Earlier this week, media reports indicated some of the UK’s most well-known VC-backed businesses — including fintech app Revolut, energy company Octopus and Euan Blair’s Multiverse — are currently being courted to join a new private stock market.
The Private Intermittent Securities and Capital Exchange System, or Pisces as it’s known, is the London Stock Exchange’s attempt to keep British tech companies on UK soil, following a spate of underperforming IPOs and homegrown startups opting to float abroad.
Industry watchers tell Sifted they welcome attempts to unlock capital for the UK’s startup ecosystem. But some say the initiative doesn’t solve the underlying issues leading to the decline of the London Stock Exchange, which only a few years ago was expected to host many of Europe’s blockbuster IPOs. Others even argue Pisces could cause further problems by artificially inflating company valuations.
“Pisces is being pitched as a breakthrough, a way to unlock liquidity in the private markets without the full weight of an IPO,” says Carrie Osman, head of PE advisory firm Cruxy. “In theory, it could help fill the space between private fundraising and going public. But in reality, we have to be much more honest about the real risks this presents.
What is Pisces?
Pisces is a new type of stock market enabling the trading of private company shares. It’s designed to act as a bridge between private and public markets in an environment where companies are choosing to stay private for longer periods of time than previously.
It’s also part of a plan by the UK government to encourage companies founded in the UK to list in the country. In 2021, London recorded $23.4bn in public fundraising volume amid an uptick of listings in the UK capital.
But last year, only $1bn was raised from London’s public markets, pushing the UK capital to 20th place in a ranking of global IPO venues compiled by Bloomberg — behind Oman, Turkey and Malaysia.
It has faced further challenges this year. Fintech Wise recently announced plans to move its primary listing to New York, while senior figures at Monzo and Revolut are said to oppose a London float. And amid a wider slowing down in equities markets globally, companies have instead opted to raise via secondary share sales which see employees and longtime investors flog equity to investors.
Pisces is the UK government’s attempt to jump on the craze and open up the playing field for companies unable to conduct mammoth secondary share sales in the vein of Revolut.
“In the absence of IPOs, secondaries and late stage secondary tenders have become a really important tool in a founder’s kit,” says Matt Cooper, CEO of crowdfunding platform Crowdcube.
A new framework
Pisces is an entirely new framework for a platform that will be unique to the UK when it rolls out later this year. And as the first of its kind, the regime will undergo tests as part of a five-year regulatory sandbox, meaning a lot could change about the initiative.
Under current plans, access to the platform will be limited to institutional investors, high-net-worth individuals, sophisticated investors and employees of participating companies, meaning retail investors won’t be able to participate.
Consultations for the rules did not use public market standards as a “starting point” for designing the regulatory framework, according to a June policy disclosure by the Financial Conduct Authority. This means there will be less onerous disclosure requirements on trading shares on Pisces compared to UK public markets.
For instance, listing on Pisces will only require companies to release “core disclosure information”, which is expected to be less comprehensive than the prospectuses required before a public listing.
Some aspects of public market protections, such as key parts of the market abuse regime, will also not apply. The light-touch approach worries Cruxy’s Osman, who says it could “fuel FOMO-driven investing.”
“With less scrutiny, time-pressured auctions, and shares priced without full transparency, the danger is we end up inflating company values — or worse, completely mispricing them,” she says. “We’ve already seen how that plays out. Just look at Builder.ai.”
London-based Builder, once one of the UK’s most-hyped AI startups, filed for insolvency in May, despite having achieved unicorn status after raising more $400m in VC funding. The company subsequently faced accusations of financial mismanagement and claims some sales had been fabricated.
Sam Hields, a partner at early-stage VC firm OpenOcean, says there’s a “concerning parallel” between Pisces and SPACs — publicly traded shell companies created to acquire or merge with a private company, allowing that private company to become publicly listed without a traditional IPO.
Before market conditions, disappointing returns and valuations, and regulatory scrutiny eroded their popularity, SPACs were all the rage between 2020 and 2021.
“In a more buoyant market, we saw companies fast-tracked to public markets with limited maturity – will Pisces have the mechanisms in place to avoid similar risks?”, he asks.
Structural change
Both Hields and Osman argue deeper structural change is needed to unlock the growth the current Labour government is seeking, with Hields in particular citing the National Insurance hike for employers in the Autumn Budget as a counterweight for sowing the seeds of entrepreneurship in the UK.
“At the end of the day, it’s about incentives, and this might be one step forward after two steps back,” he says.
And at the moment it’s not clear if any of the UK’s brandname tech companies will list on Pisces.
A spokesperson for Atom Bank told Sifted: “For now, we’re learning more and therefore Atom’s CFO, Andrew Marshall, attended the event in London. It’s an interesting and welcome proposition but it’s not something we have – as yet – discussed at the Board.”
Revolut, Thought Machine and Octopus declined to comment further.
But not everyone is as downbeat about Pisces. Crowdcube’s Matt Cooper says it’s an example of the UK government at least attempting to fix the issues plaguing UK stock markets.
He also cites the upcoming Public Offer Platform regime (POP), which will make it easier for companies to raise substantial amounts of capital directly from the public.
“If we make the UK the best place to build and scale a private business — by opening up more sources of both retail and institutional capital — we stand a much better chance of keeping homegrown companies from fleeing elsewhere,” he says.
Read the orginal article: https://sifted.eu/articles/pisces-startup-exits/
