London to ease flotation rules for tech firms

THE GOVERNMENT yesterday proposed relaxing rules on fast-growing businesses to float on the London Stock Exchange (LSE), in an effort to prevent British technology firms fleeing to America.

Science minister David Willetts announced the plans at Google’s innovation hub in London, saying he wanted to reform rules on free float – the proportion of a company required to go public – on the LSE, as well as relaxing reporting requirements. The proposals, backed by Number 10, are designed to improve the environment for initial public offerings (IPOs) in the UK, and make the LSE compete with the Nasdaq index as a home for European startups.

Business leaders and venture capitalists welcomed the proposals yesterday, but warned the UK will remain a much harsher environment for technology IPOs than the US.

“It’s a welcome move but I would not emphasise its importance,” Balderton‚ÄąCapital’s Barry Maloney told City A.M. adding: “Investors need to be more educated about technology firms.”

Jos White, co-founder of venture capital fund Notion‚ÄąCapital, said London was still “desperately uncompetitive” and that while New York was “more comfortable with high growth,” there is “a culture problem in the City with investors liking to see performance in the here and now”. He said London needs “one or two successful tech IPOs” to encourage other firms to float.

The LSE is now due to consult on the proposals, returning its findings before the end of the year with the reforms being implemented early in 2013. Willetts said: “We’re determined to make sure that as many as possible should do an IPO and float in the UK, not elsewhere. “

Europe has seen a slowdown in IPOs over the past two years, with several technology firms deciding the Nasdaq index is a better option.

Willetts said the government was trying to create a British version of Barack Obama’s Jobs Act, which eased rules for small company IPOs.

Any changes must comply with the Financial Services Authority, due to report on a consultation next month.