Credit: Unsplash
With Arm choosing to list in New York, tech investors express concern over London’s ability to attract high-growth tech IPOs.
British chip designer Arm’s recent decision to list in New York has raised concerns that London could miss out on more blockbuster tech initial public offerings (IPOs). Many venture capitalists (VCs) have expressed their frustrations with how the London market treats high-growth tech companies. They argue that the institutional investors that dominate the market lack a good understanding of tech, while Brexit has also clouded the outlook for tech listings.
London may be a great place to build a tech company, but the picture isn’t so rosy when it comes to floating the business. Several high-growth tech businesses that are listed in London have learned this lesson the hard way. Deliveroo, which went public in 2021, experienced a stock decline of 30% at the height of a pandemic-driven boom in food delivery.
Investors blamed the legally uncertain nature of Deliveroo’s business for the stock decline, but many tech investors believe that a much more systemic reason was at play. They cite this as a factor behind chip design giant Arm’s decision to shun a listing in the UK in favor of a market debut in the US. According to several venture capitalists, the institutional investors that dominate the London market lack a good understanding of tech.
'A very problematic market': As Arm shuns London, tech investors question UK as an IPO destination https://t.co/toplV06IQQ
— CNBC (@CNBC) May 8, 2023
Numerous tech firms were listed on the London Stock Exchange in 2021, raising hopes for more major tech names to appear in the blue-chip FTSE 100 benchmark. However, firms that have taken this route have seen their shares punished as a result. Since Deliveroo’s March 2021 IPO, the firm’s stock has plummeted dramatically, slumping over 70% from the £3.90 it priced its shares at. The U.K. money transfer business Wise has fallen more than 40% since its 2021 direct listing.
While there have been some outliers, such as cybersecurity firm Darktrace, whose stock has climbed nearly 16% from its listing price, the broad consensus is that London is failing to attract some of the massive tech companies that have become household names on major U.S. stock indexes like the Nasdaq. With Arm opting to debut in the US instead of the UK, some fear this trend may continue.
London is facing a problematic market for high-growth tech companies due to a lack of understanding of tech among institutional investors and Brexit uncertainties. Unless London addresses these issues, it may miss out on more blockbuster tech IPOs, and the trend of major tech companies choosing to debut on major US stock indexes like the Nasdaq may continue.
