NASDAQ’s well publicised woes surrounding the Facebook float have once again raised questions over its role as the leading venue for technology IPOs. The technical failures that compounded the already troubled listing are sure to sow significant seeds of doubt in the minds of any entrepreneur or investor looking towards a public exit in the coming months and years.
However, if one casts doubt on NASDAQ as the market of choice for Internet businesses, it then raises the question of where else they’re supposed to go? Back in 2000 there were 75 technology floats in London but more recently there has been precious little activity in this space aside from emerging market operations such as Mail.ru. NASDAQ, meanwhile, has been at the heart of the current Internet listings boom, with LinkedIn, GroupOn and Facebook all choosing the exchange for their public debuts.
Why has the situation come about? I think I can offer some insight having been a part of the last major Internet business to float in London, Betfair. I was involved in the company since its inception (but not since the IPO) and so I have perhaps been watching it a little closer than I might normally have.
It’s true to say that the listing has been a massive disappointment, partly due to the company’s handling of the process and its subsequent performance, but also in large part because of the cynicism and lack of understanding of the business from the wider investor base. With the benefit of hindsight, it’s clear that a NASDAQ listing would have served the company far better, despite not generating a cent of US revenues.
The difference between the two markets seems to me to be the attitude of investors on each side of the pond. US investors are far more comfortable with looking at the future potential of businesses, are less cynical and tend to look more at the upside when it comes to the Internet. It seems to me that UK investors are inherently sceptical, focused on the downside and, in many cases, struggle to understand the growth potential of many internet businesses.
There are other arguments to explain the difference between New York and London. Some argue that the UK doesn’t have the infrastructure to support world-leading technology businesses, but there’s certainly and vibrant internet scene supported by a host of government incentives intended to make it more attractive for investors. Others would argue that a junior exchange like Techmark is the real comparator to NASDAQ, not the LSE, and indeed Techmark has outperformed its US counterpart since 2003. However, this is ignoring the very real disparity of scale between the two exchanges – it’s like comparing Wigan Athletic to Manchester United.
Some would argue that London is merely taking a sensible stance on the issue – that the recent NASDAQ IPOs reflect nothing more than another 2000-style bubble. I think that is fundamentally the wrong perception. US investors are looking for growth, and in the current economic environment growth is hard to come by. Many of the recent internet IPOs are demonstrating how these businesses are shifting the dynamic and delivering extraordinary growth that only a few companies can dream of.
It feels like UK and US investors are at both ends of the spectrum when it comes to perceptions of internet IPOs. Whilst the Facebook debacle may have dented enthusiasm for further listings in the short term, US markets fundamentally “get” the web, whilst the UK seems to actively reject it. I’d argue that the “true value and potential” of these businesses lies somewhere near the middle, and I feel that the UK public markets need to shift from their entrenched objections towards this more realistic middle ground.
I want London to succeed as a viable alternative to NASDAQ, but I fear the gap is widening in terms of credibility as time marches on. As a Venture Capitalist in London, we are helping to build some great internet and software businesses and I would hope that one option for an exit would be via a FTSE listing. However, unless attitudes, structures and investor appetite change, I fear it will be a long time until we see London rise as a true competitor to NASDAQ.