ICAEW.com works better with JavaScript enabled.

Tech the challenge

Author: Simon Olsen

Published: 26 Sep 2022

The UK still lags behind the US for tech IPOs. How can it become a more attractive base for tech firms looking to list? Deloitte corporate finance partner Simon Olsen explains

After a period of uncertainty for businesses deciding whether, when and where to list, we saw a surge in 2021 of tech initial public offerings (IPOs) in the UK. The London Stock Exchange has increasingly become a more attractive prospect for businesses looking to list in the UK, particularly given its deep investor base, the momentum for reform from the government and reputation for gold-standard governance.  

The UK Listings Review launched in 2020 as part of a wider plan to strengthen the UK’s position as a leading global financial centre. Reforms created as a result of the findings of this review have led to the removal of some of the hurdles for tech entrepreneurs. The swift movement by the Financial Conduct Authority to react to the recommendations of this review has created a more attractive environment for tech companies to list in the UK. 

Despite the improvements, some believe that London still has a way to go before it can close the competitive gap with the US. The US has long been the biggest and most attractive market for entrepreneurs wanting to list their companies, but the UK can look to bridge this disparity by continuing its momentum of reform and offering more support to bolster the growth of tech companies. 

Race for talent 

Earlier this year, Deloitte published the Future of the UK Tech Sector research. In it it explored what lies in store for technology listings in the UK and outlined some of the improvements and support needed to nurture this growth. One of the biggest areas of support required for tech companies is talent. They rely on skilled workers to innovate and grow, so access to talent in the UK is key to encouraging IPOs. Carving out a pathway for workers to the UK can attract more companies that are on the hunt for new pools of talent. This also creates a competitive advantage for firms looking to grow, as they’re able to recruit from across the EU and the UK. 

Attracting and retaining talent is critical for the UK technology sector. In Deloitte’s Technology Fast 50 report (published earlier this year), a survey of leaders of the UK’s fastest-growing firms cited access to talent as a significant competitive advantage. With the talent market red hot as organisations across all sectors hunt for the best workers, those working in technology may need to consider a move to distributed workforces, where recruits are hired regardless of whether they can commute to head office.  

Additionally, offering exciting, engaging and innovative roles for workers will attract a greater pool of talent, with more chance of retaining them if the jobs themselves are sustainable and interesting. 

Incentives to innovate 

The top Fast 50 firms in 2021 achieved scale and success through sustained innovation and research and development. In the most recent Spring Statement, former chancellor Rishi Sunak announced further improvements to research and development (R&D) tax reliefs, as well as promises to further improve R&D in the next budget. The UK government provides a range of incentives to support investment into R&D, offering funding into technologies such as cloud and data rewarded with tax relief, capital allowances and grants.  

As the UK works towards becoming a more attractive place for technology IPOs, incentivising innovation and making London a desirable regional hub for new tech entrepreneurs will play a crucial role. Tax reliefs on R&D have been relatively strong in the UK since 2018, but this must continue and most certainly could be increased. Investing in these incentives now will pave the way for greater growth and development in the sector in the future. 

Educate to accumulate 

Financial education is another important area that, if addressed properly, could encourage more listings and a greater cultural understanding of the market. However, the UK lags behind the US in terms of the number of citizens owning stocks and shares. Very few adults in the UK are educated on the stock exchange and even fewer know how to engage with it, leaving a large gap in investment.  

Financial education should be a priority to nurture an environment of growth and investment in the UK technology sector. Starting from schools, all the way up to workplaces, investment should be filtered into informing people of what the market is like, how to interact with it and what the benefits are. Greater financial literacy in the UK will lead to more organic investments and listings on the stock market. 

Get media savvy 

Investment into the infrastructure and culture around the UK’s investor market is a proactive way to make the London Stock Exchange more attractive. However, there are influences on investors far beyond gold-standard governance and tax incentives. The media also plays a role in how entrepreneurs perceive the IPO market and informs decisions on where to list. 

When positive coverage hits the UK papers, share prices soar and interest is piqued. On the opposite end of the scale, any negative or controversial news stories can make prices sink and deter any potential investors. Therefore, businesses must learn the importance of managing their brand’s reputation and the role that can play in achieving growth.There’s no quick fix.  

For the UK to become the biggest and best breeding ground for tech IPOs in the world, progress and investment must continue. According to our latest chief financial officer (CFO) survey, CFOs are optimistic about the medium-term prospects for investment and most expect business productivity, spending on skills and investment in digital technology and assets to speed up.  

In the next three years, the UK government’s role will be to nurture an investing environment for technology businesses by offering incentives for innovation, access to talent and improved financial education. Investment and reform now have the potential to create a highly competitive and attractive destination for more tech IPOs, which can be achieved while retaining London’s reputation for high levels of governance. 

None of this can be achieved overnight and sustainable improvements and investments should happen over time. The key for the UK market will be demonstrating a clear understanding of what listing companies are looking for and showing a genuine commitment to supporting the technology sector in the long term. 

About the author 

Simon Olsen, an equity capital markets partner at Deloitte. Recent IPOs he has worked on include Oxford Nanopore Technologies, PensionBee, Deliveroo, Vantage Towers and Helios Towers