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As we have demonstrated in previous iterations of the State of European Tech, there are more tech IPOs per year from Europe than the US. There are many reasons that underpin this long-standing trend, but it is best summarised by the fact that there are completely different characteristics that shape the environment around access to the public markets for tech companies.
European tech has arrived, and whether they’re valued in tens of millions or tens of billions, they bust the myths about European tech with each new listing.
Since 2014, European tech companies have IPO’d at rates far exceeding that of US tech companies – European markets, like London’s AIM, are structured to support tech listings of all sizes, and Europe’s public market investors back them. But as Europe has stretched its lead with smaller caps, 2018 also heralded the arrival of a series of long awaited, high profile listings, all well in excess of $1bn in market cap, and a surge of Fintech companies on public markets. European tech has arrived, and whether they’re valued in tens of millions or tens of billions, they bust the myths about European tech with each new listing.
In the US, for example, most tech IPOs tend to be sponsor-backed. This means there are financial investors, whether VCs or PE funds, that play a ‘sponsoring’ role in bringing these companies to the public market. While the numbers of sponsor-backed tech IPOs per region are similar in Europe and the US, because Europe sees far more IPO, the percentage share of European tech IPOs that are ‘sponsored’ are typically lower, which is a reflection of a greater diversity in types of companies that have access to public markets.
European tech IPOs far exceed those in the US by volume due to the fact that European capital markets are supportive of enabling companies of all sizes by enterprise value, whether $1 billion+ or sub-$100 million, to come to market.
Smaller cap European tech companies make up the majority of European tech companies, a reflection of the fact that founders of European tech companies take advantage of the fact that there are many different paths to raising the capital required to support and grow their companies.
The advantage of European startups is that they have an aptitude for complexity in their DNA.
The advantage of European startups is that they have an aptitude for complexity in their DNA. This comes from looking at various markets, making sure their intellectual property is protected internationally, and approaching customers with a multicultural focus. The nimbleness of European startups - which comes from not having as much capital chasing them as U.S. startups - has also taught them well what the essentials of their business are and how to be customer facing.
European markets better understand the importance of liquidity and so are more open to existing investors selling down their position at IPO. As a result, there is a much higher share of secondary share sales than in the US.
Questions are often raised about the sophistication of institutional investors in the European capital markets and their ability and willingness to invest into tech. The data shows very clearly, however, that there is a strong pool of European investors that have built deep and sophisticated understanding of tech by having built large portfolios of holdings in global tech companies.
European founders need to adopt a moonshot mentality if they are to build the next Google or Amazon. There is no playing it safe.
European founders need to adopt a moonshot mentality if they are to build the next Google or Amazon. There is no playing it safe. As a founder you need to show investors that you're passionate, that you have the drive to make it happen, and that you understand the market from a global perspective. Don’t obsess about building the perfect product – start shipping, and figure things out as you go. Lastly, the best founders will have a strong sense of purpose and a vision that guides their company through the difficult moments – there will be many!