Time for the UK to back entrepreneurs with listing reforms

The writer is co-founder and executive chairman of firstminute capital, Founders Forum and Founders Factory. 

For entrepreneurs, it is not hard to see why a proposed shake-up of UK rules for listed companies is long overdue.

A review, carried out by former EU financial services commissioner Lord Jonathan Hill, has recommended reforms so that London can better compete against rivals in New York and Europe. The changes are much needed.

Take my experience in the UK tech sector for evidence, particularly from leading a rollercoaster initial public offering precisely at the point when the 2000 dotcom bubble burst. Lastminute.com was one of the first companies to float after listings requirements for the tech sector were relaxed.

This enabled a tiny company with hefty losses to go public just 18 months after launch. Our stock went down 95 per cent after the bubble burst, so why would I encourage more tech companies to go public? Why should the listing rules make it easier? 

For us, it provided a capital war chest to counter the might of the well-funded public US giants and created a leading pan-European player. It gave Lastminute both the currency to buy ecommerce companies in Europe and the credibility with customers at a time when buying online was scary. So despite the pain, I would still have done it. We pulled through and sold for more than $1bn.  

There are now reports that another company I co-founded, made.com, is considering a UK market listing. I do not want to confirm or deny that now. But an IPO could give it added firepower for international expansion and liquidity for early investors while marking another success story for Europe. 

In this particular case, the Hill review’s proposals to allow so-called dual-class shares that have different voting rights would not be necessary. However, I am still in favour of them: a rising tide lifts all boats. The revisions will enable London to win more tech listings, creating a virtuous circle of more tech IPOs, stronger tech analysts, an increase in capital and a richer job market. 

There is no doubt that London has lost listings due to a lack of dual-class share structures that protect control of company founders. I have spoken to founders who chose New York listings due to this exact issue.

It has worked well in the US. Look at the likes of Google, Facebook, Amazon, LinkedIn and Snap: the founders could think longer term and worry less about quarterly bumps; shareholders were rewarded strongly. In the UK, the Hut Group has forged the way successfully despite its dual-class shares.

UK institutional shareholder resistance to the proposals for time-limited dual class structures is myopic. Many shareholders have short-term horizons. The success of the public US tech companies is, in part, due to the founders’ confidence that small missteps in executing their vision will not cost them their job.

A shareholder of less than 0.5 per cent tried to get me ousted as lastminute.com chief executive in 2004. A year later, the share price soared, and we exited successfully. Had he been able to fire me, history would have been quite different.

Equally, with stronger founder protections, I may have devoted more resources to areas such as food delivery: we were one of the first two companies in Europe to offer restaurant food delivery but faced short-term market resistance to focusing on it. Deliveroo and Takeaway.com have shown this path, and the former’s imminent public listing is an excellent signal for the UK.

Another change proposed by Hill is that companies should be able to float with a smaller percentage of shares that can be freely traded than the current 25 per cent minimum. This is sensible — it seems counter-intuitive to force larger exits. We want more quality companies to go public.

The listings review also challenges the resistance towards London listings of so-called special purpose acquisition companies. Like tech stocks, many of these shell companies will prove overvalued and some massively undervalued. However, it’s too big a phenomenon to ignore. Spacs create a way for the public to buy into a new generation of tech companies earlier than the traditional IPO route.

Post-Brexit London needs to lead Europe in its attractiveness to both capital and, more importantly, technology leaders. Too many leading UK companies have chosen to list on the US markets. Exchanges across the world have adjusted their rules in a global fight for tech stars, and we need London to stay Europe’s magnet for tech talent and capital. Trusting the best founders to deliver for their investors in the public markets should unlock more value for the UK economy.