Overcoming the European Tech IPO Challenge
Executive Summary – European Tech IPO Opportunity
1. Economic Disadvantage in IPO Market Capitalization
- Comparison: The total market cap of tech companies at IPO in the US is 11.6 times higher than in Europe.
- Impact: Europe has incurred significant economic losses due to companies opting for US listings.
2. Fragmented Capital Markets and Fewer Listings
- IPOs in Europe: 531 tech IPOs between 2015-2023.
- US IPOs: 1,498 tech IPOs during the same period.
- VC Funding: Europe receives only about 44% of the venture capital funding per GDP compared to the US.
3. Key Findings
- Tech IPOs: Europe's tech IPOs raised approximately 244 billion USD, while the US raised around 1,654 billion USD.
- Valuation: The average market cap of tech companies at IPO in the US is 2.2 billion USD, compared to 0.92 billion USD in Europe.
- Number of IPOs: Europe had 353 tech IPOs, while the US had 1,654.
4. Performance Comparison
- Post-IPO Performance: On average, US IPOs performed similarly to EU IPOs, though perception is often skewed by a few significant outliers.
- Outliers: Notable examples include Gorilla (-87%), Virax Biolabs (-88%), TC BioPharm (-89%), and Selina (-97%).
5. Economic Loss and Fragmentation
- Economic Loss: Europe suffered an estimated 439 billion USD in economic loss due to tech companies choosing US listings.
- Market Structure: Europe has 35 different listing exchanges, compared to just three in the US.
- Unified Market: A unified and standardized market could enhance transparency and attract more investors, leading to higher valuations and increased liquidity.
6. Root Causes
- Fragmentation: The lack of a centralized "European Tech company hub" and the fragmented nature of the market.
- Home Bias: Regional investors' preference for local companies, leading to dispersion across various exchanges.
Conclusion
- Solution: To overcome these challenges, Europe needs to consolidate its capital markets into a unified, standardized landscape. This would increase visibility, attract more investors, and ultimately lead to higher valuations and greater liquidity for tech IPOs.
