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The writer is founder of Sifted, an FT-backed site about European start-ups
Europe boasts an impressive list of tech companies it has “lost” to US capital markets. From the UK, the chip designer Arm — which has shipped more than 250bn chips in its lifetime — chose to relist on the US Nasdaq last year. From Germany, the biotechnology company BioNTech, famous for its Covid vaccine, listed on Nasdaq in 2019. From Sweden, the popular music streaming service Spotify went public in 2018 on the New York Stock Exchange.
Since 2018, some 50 European tech companies have listed on US markets. As a result, according to a July report from McKinsey, Europe “lost” a total of $439bn of market value from 2015 to 2023, calculated as the capitalisation of the companies at the time of their initial public offerings and the subsequent increase in market worth. No wonder the clamour is rising for Europe to create its own Nasdaq as the next IPO season comes around.
In an open letter this week, a group of European stock exchanges — including Euronext and Deutsche Börse — and start-up associations urged the EU to complete the capital markets union, which it has been discussing for a decade. “Open, well-functioning, and integrated European capital markets are crucial to promote the single market,” they wrote. Such markets would help boost the EU’s competitiveness, innovation, sustainable growth and job creation, they claimed.
At present, the EU boasts 35 listing exchanges and 18 central clearing houses, compared with three and one respectively in the US. Yet the EU accounts for just 11 per cent of global stock market capitalisation; the US represents 43 per cent. The next European tech IPOs are likely to include several high-growth companies such as Vinted, Bolt, Klarna, Northvolt and Celonis. Many seem destined for the US.
Some financiers dismiss the obsession with location. Even if they have a US listing, European companies usually retain a big presence in their home market and enjoy access in the US to cheaper capital, deeper liquidity and more tech-savvy shareholders. Capital is fungible and does not carry a flag. Where’s the problem?
The trouble is that the corporate flight reflects a bigger structural problem: Europe’s weakness in providing later-stage growth capital. When this forces the most promising tech companies to move abroad, Europe risks losing out on the jobs, patents, tax payments and economic returns they generate. Moreover, US venture capital funds and Canadian pension funds are often more active late-stage investors in Europe than European institutions themselves.
Clark Parsons, the American chief executive of the European Startup Network, which supported the open letter, says it is frustrating that Californian and Canadian pensioners are often bigger beneficiaries of European innovation than European pensioners. “Why is a bigger market and population so completely dependent on capital markets from across the ocean?” he asks.
A recent IMF paper argued that the EU should actively promote more VC-financed investment in innovative start-ups, reducing its dependence on bank finance. That would result in both direct growth benefits and positive spillover effects. Between 2013 and 2023, VC funds in the EU raised just $130bn compared with $924bn in the US.
Much of the wiring for a more dynamic economy is already in place. Over the past decade, Europe has created a vibrant start-up community. The region is teeming with entrepreneurs determined to put a dent in the universe. Though small, European VC funds have also generated higher returns than their US counterparts over the past 10 years, according to Cambridge Associates.
Rhetorically at least, EU leaders are promising to complete the capital markets union. Ursula von der Leyen has made it a priority for her second term as EU commission president. Italy’s former prime minister Mario Draghi is also expected to back the idea when he presents his final competitiveness report on Europe next week. But leaders of several EU countries, including France and Germany, are under mounting pressure from nationalists at home and may have little appetite for bold European initiatives.
Parsons suggests that now is the time to pursue a Flucht nach vorn (forward flight) to tackle the EU’s competitiveness problem. The EU should waive its competition rules and promote stock market consolidation, helping create a European Nasdaq. Sadly, Europe has grown used to the sound of opportunities whizzing by. It cannot afford to miss any more if it wants to reassert its technological and geopolitical relevance.
