Lauri Rosendahl, president of Nasdaq Stockholm and Nasdaq Nordic. Image: John Kennedy
Nasdaq’s Nordic markets are prepared for greater numbers of European tech IPOs, said president Lauri Rosendahl.
It is probably Europe’s worst-kept secret, but the Nasdaq Nordic markets have outpaced London and the Deutsche Börse in Frankfurt as the most active and lucrative stock exchanges for IPOs in Europe.
And, at a time when venture capital investment appears to be slowing, IPOs on markets with a sophisticated investor base could provide growing tech firms with the liquidity they crave.
‘On the one hand, you have entrepreneurs with great ideas and not enough money, and then you have investors with too much money, but very few ideas. It is all about bringing those together’
– LAURI ROSENDAHL
Nasdaq Nordic was recently named the most active exchange in Europe, with €7.7bn raised from 69 IPOs. The largest IPO on the Nasdaq Nordic exchange was Dong Energy, which raised €2.3bn.
I accompanied a number of entrepreneurs and investors from sectors including tech, medtech and energy on a fact-finding mission to Stockholm to see what this activity was all about.
When you think of Nasdaq, you usually think of giant lit-up billboards in Times Square, New York, where the stock prices of Apple, Facebook, Google and seemingly countless other companies flow and glow with never-ending frequency.
Instead, our journey led us to the docklands area of Stockholm on a brisk winter morning. Aside from the neon blue Nasdaq sign, there was little to suggest that the big industrial building in front of us was actually the busiest and most lucrative stock market in Europe.
Fulfilling European tech IPO ambitions
Nasdaq Nordic offices, Stockholm. Image: John Kennedy
Inside the former Ford car manufacturing plant, the gigantic building feels and looks more like the inside of Google, as software engineers and suits mingle and talk in hushed tones around the numerous coffee stations. The only giveaway that this cavernous building is a stock exchange is the ornate and ancient bell, surrounded by giant screens, which has rang in Stockholm’s stock markets for over 200 years.
The president of Nasdaq Nordic and Nasdaq Stockholm, and SVP of European equities for Nasdaq is Lauri Rosendahl, who explained that Nasdaq Nordic is an amalgam of several stock exchanges in the Nordic and Baltic countries, including Finland, Iceland, Norway, Estonia and Latvia.
Nasdaq acquired the OMX network of exchanges in 2007 for $3.7bn.
Its principal market is the Main Market and its market for smaller companies is First North.
Nasdaq Europe is on the cusp of a potential rebrand and one of the suggestions mooted is for Nasdaq First Europe to increase interest and appetite among European companies in pursuing higher-profile IPOs.
The Nasdaq Nordic exchanges believe they have something interesting and alternative to offer European fast-growth companies because of a sophisticated and established investor base as well as an appetite amongst ordinary Swedes for retail investment.
“Stock exchanges are the mother and father of crowdfunding,” Rosendahl explained. “It is still the same mechanism going way, way back. On the one hand, you have entrepreneurs with great ideas and not enough money, and then you have investors with too much money, but very few ideas. It is all about bringing those together.”
Rosendahl points out that Nasdaq Nordic is ahead of other exchanges, with €6.4bn raised among 56 IPOs between Q1 and Q3 of last year, dwarfing London (€3.8bn) and Euronext (€3.3bn).
A crucial factor, Rosendahl explained, is the solid investor base made up of institutional and retail funds. The Swedish appetite for investment is helped by government policy, which encourages Swedes to invest at least 5pc of their retirement funds in shares.
“The average return for the Main Market and the First North from IPOs has been 40.3pc and 22.2pc respectively,” Rosendahl explained.
Blockchain to transform financial ecosystem worldwide
I point out to Rosendahl that the Nasdaq building in Stockholm feels more like a technology operation than an actual stock exchange.
“It is a tech hub,” he said matter-of-factly. “Stockholm is the biggest of four global tech hubs in the Nasdaq group and we have close to 750 people here and more than 400 are working in system development.
‘We believe blockchain is going to be one of the most disruptive technologies that will ever transform the whole financial ecosystem’
– LAURI ROSENDAHL
“We build all of the Nasdaq trading, clearing and custody systems that are then provided to exchanges all around the world.”
He said that exchanges as far afield as Australia, Hong Kong and Singapore use technology developed at the Nasdaq Nordic exchange.
“When Nasdaq acquired OMX, we decided to build on our technology leadership and hold onto it.”
In terms of the big technological trends sweeping the financial world, Rosendahl said that big data and deep computing are crucial.
“We are taking Nasdaq’s technology into the next generation with the Nasdaq Financial Framework and that is based on a modular, plug-and-play system that is designed to make us and other exchanges ready for blockchain.
“We believe blockchain is going to be one of the most disruptive technologies that will ever transform the whole financial ecosystem.”
Rosendahl said that Nasdaq is actually leading the field in terms of how fintech companies are creating blockchain-based applications.
The organisation already has one commercial application in the field called Linq, which enables private companies to digitally represent share ownership using blockchain-based technology.
“We have plans for the second commercial application to launch this spring here in our region in Estonia, and it is taking care of AGM proxy voting; how shareholders vote at AGMs [is] going to be tracked and recorded in blockchain only. That’s revolutionary if you considered the old traditional way of handling AGMs.”
Rosendahl said there is a strong pipeline of blockchain-based applications in the works.
“We believe that this can be truly disruptive for the benefit of much more efficient markets. Blockchain has the promise to take out a lot of the friction and improve on the processes in securities trading and post-trading.”
Funding and the start-up journey
The Nasdaq bell in Stockholm is traditionally rung by new companies on their first day of trading. Image: John Kennedy
Rosendahl said that crowdfunding platforms are becoming an essential part of the fundraising ecosystem.
“I really think that it is an exciting part of the ecosystem that is evolving, especially the ones like Kickstarter and Indiegogo. We cooperate with them and don’t see them as a threat.
“We all have our place in the ecosystem and we are mother and father of crowdfunding, but as a regulated exchange, there is a lot of regulation we need to fulfill, that investors need to fulfill, proper protection and listed companies need to fulfill. In the evolution for crowdfunding, we are a little further on because of regulation.
“But I really see that cooperation is the way forward and there is an evolutionary path; from a start-up beginning its path, maybe through crowdfunding or venture capital, and then through a junior market like we have [with] First North and First North Premier, and then the Main Exchange market, as regulated by EU legislation.
“Last year was the first year where we had two IPOs where the distribution of investors was via crowdfunding platforms. That is the evolutionary cooperation you can have. In Finland, we had a crowdfunding platform that actually took care of a share issue for a company that listed on the Main Market.
“I think the distribution platforms can really be also used for exchange listings.
“And one thing that the crowdfunding platforms will be needing over time will be a secondary market. They need to offer investors in different companies a way to have price formation and liquidity.”
The other key part of the funding ecosystem for start-ups is venture capital, which despite being the lead mechanism for financing companies, is in trouble. According to CB Insights, worldwide venture capital deals and dollars declined 10pc and 23pc respectively in 2016, compared to full-year 2015.
Rosendahl said that stock markets and venture capital have always been in competition with each other, especially for a share of investment from the massive pension funds.
But ultimately, it is not so straightforward, and every company looking to raise funding has a different story to tell.
“It is all about the journey and in particular, we have taken the holistic approach – the most important thing is that there is capital available for the companies. When they have a great idea, when they have a great opportunity, the ecosystem should be there to support them to raise capital, fuel their growth, do the investments they need to do and conquer the world. We are one of the alternatives.
“If a company wants to come to the public market, we have a good set of advisers that can help companies on that journey, and a lot of great investor base with good demand for investment opportunities. The more the merrier in that instance, and I think that Sweden is a great ecosystem from the perspective that you have a business angel community that works really well, you have venture capital players in the market, you have private equity and you have an exchange that has a junior market, junior-premium market and a main market.
“It is just a pick and choose, and go and conquer the world.”
Looking ahead, he said that Nasdaq Nordics are getting bolder in encouraging more fast-growth companies from around Europe into an IPO, especially companies mulling a C or D round.
“Some companies come to market early on in their development and some, it is later on. There is no one-size-fits-all solution. We listed over 75 companies last year and these included a lot of small, mid-sized and big companies, but also lots of small companies.
“The smallest company I recall was actually a company that had eight employees, no revenue and it was an R&D project that had potential revenue coming in a few years. They listed on the public market and raised enough capital to finance R&D development up until 2020 when their first product reaches the market. That is at the extreme in terms of how small companies who come to market can be.”
Crucially, Rosendahl said the market decides. “It is all about having a good equity story. It needs to be a good investment case and then it is up to the investors to decide.”
The key difference from the high-octane trading that saw the tech market bubble implode in 2001, Rosendahl said, is the broader base of companies in different sectors, from fintech to biotech.
“The broad base of firms is very well received by our investor community. That’s the strength of the ecosystem we have here.”
Rosendahl concluded by saying that a stronger Nasdaq brand and presence is on the cards for Europe.
“We are looking at it both from an ambition point of view and a position point of view.
“We have been focusing our regional role and we have seven exchanges in the Nordic/Baltic region and we have been developing them from a technological perspective.
“But now it seems like they are there and not only that, they are gaining traction from outside the region. Our view is let’s run with this and see where we end up.”
