This Week in European Tech: Can the UK unlock more capital?

0:00Before we start, five weeks from now, Love Tomorrow Summit takes place at Tomorrowland. Take a look at your screen right now, because there is something amazing in which you're having right now. EUVC is on stage, keynotes on Thursday at the Rose Garden stage and the Investor Lounge at the Impact Circle on Friday the 24th. The speaker lineup is nearly locked in. If you're active in impact investing, sustainable capital or climate-focused venture, the people in that room on Friday are exactly the people you want to be meeting. Link is in the show notes. If you're coming, I would love to see you there.

0:30Since I joined the Stock Exchange in 2020, we've had 50 plus tech IPOs. I think we would all love more. But that's happened in spite of the fact that our pension funds, our insurance funds, retail investors don't really invest in the stock market. So just imagine if they did. If you went back to 1997, I think 53 % of UK pensions at UN floating to the stock market. Today is about 2.8%. So it's not going to take much to create a wall of money from the UK to participate in these deals. If you're a founder, you're going to get funded anyway, because there's a wall of money from America looking for what they believe to be early achiever equities.

1:03So you're going to get funded. But who really misses out our UK savers in all of this? I think for us to win, we have to make the best products, not just rely on cheap tokens. And the harder, maybe better question is what does it take to make great products? Lots of stories in the news cycle this week about sovereign AI. We saw two weeks ago, Washington stopped Anthropic and switched off its two most powerful models. On Monday, the Five Eyes spy agencies named the same models and warned the AI is able to overthrow a nation's cyber defenses in months, not years. I'm sure that will even come down to weeks.

1:33So if we want to know what's happening right now in AI land, not the forecast or the speculation, but the actual numbers, micron earnings are telling us that gross margins, almost 85%. Now, 85%, that's sort of software type. I was going to say, that's sassy. That's sassy, right? Hello and welcome to Upside, where every week we look behind the headlines that are going to affect European venture. Today it is Mads, myself, and we have a special guest. I'm going to introduce him in a second. And today, what are we talking about? We have Why Micron Matters. Can the UK unlock more capital? I hope so.

2:10EuroDefense attracts billions. The AI invoice is now due. Who is paying? everywhere you look. It's sovereign AI plus deals of the week, some predictions and what's happening coming up later this week.

2:36This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Now, Neil Shah, thank you so much for joining us. He is our super special guest. Neil is the head of tech sector coverage for the London Stock Exchange. 20 years in tech investment banking before joining the exchange in 20. 50 plus tech IPOs under his belt. Personable, founder-facing, quotable on the record stating the tide is turning on London listings. Neil, tell us more about the tide and how are you? I'm great, Dan. I'll try and match your energy. It's Friday morning. It's been a long week.

3:12And I imagine you're melting. I'm sat here in my pants with ice cubes. It is hot. Are you okay, my good man? I'm okay. I've got my colleague Mohan over from Mumbai. He's laughing. Oh, yeah. He's like, whatever. Following me, an artificial India, because I can't hack this heat. Yeah. What are you talking about? This is a balmy spring day. What are you talking about? There you go. So I think the tide is turning. we've probably got the strongest pipeline that we've had in about two decades and there's been a lot of assets that try to come to market post 21 that not been able to now I think everyone thought that 2026 was going to be the year aside of geopolitics where we sort of got back to normal we're starting to see that in private markets we've seen some humongous deals hopefully we'll see some IPOs pick up in the second half we've had seven companies IPO in the first half.

4:06But in loads of inquiries, if I just take the last week, Dan and Mads, there's probably been 10 or so inquiries across AIM, our junior market, and the main market businesses, large and small. We've got companies on NYSE that are valued at$4 billion and have just seen SpaceX happen and are wondering if they're going to continue to see the love in the US markets. Whereas in London, that's a big deal. That's a FTSE 250 company. So we'd love to entertain more companies like this great well we're going to talk a bit more about ipos and i'd love to get your insight more generally into the tech space because that's your jam in public from the from the kind of the the top view but we're going to come on to that later where i did want to just kind of do a mini mini broad market slash economy update i think no great surprise to anybody we've seen a pretty volatile week in US tech.

5:02FTSE relatively untouched at 10 and a half. Obviously, a very different game over here. Neil, I'm going to, again, I'm going to come back to you on that and see if you have any thoughts. In the US, S &P and the NASDAQ 100 were down with mostly AI infrastructure taking the kicking. As an example, Cerebra is now trading below IPO. And everybody, again, will have seen this. SpaceX, the cautionary tale. At time of press, might be bouncing around it's friday the 26th spacex was hovering around 150 down from its 225 peak uh now looking to sell a 25 billion dollar bond now i'm assuming this could accelerate the tesla merger but we'll see but for now they are doing very well becoming an nvidia reseller i'm talking about ai bubbles but not talking about ai bubbles the shiller pe ratio is almost in dot-com territory we've never seen that before in history.

5:52So that's going to be fun to watch. Some fun IPO facts for you. Roughly 1600 unicorns in the world, half in the States where one is minted every two days. 58 European IPOs so far in 26 versus 112 in the whole of 25. So not much change across Europe this year so far. And we're going to talk more about IPOs later in the show. Gents, any thoughts on that kind of mini update before we move on to Micron, because I want to talk about one of the movers and shakers that is bucking everything. Neil, anything from you? Do you have any fun IPO facts from your time or anything you want to highlight? Let's go back to that Ben Graham quote, right?

6:33In the short run, the markets are a voting machine. And if you're in space, if you're an AI, if you're in quantum, And if you're in cyber, just after the myth philosophy is a fantastic place to be. I think we've got to really wait a couple of years to see whether or not this is peak froth. I remember when YouTube was sold and everyone thought that it was a really toppy price. And then we saw WhatsApp and the same thing. And when Google floated, there's all those questions. Are we at peak bubble? And here we are. I do think that AI is transformational. I really hope we get some data centers in space to solve our energy needs for one, which is part of this SpaceX narrative.

7:22So I'm a secret ball here. And I think SpaceX is too big a deal for Elon to just let it fade. So I hope it holds up, which is good news for Britain, because any old unicorn, any average unicorn going public on our markets. we will uh we're going to tussle this one out another time but um yeah i'm not i'm not a massive elon fan i think he's i think he's really uh he's riding the shark now this we were talking about this yesterday this i was that micron okay they're done well but you have a very particular point as to why micron the memory maker is important not affected by volatility stock up 17 on bumper earnings gross margins now in the 85 bracket but mads why why is this important why was this first up on the docket.

8:10Depends who you're asking. For the average, consumer might not care much about Micron, but many of them will care about Apple. And I don't know if you saw that Apple took a bit of a beating yesterday. The reason it took a beating is because they've just said that they've had to increase prices, not by a little bit, but by 20%. And why? Because of cost increases of memory and storage. And so what is that? Well, that's Micron. That's all the stuff we're talking about. Now, if we look back over the last year, the S &P 500, the world's most important stock market index, well, after the FTSE 100, of course, Neil, the second most important, let's say, is up 21%.

8:50The Nasdaq 100, the big tech company is up 32%. And it's all on AI. It's AI, AI, AI. And we've gone through the Trump wars, the oil shock, inflation, low growth, the whole works. But as long as there is belief that the AI train keeps rolling, the markets will keep humming. And in the past week, markets, they've had concerns. NVIDIA has been down 5%. They're now below$200 a share. Why? Because there are concerns that AI growth is topping out. And sentiment has soured this week. As you said, SpaceX under$2 trillion. Cerebra's under the IPO price. The Fed had a hawkish flip. And so why is Micron important in all of this?

9:32because they make the high bandwidth memory that goes into all the GPUs. And that memory is really, really precious, and it's really, really expensive, and there are only three companies globally that can make it. And so when we know how well Micron is doing, that gives us an indication of how well the whole AI economy is doing. And so Micron is the only firm reporting earnings right now. The other is not until Q3. So if we want to know what's happening right now in AI land, not the forecast of the speculation, but the actual numbers, Micron earnings are telling us that. And guess what? They had, as you said, a bumper quarter.

10:12Revenue was up 346 % year on year, 74 % quarter on quarter. It's absolutely phenomenal. Gross margins, almost 85%. Now, 85%, that's sort of software type. That's sassy. That's sassy, right? So they've done extremely well. And so Micron had a great quarter. And they walked in and sort of steadied markets a little bit. Now, so far, so good. Friday is not over yet. It's not a victory lap. But the blowout demand absolutely tell us that the AI economy is alive and well. They've got more than$100 billion in long-term agreements. Customers are paying in advance. It is so hard to secure this stuff. they've taken$22 billion in deposits just to lock down supply.

11:03Their capacity is completely sold out for the rest of the year. They can only fill from half to two-thirds of demand. They're committed 18 months out. So this is a really, really interesting signal. Now, you could say it's still to some extent lagging in the sense that when you see earnings that tell us what's happened in the last quarter, and you could say the real forward-looking signal is the hyperscaler CapEx guidance. But the micron earnings and the memory maker's earnings is absolutely the canary in the coal mine. Or the lie detector, you could say, because they're the ones saying, people might be saying they're spending, but are they actually spending?

11:42And right now they are actually spending. So the memory says that we're still building, CapEx is still rolling, the AI train is still going. The question is, what's next and can everybody keep it up? Neil, I want to talk about capital markets and UK capital flows. But before we do that, any thoughts on Micron or anything that you see from maybe a different lens? Looking at share price, rarely have we seen an L-shaped share price. No one ever wanted to be a hardware banker in my time in banking because it's just so volatile. And you're beholden to the semiconductor cycle. And who would have thought we would have a$1.4 trillion memory business in the market?

12:23I think it's a great time to be in picks and shovels. You look at IQE in South Wales that makes compound semiconductor wafers, assembling 300 layers of gallium oxide and silicon carbide. And we're a world leader in this space, including photonics. and if you look at IQ share price, it's gone from like 5p to I think 56p at the peak, just below 50p currently. But that's been on a bit of a tear like Micron because if you're a semi-designer, a manufacturer, you just can't get hold of the materials. You're building PCBs, you can't get hold of the laminates. So there's, I think, multiple ways in which people can play this AI train.

13:06You don't have to just try and try and get hold of some secondary shares in one of the frontier models. I want to talk to you. I want to bring you in, Neil, especially all over this one, because we obviously a topic close to all of our hearts. Everybody listening, I'm sure the same wanting to know how we unlock capital markets, not only across Europe, but here in the UK. So I'd like to explore a bit of a kind of a general view. We are looking at yet another change in number 10, the seventh prime minister in 10 years. been 10 years since Brexit. We've heard many stories over the last few years about unlocking pension capital and the mansion house compact and what's going to come into private markets.

13:46We've seen Labour, oddly, I think, actually invest a lot more than Rishi under the Tories was promising, which I think generally is a good thing, although you could argue where was it being invested and where is the money coming from? But again, a conversation another time. But Neil, So maybe just to start with, can you give us a little kind of history lesson of the exchange and set the scene maybe from your perspective about tech and how you view the world with regards to capital markets? And then I'd like to bounce around with some questions around maybe Pisces and some of the other initiatives that you're running.

14:22Absolutely, Dan. I'm going to quote my friend, Saul Klein at Local Globe, who says that we've achieved so much in the UK. and it's in spite of all the challenges, all the roadblocks put in front of us. And I think capital markets is no different. Since I joined the Stock Exchange in 2020, we've had 50 plus tech ARBOs. I think we would all love more, but that's happened in spite of the fact that our pension funds, our insurance funds, retail investors don't really invest in the stock market. So just imagine if they did. If you rewind back to 1997, I think 53 % of UK pensions AUM flowed into the stock market.

15:01today is about 2.8%. Mads and I were at the UK Private Capital Summit recently chatting about this stuff. Inventure is even more stock. I think it's about 0.8%. So it's not going to take much to create a wall of money from the UK to participate in these deals. Now, if you're a founder, you're going to get funded anyway because there's a wall of money from America looking for what they believe to be earlier, cheaper equities. So you're going to get funded. But who really misses out our UK savers in all of this? People like us with pension plans where, and unfortunately, I think a lot of it, like 70 % of the US market is just tracking the S &P.

15:41So good luck to those funds seeking alpha. But I think there's a lot of potential. And just in the last year, we've seen a lot of inquiries going to have some pretty large tech IPOs. I'm pretty sure they'll be well received. You look at how well Sage is holding up. It's one of our largest tech companies, two and a half billion pounds of revenue. It trades in line and sometimes at a premium to its closest pair in the States. There's no reason you can't get good support here. But I would love to see 15%, 20 % allocation back to the public markets. And I think this is what the Mansion House Compact tried to do.

16:23It's a voluntary compact of some of the largest DC fund providers in the UK. That was topped up by the Mansion House Accords, which extended the number. And then we had the pensions bill put through Parliament, which really showed intent where government have the power to effectively mandate, should they say wish, investment in the UK. Hopefully you don't need to go there. But that is a really good signal. We're starting to see some capital flow, particularly in private markets, but I want to see that replicated in public markets and at scale. A£200 million British Growth Partnership is fantastic.

16:59We've seen investment companies like Wave and Kraken. I think that fund probably needs to be about£20 billion for it to start making real impact. It feels like there are lots of initiatives. It feels like we are in a period of inertia where initiatives launched. okay some of them might be slightly slow off the block i would argue i put the mansion house in that but it feels like there is there is a lot of kind of backlog to come through with regards to activity is there anything that our listeners won't know i mean i'm not sure they would have heard of pisces for example but are there any other initiatives or any other schemes that you know that are also coming through that maybe not be so well talked about in the press absolutely You know, I was at a drinks party with a bunch of fund managers on Wednesday who were unaware that we've got a consultation on our aim market, our junior market, which completes next week, which is going to reset aim and make it a lot easier to be a company on our junior market.

18:00The same sort of thing applies to our main market. We've had a whole bunch of reforms, but singularly, they don't make a significant impact. But as a package, there's a lot there. and we're starting to see companies take advantage of this. Pisces as well, which is our private securities market, which effectively allows a private company to go public for a day and allows trading that's free of stand duty for buyers. And if you're an employee in an EMI or a C-Soc plan, there's a significant tax saving there. We've had one transaction in March. We're going to see a few more deals in July. Hopefully by the time this podcast goes public, you may even see some announcements.

18:38So a lot of activity there. And what we're trying to do in the stock exchange is be agnostic as to where a company is public or private. We want to help these companies scale. If they need liquidity and pressure release valve, we don't force them into a premature sale or an IPO. They could use Pisces should they say wish. But if some companies have benefited from that idea, you look at pension, the floating of about 6.3 million pounds of revenue, it's a 50 million pound business today. Romy Savova, CEO, owns 32 % of the company, all in orderly shares. That's worth at least 100 million pounds. Where in the world can you achieve that sort of success?

19:18And so I think it's really important for us to offer this range of flexibility, early flotations, later flotations to those who want it. And for those companies that want to stay private for a little bit longer, we've got Pisces too. are we just are we just bad at talking about it and sharing the wins and understanding how it works here or or is there so much oxygen being sucked out of the system by the americans that we just don't where where are the where are the breaks in in the chain do you think it's a bit of both dan that um we definitely need to shout about our winners a little bit more um We've got businesses like Craneware, founded by Keith Nielsen, started in 2007 with$50 million of revenue on our market,$200 million of revenue today.

20:09The entire market is U.S. hospitals. And that's an underappreciated story that we want to be shouting a little bit more about. And one of probably about 30 stories that I could give you from our markets that are just not as well known as some of the companies that didn't work out. And you see that on any market. So what you're going to see from us is a little bit more promotion of public and private markets. We're in 19 train stations as part of a campaign to highlight some of these stories and just create some brand recognition. So if you're Burberry or LNG or, I don't know, Revolut, you've just got your banking license.

20:48We'd love to have you up on our screens talking about what you've been doing. I think for as long as I can remember, we've always looked up to the US and I think there's a lot of things to appreciate about the American market. But I think we're getting our mojo back and realizing that we can build in the UK. We can stay here if we want to. Yes, it's bloody hard and there's a few things we can do to make that easier. We're trying to do our level best at the stock exchange where we don't set the rules as to what companies do you look like to come onto our market. We don't tell fund managers what they need to buy, yet when things don't work, we get brave for all of it.

21:28So we could have sat back and said, it's not us folks, or just lean in, which has been my CEO's mantra, that Dave G. Holger wants to make the UK the best possible place for founders like you and Mads also to start, grow, scale, and stay, should you so wish. what i'm going to put you on the spot but please tell me to go away what one thing what one thing would you do to unlock capital flow in the uk um pensions if there was a silver bullet this is it and um i think that government can go so far but actually corporates have a lot of agency as well we do as individuals too you know one of the things that we've been asked for the stock exchange is for every corporation in the UK, give your employers a choice, the status quo or a plan that's more aligned to the UK.

22:23And if we start doing that and having more LP money flow into VCs like SuperSeed, like our public funds, like Premier Mighton and others, I think a lot of these problems will get unlocked. So that's the main ask. And just more risk appetite. I wrote my first angel check in about 10 years, two weeks ago. And I think more of us can be doing that. And just not being lazy. My eldest son's 14. I stupidly invested in a cash ISA, which got to about 20 grand after about 14 years of investment. Boy, did I wish I'd invested in a stock market. This is not investment advice. I want to change gears slightly.

23:08I want to go broader across Europe and look at the defense tech push because there's a lot of stories this week about a lot of cash flowing into defense tech. We've got Tankmaker, KNDS, they're doing a 12 to 15 billion euro listing in a dual listing actually in Frankfurt and Paris. Dronemaker Stark raised 500 mil from Peter Thiel and Sequoia at a 3.5 billion euro valuation. And the EIC is now looking to do direct equity into defense. Looking behind the curtain a little, it looks like they always did. They were doing a lot of dual use, but now the paperwork matches and they can do pure defense.

23:44So Mads, set the scene, give us the inside scoop. And then what I'd really want to know, and I'm sure many of our listeners would too, is how long is this defense push going to last? Well, it's certainly going to last for a while. You know, we've sort of been collecting the peace dividend in Europe for decades and massively underinvested. So there is a lot of investment that now is needed for us to scale up our defense and make sure we can defend the continent. Now, that said, obviously, there's been a lot of nice political talk about what should happen, yet we know that it was difficult for us in the UK even to unlock a few extra billion pounds to meet sort of the not overly ambitious investment plans of the previous minister of defense.

24:29So I think, look, the expectation is that Europe will rearm. The expectation is that that will flow into investment and that we'll be building more defense companies in Europe and that that is something that's going to be a secular trend over the next decade. But of course, there's going to be a political willingness to make sure it can be funded. Anything that you wanted to highlight here specifically on the European defense tech push before I bring Neil in? Look, it's a broad question. I mean, there's so many vectors you can take. People are talking about supply chains and supply chain worries and the dependence on China for some of the things we need.

25:04What's actually really encouraging is the manufacturing boom we're seeing at the coalface here in Europe. We see founders starting out, creating manufacturing companies, technology companies that look for ways to make the things we need, to make as complete a supply chain as possible. Yes, there are still things we're missing. There's some of the rare earths and some of the other elements. but increasingly we see more and more focus on being able to do and make things in Europe. Some of this stuff is really inextricably linked. We talked about, it's kind of at the top of the segment, one of the issues we have right now is it's very, very hot in Europe and in the UK.

25:41And for 20 years, we've had a war against air conditioning. And it's sort of been absolutely bonkers, right? And there are even rules in London saying that for climate change reasons, you should just use natural ventilation. But natural ventilation when it's 35 degrees outside is pretty useless. So of course people should be allowed to have air conditioning and not have it torn from their homes. Now with those same reasons, we have stopped or curtailed the drilling of oil and we have pushed up energy prices. And this is part of what has pushed manufacturing offshore. And so all these things connect, right?

26:18It's when we are making the wrong decisions for whatever virtue signaling reasons or whatever, Yes, of course, climate change is important. But I think we've had sort of a bit of a God complex in the UK, believing that if only we were a ski ticket enough to close our industries and stop drilling oil, we could solve climate change on our own. And of course we can't. And for us to then say, well, listen, we should sort of stop the economy and we shouldn't let people have AC when they melt and all that stuff, because that makes us feel better, that's absolutely nonsense. Now, that's not to say there isn't a use for regulation and for tax.

26:51The carbon tax plus kind of the carbon border adjustment mechanism can be really sensible, but that's just not what we've done. And we've done stuff that has really talked at our industry in bad ways. And so back to defense and sovereignty and all the things you were picking up on, because I do think it all comes back there. Yes, there is definitely a change right now and a shift. The challenge we have, and this is right back to the political turmoil you talked about, is that we're still seeing too much political intransigence. We're still seeing ministers block, for example, the exploration and exploitation of the North Sea oil resources at a time when it's exactly the opposite we should be doing.