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UK to review IPO rules to entice tech founders

written by Bella Palmer

The review includes measures that would give founders more influence over their companies upon listing

The UK government said Thursday it will review the rules around initial public offerings as it looks to make post-Brexit Britain more appealing to tech founders seeking to take their companies public.

The review includes measures that would give founders more influence over their companies upon listing, including the allowance of dual-class share structures that give some shareholders—notably founders—more voting rights per share than others.

Free float rules are also under review. Currently, companies listing on the London Stock Exchange must make 25% of their shares public. A lower free float threshold would let entrepreneurs maintain more control after going public.

Not everyone is a fan of the changes suggested.

Traditionally, many institutional investors are wary of dual-class structures in the UK because they value the principle of one share, one vote, said Claire Keast-Butler, a London-based partner with law firm Cooley. They think that it is potentially bad for corporate governance because they're putting too much power in the hands of a founder, or founders, rather than the shareholders as a whole.

Keast-Butler said there has been a lot of resistance in the investor community to changing the system. Many fear rule changes could make founders less accountable. A case study often pointed to by critics is WeWork. The co-working giant imploded as it was preparing to go public in 2019, largely due to founder Adam Neumann taking advantage of a multi-class voting structure to wield outsized influence and thus eliminating any checks and balances on the company's governance.

But the sentiment is not unanimous among London's venture capitalists, many of whom are former founders themselves who have been subject to investor pressure.

I think it's a great idea, said Brent Hoberman, who co-founded travel booking provider and more recently set up VC firm Firstminute Capital and Founders Forum.

Hoberman said he personally knows founders who have listed in the US but would have listed in London had it not been for the lack of a dual-class structure. He added: There are loads of investors who think the management should be beholden to them for every decision and we need to stop that.


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