Regulators and market-watchers suggest this problem is worse in the UK than in other mature markets. The US is seen as a more popular destination for tech companies and biotechs to list: for some investors, a Stateside listing is even treated as a kitemark, the absence of which calls into question a company's growth prospects.
The UK is a "science superpower", but is failing to commercialise this expertise, according to MP George Freeman, who chairs the prime minister's policy board. Speaking to my colleague Megan Boxall in November, Mr Freeman said this commercialisation would be improved if there was a better relationship between the investor community and the scientific community.
The London Stock Exchange has a role to play, for example, in promoting positive case studies, according to Marcus Stuttard, its head of UK primary markets. He cites the growing sector of IP commercialisation vehicles, such as IP Group (IPO) and Touchstone Innovations (IVO) (formerly known as Imperial Innovations). Soon to join is healthcare specialist investor Arix Biosicence, which hopes to raise £100m in gross proceeds in a Main Market float set for 22 February.
Improving the efficacy of primary markets for all companies, early-stage or otherwise, is a task which falls to the Financial Conduct Authority (FCA). Following its work last year on competition in the IPO market, the regulator this week issued both a consultation and a discussion paper on how to improve the listing regime and regulatory landscape for those coming to market.
The consultation contains tweaks to the current approach, particularly those issuers seeking a premium listing. This requires a higher level of corporate governance and shareholder approval for substantial transactions - higher standards that are intended to lower constituents' cost of capital.
The FCA plans to redraft the premium listing rules to make them easier to understand, with new accompanying guidance, and intends to allow certain property companies - which lack an earnings track record - to provide a property valuation instead. It also suggests tweaking the 'class tests' that determine for premium-listed companies whether a transaction or other event needs to be put to a shareholder vote. Elsewhere, changes to the information assumptions around reverse takeovers could mean fewer market suspensions.
The discussion paper suggests more fundamental considerations such as whether listing requirements could be made more attractive to overseas companies, or whether the current requirement that exchange-traded funds apply for a premium listing is too onerous. The standard/premium split is up for discussion, too. And the FCA is asking whether the premium listing should be opened up to dual class share structures, which are popular with early-stage companies seeking protection from short-term market swings, but less popular from a corporate governance perspective.
Finally, the regulator wants to open up debt markets for the retail investor, perhaps by reforming the prospectus regime. The criticism here is that companies are choosing to stick with institutional investors rather than going through the rigmarole of reformatting documentation for retail investors. "The feedback clearly suggests market polarisation is in part a consequence of our guidance," says the paper. One option is to allow the same information to be provided to both audiences.
Such proposals are fairly dry, but could be very important. If hurdles to companies' equity issuance can be removed without pushing the risk dial too high for private investors, both groups can benefit.
