Come Home, Little Startups

Europe wants its own NASDAQ to capture more IPOs

European investors have long shunned homegrown technology startups. So the Eurotech crowd crossed the Atlantic and went to the NASDAQ stock market to raise cash, much as a flock of Israeli startups has done. Now, European bourses are fighting back. Desperate to stanch the exodus of leading-edge companies, Europeans are setting up new markets where they can raise cash at home.

The latest entry: France's Nouveau Marche, which opened on Feb. 14 after a year on the drawing board. The Nouveau Marche will be followed in September by EASDAQ, a European version of NASDAQ owned by European and American investment banks and NASDAQ itself. Germany, Belgium, and Italy are also planning markets. London has one: the Alternative Investment Market (AIM), with 127 companies (table), most of them from other exchanges.

The new Euromarkets will have a tough job fighting NASDAQ to list the best Continental tech companies with global potential. "Europeans are aghast at the price we pay for small companies," says Bruce B. Bee, a global small-capitalization fund manager based in Denver. Indeed, NASDAQ issues sometimes claim valuations that are five times higher than similar listings in Europe. The Continent also lacks a research community that can analyze cutting-edge products and manufacturers. For those reasons, French software maker Business Objects turned to NASDAQ in 1994 to raise $25 million. Lernout & Hauspie, a Belgian company specializing in speech-recognition technology, raised $40 million on NASDAQ in December and has seen its stock price jump from $11 to $35.

DOWN IN FLAMES. European successes in America are luring venture- and investment-banking firms to the Continent in search of more listings. But some of the newcomers are also gearing up for local business. Hambrecht & Quist Inc. in January joined with France's Credit National to form Hambrecht & Quist Saint Dominique, an investment bank that will take companies public on the new markets in Europe.

This isn't the first time Europeans have tried to create a venture-capital culture. An effort in the mid-1980s went down in flames when a host of funds and investors lost millions. But small-company market advocates say that venture-fund survivors are concentrating on fewer and better-quality deals. They're also cooperating with U.S. venture investors, who have expertise built up over four decades in America. "It took a lot of mistakes to translate the U.S. experience into doing good deals in Europe," says Helmut Schuhsler, a partner at Munich-based TVM Techno Venture Management.

But will Europe's new markets have the liquidity to succeed? Europe had only 24 IPOs last year. Schuhsler estimates that EASDAQ, which is eight months behind schedule, will need to list 100 to 200 new offerings annually to develop a critical mass. The goal may be attainable only if Europe pools its IPOs.

Europe's major stock exchanges are refusing to support EASDAQ, however, fearing it will siphon off business. The Nouveau Marche is trying to link all the new national small-cap markets in a European network to compete with EASDAQ. Such competition could splinter liquidity for small-cap stocks so no exchange gains enough activity to become a contender. And the U.S. investment banks closing in on Europe want to post listings on both sides of the Atlantic. That would create a benchmark for valuations of high-tech companies in Europe, but the U.S. might end up with the bulk of the trading. The battle for high-tech startups will be fierce. Europeans insist their time has come--but no one's handing them a victory yet.

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