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U.S. and China have had a good year for stock market debuts where share listings came from big tech names like Palantir and Ant Group. However, this is not the case for Europe.
Unlike previous years when notable companies like Spotify Technology SA (NYSE: SPOT) music streaming service and Adyen (Euronext: ADYEN), a payments processor, went public, Europe has recently struggled in the tech space to produce significant initial public offerings (IPOs).
European IPOs Struggle Significantly This Year
This year, venture capital-backed IPOs in Europe were just 26 compared to 70 in U.S. and 92 in China as per data from PitchBook, a capital markets research firm. In terms of the total year-to-date value tech IPOs fetched, European ones had just $6.7 billion in comparison to their counterparts in China, who attained $72.8 billion, and the U.S. who got $118.19 billion.
However, on its debut last month, The Hut Group, a U.K. e-commerce group, netted an IPO of approximately $1.2 billion (£920 million). This is a brighter spot, which its earlier backer Balderton Capital says that it’s not enough.
Balderton’s general partner Suranga Chandratillake said during a CNBC interview:
“There’s no doubt that European tech IPOs are behind the U.S. and Asia, that’s always been the way. We’ve seen a few good ones this year. I think there could well be more to come. The frustrating thing is many of them are choosing to go public in the U.S. rather than in Europe.”
Why Europe Has Fallen Behind?
McKinsey suggests that various underlying issues are to blame. For instance, more than a third of the start-ups globally during the last decade came from Europe but, firms with a valuation of over $1 billion — the so-called “unicorn” companies — were just 14% in the continent.
Fundraising and talent acquisition are some of the common hurdles start-ups encounter in their quest to jump over to the later stages of growth. European start-ups managed just to raise capital of about 8% and 13% in the “Series D” and “Series E” late-stages. Therefore, European start-ups tend to be more risk-averse when pursuing exit strategies when compared to their U.S. competitors who can raise large amounts of follow-up capital.
Everything Is Not Gloomy For The Continent
More than ever, many companies in Europe are heading towards an IPO. Darktrace cybersecurity firm and TransferWise money transfer platform are some of the potentials in this that Sifted, a European tech outlet, highlighted.
Sebastian Siemiatkowski, CEO of Klarna, said he admired Spotify’s unconventional direct listing route, but his fintech firm would conduct another listing before the next two years after raising funds that pushed its valuation to $10.6 billion.
SPAC (special purpose acquisition companies) is another listing approach that Europe failed to consider in 2020. Blank-check firms were used to publicly raise funds in the U.S. while Shanghai and Shenzhen also competed for Nasdaq-style boards in tech listings. Head of Nasdaq’s European listings Adam Kostyál advised Europe not to copy-paste but carefully evaluate SPACs in each market.
Chandratillake suggests that the region having more tech listings may make more investors and industry analysts follow fervently European tech stocks, thereby creating a “virtuous circle” of tech listings.” However, for Europe to generate multi-billion-dollar companies, firms need to go public and move from early-stage funding to late-stage funding.
An Index Ventures partner, Jan Hammer, is one of the optimistic tech investors about the region’s tech IPO prospects, noting that Denmark produced this year’s big IPOs — Unity video game software maker.