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London calling: A wave of U.K. tech IPOs aims to disrupt an underperforming stock market

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The U.K. is seeing a blitz of IPOs from promising tech startups, and more are in the pipeline, a trend that could transform the staid image of London’s old-economy–heavy stock market.

For years, wave upon wave of the globe’s hottest tech firms went public in Hong Kong, New York, and Frankfurt, leaving London feeling a little left out of the action. That relative lack of tech DNA really hurt a year ago when so-called stay-at-home tech stocks drove an epic global bull rally. London missed out on most of it.

But now, the tables are turning in the famed financial capital that is London’s Square Mile.

“I predicted at the start of the year that this would be a bonanza year for tech IPOs, and I think it will signal a golden decade for the U.K. technology industry and public listings in London as the natural destination for technology and Internet consumer companies,” Stephen Kelly, chair of Tech Nation, a U.K. body that provides coaching and other support to help tech startups grow, told Fortune.

Darktrace, which uses artificial intelligence to fight cyber threats, is the latest. It said Monday it planned to float on the London Stock Exchange (LSE) in a deal seen to value the company, based in Cambridge, England, at up to $5 billion.

Next up is online pensions provider PensionBee. It expects an initial market capitalization of up to $530 million when it lists on the LSE this month.

Further out, Oxford Nanopore Technologies, which has developed a handheld DNA sequencing device that can be used to track new coronavirus variants, has said it expects to float in London in the second half of this year.

And payments group Wise, valued at more than $5 billion, is reported to be considering an unusual direct listing on the LSE later this year. In a direct listing, a company joins the market without raising new capital.

Wooing unicorns

The emergence of a thriving tech scene in the U.K. partly reflects efforts over the past 10 to 15 years to nurture startups through measures such as tax incentives for investors, inventors, and entrepreneurs, said Kelly, whose career has included stints as CEO at U.S. software firm Chordiant and U.K. software companies Sage and Micro Focus.

Another factor was the boom in the venture capital community, with VC firms such as California-based Sequoia Capital, an early investor in [hotlink]Apple[/hotlink] and [hotlink]Google[/hotlink], setting up shop in London, he said.

There’s certainly plenty of money washing around London’s financial district. U.K. stock market listings raised more funds in the first quarter of 2021 than in any other opening quarter since 2007, consultants EY said Monday.

Some 5.6 billion pounds ($7.7 billion) were raised in the first quarter from 12 IPOs on the main London market and eight IPOs on the Alternative Investment Market (AIM) for smaller companies. That constituted more than half the 9.4 billion pounds ($12.9 billion) raised in the whole of 2020, [hotlink]EY[/hotlink] said.

“With an effective vaccine rollout underway, momentum and confidence in the U.K. IPO market should continue to build,” said Scott McCubbin, a partner at EY.

Issuers were not deterred last month by the flop of one of London’s highest-profile IPOs in years, when meal delivery firm Deliveroo’s shares slumped by as much as 30% on the first day of trading from its initial valuation of $10.5 billion.

London overlooked

British investors lament the lack of homegrown tech champions like [hotlink]Microsoft[/hotlink], Facebook, Apple, and Google that have driven spectacular stock market gains in the U.S.

Their absence is one of the reasons why the U.K. is currently the world’s cheapest major stock market.

The FTSE 100 index of the biggest U.K.-listed stocks, which is heavy on old-economy stalwarts like oil and mining companies and banks, is still 10% below its pre-pandemic peak of last year, despite the Brexit and COVID clouds over the U.K. economy starting to clear.

That compares with the S&P 500, up 22% from its pre-COVID peak of last year, and the tech-heavy [hotlink]Nasdaq[/hotlink], up more than 40%.

Light on tech

There are only about half a dozen tech companies on the FTSE 100, including software companies Sage and Aveva. Around 190 tech firms are listed in London in all, mainly on the AIM, the smaller companies’ market, which, in contrast with the weightier FTSE, is up 28% from its pre-pandemic 2020 high.

Tech Nation’s Kelly believes the London stock market’s old-economy image is set to change, pointing out that the U.K. now has more than 80 unicorns—startups that have achieved a coveted $1 billion valuation—more than Germany and France combined.

“With all the hard work that’s been put in over the last 15 years to create these incredible unicorn companies as market leaders in their sectors…I do think it bodes very well to actually transform the FTSE into a very modern new-economy exchange,” he said.

Seven U.K. companies gained unicorn status in 2020, including Hopin, a virtual events platform, electric van startup Arrival, and online used car marketplace Cazoo, according to a report last month from Tech Nation, which receives a mix of government and private funding.

Venture capital investment in U.K. tech, at $15 billion, was the third highest in the world in 2020, the report said, although that amount represented only a third of China’s, in second place, and around a tenth that of VC investment in the U.S. Fintech is a particular U.K. strength, with other companies involved in artificial intelligence, health tech, and educational tech, or edtech.

Kelly said Britain’s departure from the European Union, which became final at the end of last year, had had very little impact on the country’s tech sector, and in his regular conversations with entrepreneurs since then, “Brexit hasn’t even been a topic of conversation.”

The flurry of new London listings are part of a worldwide IPO boom driven by high valuations and a flood of liquidity. At the same time, COVID-related lockdowns have accelerated the transition to a digital economy, fueling investor interest in tech firms.

Other newcomers to the U.K. market this year include Danish online review site Trustpilot, which achieved a $1.5 billion valuation when it listed in London last month, and online greeting card firm Moonpig, whose shares have risen by 27% since its February IPO to give it a valuation of more than $2 billion.

Shares in e-commerce company the Hut Group surged 30% on their first day of trading in London last September and have risen further since, giving the company a market cap now of $9.4 billion.

Losing big names to the Big Apple

The listings bring a much-needed infusion of new blood to the London market and will be a relief to U.K. policymakers concerned that some of the country’s most exciting tech startups are opting to list in New York.

Britain last month unveiled proposals for a shake-up of listing rules to make London a more attractive venue for offerings of shares in tech companies and for the red-hot market in blank-check companies.

Despite that, London-based electric vehicle startup Arrival debuted on the Nasdaq last month with an initial valuation of $13.5 billion after merging with a blank-check company, or SPAC, becoming the latest EV company to achieve a sky-high rating.

Online used car marketplace Cazoo plans a similar path, merging with a U.S. blank-check company in a deal valuing the firm at $7 billion and gaining a listing on the New York Stock Exchange.

And in the biggest blow to British prestige, Vaccitech, the Oxford University spinout behind AstraZeneca’s COVID vaccine, said last week it planned to list on the Nasdaq.

These newly minted public companies have emerged from the U.K.’s thriving startup scene. East London Tech City, also known as Silicon Roundabout, near London’s financial district, is a fintech hotbed. Investors are closely following the fortunes of three U.K. digital challengers to the traditional banks—Revolut, Monzo, and Starling—but they have yet to announce firm IPO plans.

Meanwhile, spinouts from research at leading universities such as Cambridge, Oxford, and Bristol have produced many technological breakthroughs, including the Oxford-AstraZeneca COVID vaccine.

The thriving Cambridge Science Park comprises 1.7 million square feet of high-tech and laboratory buildings and is home to 7,000 people at over 130 companies.

Growing promising tech companies in the U.K., and keeping them under British ownership, though, has proved a step too far. One of the most successful U.K. tech companies, chip designer ARM, was sold to Japan’s SoftBank for $32 billion in 2016. California-based Nvidia agreed last year to buy ARM from SoftBank for $40 billion, although the U.K. competition watchdog has launched a probe into the deal.

To grow into tech giants, U.K. firms need to focus on the long term and on becoming global market leaders, Kelly said. He has seen a change in mentality from a decade ago, when owners of U.K. tech firms were focused on the “exit”—selling out.

“Personally, I think we should ban that word, because it just encourages short-termism,” he said. “And we want boards to really focus on, ‘How do we become market leaders around the world? Not just in the U.K. but global market leaders?’”

Correction, April 15, 2021: This post has been updated to include a revised table of London-based tech IPOs.

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This story was originally featured on Fortune.com