Go East, Young Venture-Backed Company

While it is currently easier for companies to go public in Europe (AIM has quickly become a default option for venture-backed firms), and Sarbanes-Oxley makes it irritatingly expensive to be public in the U.S., a London-based venture investor makes a strange argument to Reuters in favor of Euro IPOs:

“In the States, there are so many companies that trying to keep track of their names is hard enough, let alone which one is better than the other. What this means is that if a company goes public (in Europe) then it is easy to get a high profile.”

Yes, those darn Yanks with their plethora of startups, hotly competitive technology markets, and go-go entrepreneurs. Give me much more peaceful Europe any day. More time for tea without having to simultaneously study up on so many company names.

Related posts:

  1. The Death of Venture-Backed IPOs
  2. Zen and the Public Company
  3. Expensive CEOs at Venture-backed Companies
  4. VC-backed Company Exec Confuses Life with Gran Turismo
  5. Focused Funds and the Return of the Venture-Backed IPO

Comments

  1. Brent Buckner says:

    You’ve just emphasized the venture investor’s point.
    A winning company (i.e. one able to support an IPO) would rather face a less competitive product market. A (pre-IPO) investor in such a company would rather face less competition in the financial markets (i.e. supply of listings) when the winning company’s IPO is set to go. Perfectly competitive markets would be so darn antithetical to excess economic returns – best to stay as far away as possible.
    On the other hand, someone could suggest that the relative lack of European listings is associated with European equity markets assigning lower valuations. Whether or not that is true, I don’t know. Perhaps if you’d had such evidence you would have made that point ;-)

  2. Brent — I disagree. There is certainly economic data supporting the view that competitive home markets produce higher economic returns than do uncompetitive ones. Perhaps most famously, Michael Porter has written on the subject a number of times. The same is true for industries as well, with oligopolies often producing lower returns than many companies in more competitive businesses.
    It is short-term thinking to imagine that you can somehow have your competitive cake and eat it too, that you can have an uncrowded, large, and fast-growing home market. As I tell startups all the time, saying that you have no competition is tantamount to saying you have no market. The same is true for IPOs.
    Finally, to your point about relative IPO valuations, the AIM lags, and everyone knows that. It saw 335 IPOs in 2005, and those raised a total of $9.8-billion, or $29mm per company. There were 190 IPOs in the U.S. market in 2005 , and they raised $31.4 billion, or $165mm per company. Perhaps a fairer comparison would be U.S. venture-backed IPOs, and that came out at 41 companies last year, which raised $2.2-billion, or $54.6mm per company.
    To be fair to AIM, most venture folks who bring their companies there to list look at it as a funding event, not an exit. The idea, however, that an AIM IPO represents a real financial exit — which is the underlying point of the Reuters article to which I linked — is misguided.

  3. Brent Buckner says:

    Paul, your use of “home market” is more restrictive than my use of “product market”. The winners in a competitive home market may go on to success in exports, which reflects part of the product market space (here delineated geographically) being less competitive. The less competitive the export markets, the less competitive the overall product market. I agree that my analogy was working at the shorter term (where the definition of a market is relatively stable), which seemed suitable to the topic of an IPO (a one-time event).
    When you go on to state: “saying that you have no competition is tantamount to saying you have no market. The same is true for IPOs ….” you are close to making the case that the relative lack of European listings is associated with European equity markets assigning lower valuations.

  4. Shoot – when I saw the title I was expecting something about the right coast… not EUROPE! Go East Coast entrepreneurs!