London Stock Exchange Offers Backing For High-Growth Tech Start-ups

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New route to the LSE that could suit tech start-ups is welcomed by Tech City boss, criticised by others

Tech leaders have welcomed proposals for a new segment of  The London Stock Exchange (LSE) which would allow high growth companies to get backing before a full flotation.

The LSE has asked for views on a a new main market segment in a draft rule book – and early responses seem to be positive, although some people express doubt about the role of stock markets as investors for companies with long-term plans.

LSE wants high growth stock

Joanna Shields CEO, Tech City Investment Organisation, UK Government digital ambassador

“London is the digital capital of Europe, home to a new generation of entrepreneurs and business builders who aren’t waiting for the economy to bounce back, they are taking control of their own destiny and charting their own path to success,” said Joanna Shields (pictured) CEO of the Tech City Investment Organisation, and a UK Government digital ambassador. “Today’s announcement will help them write their next funding chapter here in London,” she said.

The segment is launching in March and is intended for fast-growing companies, many of whom will be tech start-ups, as a first step towards getting on the “premium” segment of the UK Listing Authority’s Official List. The move is seen as a reaction to the American Jobs Act which has streamlined how growth companies raise finance and list in the US. The danger for LSE is that European companies will see this as a better option and will migrate to the US.

Current equity market arrangements aren’t good enough for ambitious UK and European businesses, the Stock Exchange release says: “This segment is part of the solution – it will provide greater choice for companies seeking capital and investors seeking growth opportunities.”

Companies will be eligible for the new segment if they have a three-year record of CAGR growth of 20 percent or more, are incorporated in the European Economic Area, publish an approved prospectus and provide a minimum free float of 10 percent of the company.

“Ensuring that the UK’s fastest growing and most dynamic companies have access to equity capital is a priority for London Stock Exchange,” said Alexander Justham, CEO of London Stock Exchange. “The High Growth Segment will provide an additional attractive choice, giving these companies a launch pad for further success.”

Slave market

Some observers are less keen on going public, however: Michael Dell is keen to take Dell off the stock market in the hope that private investors will be more patient and give him time to build the company into a bigger enterprise player. At this week’s Intellect Annual Cobalt Conference 2013 – a technology financing conference in London, run by Intellect.

“I don’t understand the obsessions with reaching an IPO,” a technology financing manager who did not want to be named told TechWeekEurope at the event. “Private financing means you do not have to publish revenue figures and are not at the beck and call of the stock market.”

The LSE already has a high-growth market in AIM but in 2011 only 90 new companies were listed, compared with 500 in 2005. The situation looks like it will have been better in 2012.

This story first appeared on TechWeekEurope. Read the full story here.

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