In the following interview, Dr. Georg Licht explains why this is the case and what Europe must now do to keep hold of these high-tech start-up companies.
“Donald Trump’s Departure Has the Effect of an Interest Rate Cut” (27 January 2021)
The US Federal Reserve has kept its benchmark rate unchanged in a range between 0.0 and 0.25 per cent, and decided not to expand its asset purchases any further. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments on this matter.
With the change in office in the White House, the situation for the Fed has changed dramatically. With the new president and his majority in Congress, the USA once again has a government capable of acting on fiscal policy. The planned new 1.9 trillion dollar ‘American Rescue Plan’ to combat the effects of COVID-19 will support economic recovery. In addition, tensions over global trade conflicts are expected to ease. Another factor that should not be underestimated is that Janet Yellen, Jerome Powell’s predecessor at the helm of the Fed, is taking over the US Treasury. This, too, will greatly improve the relationship between monetary and fiscal policy. Basically, Donald Trump’s departure from the White House has the effect of an interest rate cut for the US economy. The Fed no longer has to pull chestnuts out of the fire and could soon even start preparing the exit from its extremely expansionary policy.”
What makes a stock flotation in the USA, particularly on Nasdaq, so attractive for high-tech companies?
Despite these ‘adversities’, the chance of finding potential investors under the previously mentioned conditions on Nasdaq, who are able to regiment the chance of success and provide necessary funds, is much more likely to happen through a stock market flotation on Nasdaq than on other global stock exchanges. This likelihood still remains strong despite there being a high level of uncertainty involved. The financing ecosystem in the USA with financially strong pension funds, other institutional investors and large asset management funds, provides an ideal opportunity to invest enormous sums of money in young high-growth companies.
Do we need a European counterpart to Nasdaq? Does it matter if companies acquire the relevant capital via Nasdaq or a European stock exchange?
Simply replicating Nasdaq would not pave the way for much success. This has already been tried several times in previous decades and essentially all of these attempts failed or stalled in their development. Nevertheless, a European equivalent of Nasdaq would certainly be desirable. A liquidity-rich, European stock exchange geared towards young, technology-oriented companies is the central, missing element of the financing ecosystem in Europe. Both emerging technology companies seeking to make gains in capital and the abundant potential of investors would profit from this.
What is needed in order to make Europe more appealing to young (high-tech) companies floating their trade on the stock market here?
What is missing is a functioning ecosystem with an understanding of the needs of companies that are innovative, capital-intensive and newly established. Only once such an ecosystem has been developed will it also be possible in Europe to bridge the gap between a launch in the high-tech sector and the stock market flotation of such an innovative company that strives for this years down the line. If this is not achievable, the government’s so-called ‘Zukunftsfonds’, a multi-billion start-up fund that promotes future technologies, will remain primarily one thing – a key route to Nasdaq.
What distinguishes European companies that prefer stock market flotation on the US Nasdaq to going for a stock market listing on their own continent?
The US Nasdaq in particular has a big appeal amongst expanding high-tech companies. This appeal is not only noticeable with US companies, but also many highly-innovative European and German companies that are pursuing ambitious targets for growth. Notable examples are the pioneers of the mRNA vaccine, BioNtech and CureVac, that are on everybody’s lips since the coronavirus pandemic. They favoured a flotation on Nasdaq to one on a stock exchange on home turf. On the one hand, both companies share the commonality that they are conducting research on a revolutionary form of technology for pharmaceutical drugs. The path to a marketable product is very long and often accompanied by doubts regarding its scientific feasibility and an enormous need for funding. On the other hand, there is an extraordinary amount of revenue to be made.