Listed companies matter to venture investors and IPOs are not just a question of making great returns for the investors in our funds - or even as role models to today’s early stage companies, though both are important.
Large listed technology and life science businesses – companies like ARM, CSR, SAP, Publicis, Astra Zeneca, Sanofi and Novartis, (some of which were originally venture-backed) - are an essential component of the innovation landscape and a source of growth in Europe. They are often household names and national and sector champions; they invest in R&D, in smaller companies and sometimes in venture funds and so stimulate growth outside their immediate operations; they buy smaller businesses that complement their own technologies; they are followed by the markets and the media. Their presence helps the ecosystem to thrive.
Many younger companies that come to the public markets through IPOs develop into the big companies of tomorrow. They become the acquirers of tomorrow’s start-ups. Their continual need for innovative technology and business models leads some to set up corporate venture funds that invest alongside independent VCs in start-ups, often as a precursor to acquisition.
The venture community needs these large, established companies as well as the recent IPOs. Without a body of listed technology companies that attract the coverage of analysts, market makers and journalists, investors lose interest in these sectors. Today, no buzz means no money. A shortage of listed, successful technology champions affects the climate for venture capital funds – both at the fund raising stage and as an attractive exit option for those companies that are ready for an independent future and appropriate for public listing.
But cast your eye over the main European indices and at the few large technology companies still listed here. There are some outstanding life science companies, of which we can all be proud, but several of these have been the targets of reverse mergers from the US. There are even fewer big companies in wireless, software, IT and content media and every year, we lose some of these companies to acquisition by corporations usually from outside Europe. Wolfson was acquired last year and CSR has accepted a bid from Qualcomm. This leaves us thin in independent listed champions, while recent venture-backed IPOs such as Criteo, AVG and JustEat need time to develop into champions themselves.
We must seek to retain our big technology companies on stock markets in Europe and not lose them to acquisition. I’m no protectionist – few things are more globalised than technology and some of our best exits have been through acquisition of young companies by larger ones outside of Europe. But those companies that do list in Europe, and the older established ones that have been on our public markets for more than a generation, are important to all of us. We need to support our best companies to consider listing as a route to even greater success, for the companies themselves and for our investors. The exchanges are supportive; public market investors are less risk averse. Let us work together with our most ambitious entrepreneurs to create the next wave of $1billion companies.