‘A very problematic market’: As Arm shuns London, tech investors question UK as an IPO destination
Billionaire Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., speaks in front of a screen displaying the ARM Holdings logo during a news conference in Tokyo on July 28, 2016.
Tomohiro Ohsumi | Bloomberg | Getty Images
The U.K. may be a great place to build a tech company — but when it comes to taking the crucial step of floating your business, the picture isn’t so rosy.
That’s the lesson several high-growth tech businesses have come to learn in London.
When Deliveroo went public in 2021, at the height of a pandemic-driven boom in food delivery, the company’s stock quickly tanked 30%.
Investors largely blamed the legally uncertain nature of Deliveroo’s business — the company relies on couriers on gig contracts to deliver meals and groceries to customers. That has been the subject of concern as these workers look to gain recognition as staffers with a minimum wage and other benefits.
But to many tech investors, there was another, much more systemic, reason at play — and it’s been cited as a factor behind chip design giant Arm’s decision to shun a listing in the U.K. in favor of a market debut in the U.S.
The institutional investors that dominate the London market lack a good understanding of tech, according to several venture capitalists.
“It’s not the exchange, it’s the people who trade on the exchange,” Hussein Kanji, founding partner at London VC firm Hoxton Ventures, told CNBC. “I think they’re looking for dividend-yielding stocks, not looking for high-growth stocks.”
“Two years ago, you could have said, you know what, it might be different, or just take a chance. Now a bunch of people have taken a chance and the answers have come back. It’s not the right decision.”
Numerous tech firms listed on the London Stock Exchange in 2021, in moves that buoyed investor hopes for more major tech names to start appearing in the blue-chip FTSE 100 benchmark.
However, firms that have taken this route have seen their shares punished as a result. Since Deliveroo’s March 2021 IPO, the firm’s stock has plummeted dramatically, slumping over 70% from the £3.90 it priced its shares at.
Wise, the U.K. money transfer business, has fallen more than 40% since its 2021 direct listing.
There have been some outliers, such as cybersecurity firm Darktrace, whose stock has climbed nearly 16% from its listing price.
However, the broad consensus is that London is failing to attract some of the massive tech companies that have become household names on major U.S. stock indexes like the Nasdaq — and with Arm opting to make its debut in the U.S. rather than the U.K., some fear that this trend may continue.
“It’s a known fact that London is a very problematic market,” Harry Nelis, general partner at VC firm Accel, told CNBC.
“London is creating, and the U.K. is creating, globally important businesses — Arm is a globally important business. The issue is that the London capital market is not efficient, essentially.”
A London Stock Exchange spokesperson told CNBC: “Arm is a great British company and a world leader in their field which we continue to believe can be very well served by the U.K. capital markets.”
“The announcement demonstrates the need for the U.K. to make rapid progress in its regulatory and market reform agenda, including addressing the amount of risk capital available to drive growth. We are working with regulators, Government and wider market participants to ensure U.K. capital markets provide the best possible funding environment for U.K. and global companies.”
The ‘B’ word
Brexit, too, has clouded the outlook for tech listings.
Funds raised by companies listing in London plunged by more than 90% in 2022, according to research from KPMG, with the market cooling due to slowing economic growth, rising interest rates, and wariness around the performance of British firms.
Previously-published figures for the first nine months of 2022 place the fall in European funds raised at between 76% and 80% annually, indicating a less severe decline than the U.K.’s 93%.
Hermann Hauser, who was instrumental in the development of the first Arm processor, blamed the firm’s decision to list in the U.S. rather than U.K. on Brexit “idiocy.”
“The fact is that New York of course is a much deeper market than London, partially because of the Brexit idiocy the image of London has suffered a lot in the international community,” he told the BBC.
Cambridge-headquartered Arm is often referred to as the “crown jewel” of U.K. tech. Its chip architectures are used in 95% of the world’s smartphones.
SoftBank, which acquired Arm for $32 billion in 2016, is now looking to float the company in New York after failing to sell it to U.S. chip-making giant Nvidia for $40 billion.
Despite three British prime ministers lobbying for it to list in London, Arm has opted to pursue a U.S. stock market listing. Last week it registered confidentially for a U.S. stock market listing.
Developing research and development for cutting-edge chips is a costly endeavor, and Japan’s SoftBank is hoping to recoup its seismic investment in Arm through the listing.
Arm is expecting to fetch roughly $8 billion in proceeds and a valuation of between $30 billion and $70 billion, Reuters reported, citing people familiar with the matter.
Arm has said it would like to eventually pursue a secondary listing, where it lists its shares in the U.K. following a U.S. listing.
Is an IPO everything?
Still, regulators have sought to attract tech companies to the U.K. market.
In December, the government rolled out a set of reforms aimed at enticing high-growth tech firms. Measures included allowing firms to issue dual-class shares — which are attractive to founders as they grant them more control over their business — on the main market.
Last week, the Financial Conduct Authority also proposed simplifying the standard and premium equity listing segments as one single category for shares in commercial companies.
This would remove eligibility requirements that can deter early-stage firms, allow for more dual-class share structures, and remove mandatory shareholder votes on acquisitions, the regulator said.
Despite the negative implications of Arm’s decision, investors largely remain upbeat about London’s prospects as a global tech hub.
“Fortunately for us, it doesn’t mean that the UK is not attractive to investors,” Nelis told CNBC. “It just means that where you IPO is just a financing event. It’s just a place, a venue where you get more money to grow.”
Omada Health smart devices in use.
Courtesy: Omada Health
Virtual care company Omada Health filed for an IPO on Friday, the latest digital health company that’s signaled its intent to hit the public markets despite a turbulent economy.
Founded in 2012, Omada offers virtual care programs to support patients with chronic conditions like prediabetes, diabetes and hypertension. The company describes its approach as a “between-visit care model” that is complementary to the broader health-care ecosystem, according to its prospectus.
Revenue increased 57% in the first quarter to $55 million, up from $35.1 million during the same period last year, the filing said. The San Francisco-based company generated $169.8 million in revenue during 2024, up 38% from $122.8 million the previous year.
Omada’s net loss narrowed to $9.4 million during its first quarter from $19 million during the same period last year. It reported a net loss of $47.1 million in 2024, compared to a $67.5 million net loss during 2023.
The IPO market has been largely dormant across the tech sector for the past three years, and within digital health, it’s been almost completely dead. After President Donald Trump announced a sweeping tariff policy that plunged U.S. markets into turmoil last month, taking a company public is an even riskier endeavor. Online lender Klarna delayed its long-anticipated IPO, as did ticket marketplace StubHub.
But Omada Health isn’t the first digital health company to file for its public market debut this year. Virtual physical therapy startup Hinge Health filed its prospectus in March, and provided an update with its first-quarter earnings on Monday, a signal to investors that it’s looking to forge ahead.
Omada contracts with employers, and the company said it works with more than 2,000 customers and supports 679,000 members as of March 31. More than 156 million Americans suffer from at least one chronic condition, so there is a significant market opportunity, according to the company’s filing.
In 2022, Omada announced a $192 million funding round that pushed its valuation above $1 billion. U.S. Venture Partners, Andreessen Horowitz and Fidelity’s FMR LLC are the largest outside shareholders in the company, each owning between 9% and 10% of the stock.
“To our prospective shareholders, thank you for learning more about Omada. I invite you join our journey,” Omada co-founder and CEO Sean Duffy said in the filing. “In front of us is a unique chance to build a promising and successful business while truly changing lives.”
WATCH: The IPO market is likely to pick up near Labor Day, says FirstMark’s Rick Heitzmann
Technology
Google would need to shift up to 2,000 employees for antitrust remedies, search head says
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway