Even though 2021 has been a volatile year for markets in general, tech IPOs have been on the rise in the U.S. and China. Yet Europe has lagged by comparison, although several European companies are considering IPOs in the future. Here’s a look at what’s happening for these regions regarding IPOs.
Reasons for Interest in U.S. IPOs
The number of IPOs this year in the U.S. has been 70, compared with 92 in China. Meanwhile, the U.S. has far outpaced Europe, which has only had 26 IPOs this year. Throughout the pandemic tech stocks rallied most of the year, as several emerging tech firms raised billions through IPOs.
One of the driving forces behind the tech boom has been emphasis on companies that build “internet of things” (IoT) technology. Business leaders now widely embrace real-time analytics for decision-making. Companies that provide cloud services have also become focal points for U.S. IPOs. So excitement is escalating in the investment community for software developers who contribute to crafting modern digital ecosystems.
Companies that help make the cloud a seamless business hub are deeply in demand. Tech firms that provide or facilitate the creation of infrastructure building blocks fit nicely into this puzzle. Another type of tech developer that investors have favored has been one that creates AI or automation software. During the pandemic investors have supported the rise of video conferencing platforms as solutions for social distancing.
A major reason private companies go public in the U.S. is to raise capital. It’s possible for a company to double in value in its first day trading on the stock market, while raising millions of dollars.
Why Europe is Slower on IPOs
Many European companies are looking at issuing IPOs in the near future in the face of tech startups struggling to survive in the pandemic era. While there have been a few standout tech winners in recent years, Europe has generally been quiet at producing widely celebrated tech IPOs. So far this year the continent’s IPOs have been valued at $6.7 billion, while U.S. IPOs have grown in value to over $118 billion. China’s IPO market has been valued at $72.8 billion.
Europe has traditionally trailed both the U.S. and China in IPO activity. Even though Europe has produced about a third of the world’s start-ups the past decade, only a small percentage have grown to be multi-billion dollar global companies. These start-ups have also trailed the U.S. in securing “Series D” and “Series E” late=stage capital funding.
Entrepreneurs in Europe have complained about how regulations on employee stock options aren’t as favorable as in America. It causes them to spend less on expansion and take overly cautious approaches on exit strategies. Many start-ups have focused more on getting acquired by a U.S. company rather than growing the capital base and developing a global strategy. Other European firms are working on developing their brands in the U.S. before issuing public stock.
Another indication of Europe’s slow IPO market has been how it has missed out on the growing market for special purpose acquisition companies (SPACs). These companies exist to raise funds for developing businesses intended to go public. Nasdaq’s head of European listings Adam Kostyal recently told CNBC trends in the U.S. cannot necessarily be duplicated in Europe. At the same time the Stockholm stock exchange is integrating elements of the U.S. IPO model in its structure.
Toward a Move Adventurous IPO Journey for Europe
One of the triggers that could energize the European IPO market is to increase listings of tech IPO prospects. Tech has been a powerful investment the past decade, so Europe simply needs to produce more billion dollar tech companies. The key is for investors to provide both early stage and late stage funding to ensure the company is well developed and poised to be competitive.
It’s been common in both the U.S. and Europe for companies to remain private while still accessing late-stage funding. In order for firms to succeed in the IPO process, company leaders must think of an IPO as the next step of evolution rather than an exit strategy. The more the market is full of positive IPO stories that provide ROI, the more investors will take interest in European IPOs.