I think if you look at the IPOs that are coming up, it’s very clear that there is still a great deal of enthusiasm and optimism from both issuers and investors in London.


There’s a lot of excitement around PensionBee, an online pensions provider that people are calling ‘the Monzo of pensions’ – they’re expecting an initial market cap of around GBP350 million.


And the next really big one is probably Darktrace, which is a cybersecurity company based out of Cambridge that uses AI to help systems ‘self heal’. The CEO of Darktrace said that London would always be her “natural choice” for their IPO and she has talked about the strong legacies of cybersecurity and AI in Britain, both of which are now big growth industries. Darktrace is predicted to be a GBP3 billion listing, so that would give the City a big shot in the arm and repair its reputation for the big tech ‘unicorn’ IPOs.


The Deliveroo listing had a few flaws that were fairly specific – it’s notable, for instance, that neither of the two companies I’ve just mentioned are doing dual-class shares or have the same kind of ESG issues. So I don’t think it means anything more broadly in terms of London as a home for tech IPOs.


Q: Do you think most of the IPOs we’re going to see happening in London this year will be home-grown talent? Or might we see more companies from further afield, like TrustPilot, make an active choice to list in London instead of, for example, on the NASDAQ?


A: Well I think we’re very lucky in this country to have such great talent in tech and R&D and also the right kind of resources to nurture it.


Just in the last few months five more ‘unicorns’ have already been created in London alone: Blockchain, PPRO, Touchlight Genetics, Starling Bank and Zego. So the UK now has more than 80 ‘unicorns’, more than France and Germany combined. We’ve got particular strengths in big growth areas like fintech, AI, health tech and educational tech.


Last year, VC investment in UK tech was the third highest in the world in 2020, and I think having Sequoia Capital set up shop in London is a big vote of confidence in British tech entrepreneurs going forward.


But beyond the home-grown companies that would naturally gravitate to London for their IPOs, I think there is a huge push at a governmental and institutional policy level to attract foreign companies to list in London. The government is banking on those big tech floats to help us recover from the pandemic, they’re planning to relax some of the stock market rules that are a bit cumbersome and stringent and might historically have sent the tech companies elsewhere. I think we’re about to enter a real golden age in that respect.


Q: I assume you’re talking about the reforms to listings rules recommended by the Lord Hill review – are there any other changes to our IPO mechanisms that you think could make the City more attractive for a company looking to make its debut?


A: I think it’s important to remember that most companies don’t go straight from zero to unicorn without passing go. The London Stock Exchange is set up for very big companies to go public, but a company with a GBP4 million market cap has different needs. Investors are often missing out because the wrong stock is in the wrong segment and the trading mechanisms don’t fit, the governance doesn’t fit.


We need to make it possible for companies at several different growth stages to go public, and this is what I think Aquis, for example, is doing very well.


So I think if we want to attract the most innovative companies from all around the world to choose London for their IPO, we need to offer them the right markets to do it in. We need to be as creative as the tech entrepreneurs themselves when we think about our listings environment.

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