The capital markets in the UK are not ready for growth in high-tech companies, according to John Newton, CTO and founder of open-source content management firm Alfresco.
In spite of efforts to introduce a new market segment for fast-growing companies in order to attract more technology IPOs, the London Stock Exchange (LSE) does not even come close to replicating the success of NASDAQ.
“AIM is a joke, I've seen so many people just lose their shirts on AIM. It's not the growth engine that NASDAQ is by any stretch of the imagination,” Newton told Techworld.
“All the investors just end up going to the US, whether it's the sovereign wealth funds, whether it's Chinese banks and all the money that they've got, whether it's the Far East or just the US in general, all the money gets concentrated in the US because the infrastructure's there, all the analysts are there.”
Despite being headquartered in the UK, Alfresco announced earlier this year that it had appointed former SuccessFactors president Doug Dennerline as its new CEO, in preparation for a forthcoming IPO in the US.
The company's executives said at the time that the best future for Alfresco and its investors was to continue to grow and to ultimately pursue an IPO on the NASDAQ stock exchange.
However, this had not always been the intention. Newton said the company did consider going public in the UK, and it might have happened if the conditions had been right. But a lot of the steps that the government has taken in the last few years have been backward steps.
“When the Labour government made the decision to cut Capital Gains tax, especially with taper relief, I thought finally there's an environment where we can have something that's very competitive relative to the US market,” he said.
“At that time, it really did make a difference, and venture capital in the UK and in Europe in general really started taking off. But then we just see the reintroduction of regulation, the changing of the Capital Gains Tax, and I think that's probably a bigger problem that needs to be faced.”
However, that does not mean that the LSE can never be a desirable destination for high-growth technology companies. Newton pointed to the New York Stock Exchange (NYSE), which has transformed itself into a high-growth market and recently surpassed NASDAQ in terms of new issues.
“What I've always believed is that the ability exists here, because the people and the experience exist, and people know what to do. It's just in terms of how to build companies, what are the right skills, they're just not organised in quite the right way to be able to take advantage of that,” he said.
Newton said that, while it's all very well for the government to be a cheerleader for high-tech growth, what's really required is public investment in UK and European companies. Just as we now buy British pork and beef, we should buy British software and technology.
“A lot of companies, including companies like Microsoft and Oracle, would not exist without US government investment, especially very early on. There would not be an Oracle without the US Air Force and the CIA.”
The government also needs to take a fresh look at entrenched regulations and labour employment laws, and do more to reinvigorate the venture capital investment to make it easier for companies to grow faster locally, rather than pushing capital elsewhere.
Alfresco is now looking ahead to its IPO in the US, which it hopes will boost its already significant share of the $5 billion content management industry. Newton said that going public will help to raise it's profile relative to larger players like EMC, IBM and Microsoft.
“The most significant marketing event any company can possibly ever have is to go public,” he said. “We are well overdue for a new wave of IPOs, especially of enterprise companies, so we're seeing conditions that have not existed in a long time.”
Many of these companies, such as Huddle, Box and Dropbox are in the cloud, but even standard enterprise software companies like Tableau, which has no cloud offering, has filed for a public offering, and is expecting to raise as much as $150 million.
“It's interesting how resilient content is as a sector. All of us in this particular area see a lot of investment from companies, knowing that no matter what, their information overload continues to grow unabated,” said Newton.
“The time is ripe. You cannot keep the American economy down, it will always rebound, and this is the sector that is rebounding.”