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04.4

Tech IPOs

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Europe has produced more tech IPOs than the US every year over the period from 2016 onwards. On average, Europe has recorded about 3.6 tech IPOs per month since 2016 versus about 2.3 per month in the US. But the US is narrowing the gap.

Tech IPOs Per month


3.6
tech IPOs per month since 2016 in Europe on average

Number of tech IPOs by region

Legend

  • Europe
  • United States
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Europe has consistently produced three to five $1B+ tech IPOs per year. 2020 has been in line with this average with three $1B+ tech IPOs to date as of October 2020. By contrast, the US has had an incredibly strong year for $1B+ tech IPOs. With 20 $1B+ tech IPOs in 2020, the US is on track for a five-year high.

Number of tech IPOs with <$1B+, $1B+ and $5B+ market cap at IPO by region

Legend

  • 2016
  • 2017
  • 2018
  • 2019
  • 2020
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Three-quarters of all European tech IPOs involve small cap companies with a market cap of below $250M. These companies account for just one-third of US tech IPOs. Just 10% of European tech IPOs since 2016 have involved companies with a market cap of >$1B. By comparison, more than half (52%) of US tech IPOs had a market cap of >$1B after the first day of trading. Europe has had 21 $1B+ market cap IPOs since 2016 versus 71 in the US.

Share of total tech IPOs (%) by market cap group by region

Legend

  • <$250M
  • $250-500M
  • $500M-1B
  • $1-5B
  • $5-10B
  • $10-25B
  • $50-100B
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The profile of the average tech IPO varies dramatically in Europe compared the US, with European public markets open to companies of all sizes. As a consequence, an IPO is a viable alternative funding path in Europe for even very small companies with <$100M market cap. The difference between the average and median market cap of European and US tech IPOs is stark. While the median market cap of US tech companies that have listed since 2016 is $1.1B, the equivalent is just $42M in Europe. Looking at the mean, there is still a significant difference at $2.7B in the US versus $576M for European tech IPOs.

Mean and median market cap ($M) at IPO (close of first day trading) by region, 2016 to 2020

Legend

  • Europe
  • United States
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Number of European tech companies that went public via a reverse merger with a SPAC in 2020


1
Arrival, the commercial EV manufacturer, is going public via a reverse merger with CIIG Merger Corp with the transaction valuating the company at $5.4B. At time of publication, this remains the only SPAC involving a European tech company.

Across both regions, however, the average size of IPOs in both Europe and the US has been increasing over time. The huge delta between the mean and median for European tech IPOs underlines the massive spread in the scale of companies coming to market in Europe. In the US, the delta is narrower as there is much less variance in the scale of companies coming to market.

Mean and median market cap ($M) at IPO (close of first day trading) by region and by year

Legend

  • Europe
  • United States
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The combined market cap of the top five largest US tech IPOs exceeded $110B, more than 3.6x the value of the combined top five largest European tech IPOs. Looking at the top 10, the gap in value generated by these companies expands to 4.1x at $133B for the US versus $32B for Europe.

Aggregate market cap ($M) of top 5 and top 10 tech IPOs by region

Legend

  • Europe
  • United States
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

US Blockbuster IPOs


$110B
is the combined market cap of the top five largest US tech IPOs

Source:

Value Gap


3.6x
more than the value of the combined top five largest European tech IPOs

Source:

Europe's largest tech IPO was Allegro which closed on its first day of trading at a market cap of $19B. The largest tech IPO in the year was Snowflake, reaching $70B at the end of its first day of trading. Snowflake is valued at more than the top 10 European tech IPOs combined. In fact, the entire US top 10 companies all had a market cap far in excess of $1B; while there are just three in Europe. Europe's tech IPOs count a diverse set of companies - many coming from outside the 'mainstream' tech industry and where incentives for going public vary. On the other end, US tech IPOs are much more typically scaled through VC funding. As a consequence, there are a different set of incentives in terms of when a listing may make sense.

Top 10 largest tech IPOs by market cap at IPO ($B) in Europe and United States in 2020

Top 10 largest tech IPOs by market cap at IPO ($B) in Europe and United States in 2020

Legend

  • Europe
  • United States
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only. Market capitalisation at IPO is based on end of first day trading.

The average amount of proceeds raised at IPO has increased over the past five years in both Europe and the US. This reflects many factors, including the significant demand amongst public market investors to deploy capital and build their tech exposure. There is, once again, a huge spread between the mean and median average proceeds raised in Europe, reflecting the huge scale diversity in companies coming to market in the region.

Mean and median proceeds raised ($M) at IPO by region and by year

Legend

  • Europe
  • United States
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The IPOs of The Hut Group and Allegro represented 2020's most significant events in terms of public market activity for tech in Europe. These two IPOs alone raised a combined $4.8B in proceeds, equating to more than 70% of all proceeds raised by tech companies at IPO in Europe in 2020 to date. Snowflake's IPO in the US was an outlier across many vectors, including the massive amount raised in proceeds in its public listing. By raising $3.4B, it out-raised the next largest US tech IPO by a factor of 2.6x.

Top 10 largest tech IPOs by proceeds raised at IPO ($M) in Europe and United States in 2020

Top 10 largest tech IPOs by proceeds raised at IPO ($M) in Europe and United States in 2020

Legend

  • Europe
  • United States
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only. 2020 is based on data to October 2020

The majority of European tech IPOs involve companies that have not raised VC funding. There have been 57 VC-backed tech IPOs in Europe since 2016, equating to 27% of all tech IPOs. The funding background for the rest is varied: bootstrapped, high-net-worth investors, corporate funding, or private equity.

VC-backed tech IPOs


27%
of all tech IPOs

Number of VC-backed tech IPOs in Europe

Legend

  • VC-backed
  • Non-VC-backed
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

VC-backed tech IPOs account for a much greater share of the region's $1B+ tech IPOs. VC-backed companies accounted for 50% of all tech IPOs with a market cap >$1B, but only 22% of tech IPOs below $1B market cap. There are, notably, still many large cap tech IPOs in Europe that have not raised VC funding, including recent IPOs such as Allegro and Nexi.

Share of tech IPOs (%) in Europe with >$1B+ market cap that are VC-backed, 2016 to 2020

Legend

  • Non-VC-backed
  • VC-backed
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The different sources of funding a company takes on creates different sets of incentives around the timing and size of an IPO for its stakeholders. Simplistically, VC-backed companies are driven by investor incentives to maximise returns and therefore to exit at an increased scale. These incentives are not necessarily shared by companies that have bootstrapped or have shareholders with different return expectations. In any case, this is in some way reflected when looking at the average market cap of VC-backed tech IPOs, which are materially higher on both a mean and median basis.

Mean and median market cap ($M) of VC-backed tech IPOs in Europe, 2016 to 2020

Legend

  • Non-VC-backed
  • VC-backed
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The prevalence of VC-backed companies is important as they typically have a different growth profile. The aggregate market cap of VC-backed tech IPOs since 2016 on the first day of trading was $63B compared to $61B for non-VC-backed companies. Between their respective IPOs and 31 October 2020, however, VC-backed companies have added an additional $77B in market cap versus just $32B for non-VC-backed companies. This underlines the role that VC-backed tech companies play from a growth and value creation perspective.

Market cap ($B) at IPO and added post-IPO by VC-backed and non-VC backed tech IPOs, 2016 to 2020

Legend

  • Non-VC-backed
  • VC-backed
Note:
Excludes companies that have delisted since IPO. S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Value creation


$77B
added in market cap by VC-backed companies since their IPOs, over 2.3x more than non-VC-backed companies

Source:

This reveals hidden insights into the state of European tech capital markets. There are a large number of smaller IPOs in countries such as Italy and Poland - perhaps because the private capital markets for VC are not as well developed. Sweden also stands out; it has a flourishing VC investor base, but also very active public markets for smaller-cap tech IPOs. It is not surprising to see that the UK & Germany have produced the largest number of >$1B+ tech IPOs since 2016. More surprising is that Norway comes in third place.

Number of tech IPOs by market cap by country, 2016 to 2020

Legend

  • <$1B
  • >$1B
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Polish people are naturally very entrepreneurial which can be seen by the number of large private companies set up over the last 30 years (since transformation), of which some of the most well-known with a tech focus are CD Project, Allegro, Asseco group companies, Polsat group, Ten Square Games – all of these were once startups.

The venture ecosystem in Poland really kicked off about 6-7 years ago and is gathering momentum. Seed financing from angels and around 100 local micro VC funds is abundant. Grant and support possibilities for building out of R&D, as well as export and promotion via accelerators is booming. The establishment of software R&D centres by some of the largest global tech players in Poland some years ago (due to the skills of Polish software engineers who are ranked 3rd by HackerRank globally) has created a new cast of talented and high quality software developers with now global experience of building the software being used today by the global consumer. These engineers are now ready to venture out on their own and establish new companies. Some have already raised significant VC money for their projects, such as NoMagic.

The recent establishment of a local fund of funds, PFR Ventures, who have now invested in over 30 VCs, has also accelerated progress and availability of capital for early stage.

Kinga Stanisławska

Experior Venture Fund

General Partner and Founder