As the decade draws to a close, it offers an opportunity to reflect on the essential role public markets play in driving economic prosperity.
Although some will inevitably focus narrowly on the decline in global IPO activity across exchanges this year due to market uncertainty, London Stock Exchange has continued to enable companies to raise over £37.9 billion in new and further issues.
Looking back, that figure rises to £1.3 trillion of equity capital raised since 2000, demonstrating London Stock Exchange’s ongoing ability to provide access to deep and liquid pools of international capital to fund growth and create jobs.
One of the UK’s great strengths is the wide variety of finance available to companies, from traditional debt and equity platforms to newer platforms such as crowd-funding and peer-to-peer
lending. It is a significant UK achievement that we have this comprehensive funding environment in the UK but we need to further reinforce the benefits of equity finance, which, for many companies can be a more stable, long-term and diverse source of funding.
This capital, unlike debt finance, allows companies to fund innovation and growth without having to worry about costly repayments. Using equity capital, businesses can also incentivise employees through share award schemes and also fund acquisitions.
However, despite the variety of options, the vast majority of early stage finance for growing businesses still comes in the form of debt. Research by the British Business Bank indicates that a lack of awareness of funding options means that too many entrepreneurs are scaling back their ambitions instead of scaling up their businesses. It found that 56 per cent of SMEs are still not aware of venture capital, equity crowd-funding and angel investment and have not considered using equity finance.
Seven in ten said they would prefer to forgo growth rather than take on external finance. With small and medium sized enterprises (SMEs) accounting for 60 per cent of all private sector
employment and 50 per cent of all private sector turnover, this highlights the importance of supporting companies at all levels of the funding ladder.
London Stock Exchange’s AIM has long been at the forefront of this. AIM will celebrate its 25th anniversary in 2020 and it remains the world’s leading growth market. It has supported nearly 4,000 growth companies in raising over £115bn, 60 per cent of which has been through follow-on fundraisings.
Indeed, the ability for a company to be able to return to the market to raise further capital to fund future growth and development is one of the key benefits of a public listing.
Cultivating a greater emphasis on an inclusive ‘investment culture’, particularly for our young, growth companies that require capital should be further encouraged. To create such a culture, we must first celebrate the achievements of our SMEs and then allow people to truly join and benefit in their success through investment. Initiatives over the past decade have had positive impacts.
For example, the UK Government’s decision to allow AIM shares to be included in individual savings accounts (ISAs) back in 2013, saw £4bn in capital investment flow into high-growth companies, helping them to grow and innovate The subsequent removal of stamp duty for AIM shares the following year provided a further significant boost for these businesses.
But there is always more work to be done. Last month, London Stock Exchange announced a collaboration with Primary Bid to broaden retail investors’ access to IPOs and follow-on equity raisings. Through the collaboration, retail investors will be able to access capital raisings by London-listed issuers on the same terms as institutional investors. Alongside our Issuer Services marketplace, the agreement with Primary Bid is part of our ongoing commitment to broaden the services available to companies and their investors.
As we look ahead to 2020, and the beginning of a new decade, we should celebrate our public markets in the UK and the dynamic companies they support. Through London, investors can access the growth being created by companies from the UK and around the world.
Our public markets provide diverse global pools of international capital, funding innovation, economic growth and jobs.