Harris KhanThe British reputation for being a hub to fintech services is well known. It has had untold successes over the last decade, often amid trying times like the recent pandemic and the not-so-recent Great Recession of 2008.
Nonetheless, there is always room for improvement. Bettering the performance of local tech sector companies on the London Stock Exchange is an area to which the UK could pay attention. The last 24 years have seen the number of listed companies decrease by 45%, while the total IPO value has fallen by £9 billion over five years, from 2015 to 2020.
For perspective, NYSE and NASDAQ figures have moved in the opposite direction for the same period. Compared to stock exchanges around the world, the UK is faring abysmally. With 39% of IPO listings on the NASDAQ and NYSE, the US is the obvious world leader in listings. The UK, in comparison, had a paltry IPO listing of 4.5% for five consecutive years, from 2015 to 2020.
Over 33% of UK fintech companies plan to go public in the next five years, so it is worth considering the local listings situation. The capital funding for fintech growth in the UK has a deficit of £2 billion. Consequently, successful fintech companies would prefer to sell their businesses rather than continue operations in the UK.
To ensure that biotechnology and technology fintech companies list in the UK, government officials will have to enforce several cultural and legislative changes in the financial sector. Experts believe a simple solution lies at hand. If as little as five fintech companies can be encouraged to list in the UK, then the government is well on its way to dramatically improving the LSE’s IPO numbers.
The government is considering, for example, the development of a ‘Fintech Growth Fund’ that could help to achieve this goal. With £1 billion dedicated to creating an ecosystem that encourages British companies to list locally, positive change is not far behind. Other potential funding sources include the £6 trillion sitting in UK private pension schemes. These monies could do a world of good in the fintech sector.
The requirements of listing in the UK are the main reason the country has such a low percentage of IPOs. Companies wishing to list on the LSE must keep at least 25% of their shares as a free float. A 25% free float indicates that the company is less volatile. A much lower percentage would put investors off as it demonstrates that the company is more susceptible to the vicissitudes of the market. Larger free floats ordinarily draw bigger investors, but in the case of the LSE, the only effect appears to be deterring local fintech companies from listing at home.
Making comparisons again, it is notable that the NASDAQ and NYSE do not mandate a 25% free float. Instead, they require value thresholds which means a company can decide to have a free float that is much lower than 25%.
In the past, there was a proposal for a lower free float, but British investment groups roundly rejected the idea for fear that minority shareholders would be negatively affected. But the success of the NASDAQ and NYSE put the UK position to shame, for they have a combined total of 53% of IPO listings in the fintech sector.
Developing the UK as a fintech hub is a priority for the British government. Consequently, it does have measures in place that will make the environment more attractive for companies to choose the country as their listing destination.
Expanding research and development tax credits is one measure that could entice companies to remain. This means it would be financially beneficial for fintech companies to research their life-changing technologies within British borders.
In addition to the Fintech Growth Fund mentioned above, there are other schemes. The Enterprise Investment Scheme (EIS) has already had a high success rate, providing 97% of founders with much-needed capital.
Indeed, the British government has done a great deal to ensure that ‘Global Britain’ succeeds as a draw for technology founders. The very fact that Lord Hill commissioned a review of the local listings situations indicates a strong interest at the very least on the government’s part to make the UK as attractive a destination as possible for IPOs.
There do remain, though, some traditional institutions in the finance sector that are slow to adapt to these changes. Perhaps seeing the government’s commitment to change will in turn change their attitudes.
Catering to the needs of local businesses is all well and good, but to fully cement its status as an international hub, the UK must make sure that it is also attractive to foreign companies. Getting the likes of Lightbits Labs to consider listing on British turf would go a long way towards making the isle a viable listing option.
Additionally, keeping an eye on the listing requirements – ensuring that they are not too burdensome for tech entrepreneurs – will be a sure way to keep companies listing on the LSE for years to come.
