Chasing unicorns

London must pick up the pace in tech float race

Lyft has already floated. Both Pinterest and Zoom made successful debuts on the market this week. Uber, by far the biggest of them all, is not far behind, and there may well be at least half a dozen more before the summer is over. In New York, the tech “unicorns” are starting to list their shares in big numbers, minting fortunes for their founders and kick-starting the internet and app economy in the process.

But hold on. What is happening in the one financial centre that is meant to be Wall Street’s great rival and closest competitor? Not very much. The City of London has seen one significant tech float in the last few months, but nothing like New York. That needs to change, and fast. Why? Because the investor appetite is clearly there, because the markets are bullish, and most of all because it needs to demonstrate that beyond that chaos around our departure from the European Union, the British capital is still a major financial centre.

In truth, London needs to jump on the tech IPO bandwagon before it is too late. There is still plenty of debate around the massively valuable internet start-ups that have emerged over the past few years. They rely too much on cheap venture capital funding. Their business models are flimsy. Any profits they make will be competed away, and they don’t meet any traditional standards of corporate governance. Those are all valid questions. But this week we learnt something important. Investors are willing to look past all of that and buy into the potential for growth

instead. Shares in Pinterest, the social media app, shot up by 28pc on its first day of trading, valuing the whole company at $16bn (£12.3bn). Zoom Video Communications was even more successful, with its shares rising by 72pc on their debut, valuing that business at $18bn.

The success of both companies has gone some way to making up for the disappointing performance of Lyft, the ride-sharing app that made its debut last month, and which has seen its shares drop almost 20pc below its issue price. And it sets up the American market for the big one – the listing of Uber, which, with a value expected to top $100bn, will be one of the largest ever new issues.

In this country, we saw the IPO of the fintech company Funding Circle back in October, but as it happened that wasn’t a great success, and the shares are still below the issue price. Just Eat and Zoopla floated way back in 2014. Other than that, there have been very few. That needs to change, for three reasons.

First, while results are inevitably mixed, the investor appetite is clearly there. Sure, there are questions about business models, profitability and governance. That said, investors also want to buy into the next Amazon.

Next, in case anyone hadn’t noticed, it’s a bull market. The S&P 500 and the Nasdaq are close to regaining their all-time highs. So is the FTSE 100. It is a challenge to list a new company at the best of times, especially one that doesn’t make money. But if the bull market ends, you can forget about it.

Finally, the City needs to demonstrate that despite Brexit it is still a major capital centre. It needs to start showing it can lift its horizons above the obsession with Brexit.

It is not like the UK has a shortage of major tech start-ups. We have more than sixty tech unicorns – that is, start-ups with a value of more than $1bn – across the country, according to figures from Tech Nation and the Government’s Digital Start-up Council. Of those, 36 are in London. That is more than any other city in Europe. Indeed, Oxford and Cambridge between them have more than either Paris or Berlin. A few such as the food delivery company Deliveroo, the digital bank Monzo or the payments company Transferwise could well be worth billions.

The summer and perhaps the autumn of 2019 will be the window for big tech floats. But it won’t remain open forever, and might well be closed by the time next winter comes around. The City needs to stop dithering, and persuade those entrepreneurs that now is the time for a successful float, and, if it happens, and fund managers need to make sure the demand is there to support that – because if they don’t London risks ceding leadership in global finance to New York.

‘Investors are willing to look past all the negatives and buy into the potential for growth’