Bloomberg Audio Studios, podcasts, radio news. Zilch Technology Limited is a buy now, pay later firm based in the UK. The fintech startup launched its platform in September twenty twenty. By November twenty twenty one, it was valued at over two billion dollars, setting a record as the fastest European
company to reach double Unicorn status. Zilch Technology is expected to go public later this year and the London Stock Exchange should be the company's natural home, but there's a very real chance that Zilch might forsake its hometown and move to New York.
We spoke with the chief executive officer, Philip Bellman. He said, as a CEO, what you're thinking about is two things.
Sagarika Jason Connie covers stock markets and investment strategy for Bloomberg.
One is, obviously, how do you create the revenue? How do you create the profit on the business side of things, And the other side is how do you get the best valuation for your firm possible?
Yes, profitability is important. The companies looking to maximize their valuation have to think about location too, and for a long time, Europe hasn't had a great sales pitch.
US TOCs on average trade at twenty two times earnings, which is a near sixty percent premium over what companies can currently command in Europe. In fact, another source that I was talking to they used a very interesting turn of phrase. They said, in Europe, a lot of the times companies trade at a lower valuation than is fair just because they have a European postcode.
I'm Sarah Holder, and this is the big take from Bloomberg News today on the show, how Europe's broken financial markets are stifling innovation there and what the continent is trying to do to keep its homegrown company from skipping town. So you've described European markets right now as broken. What broke? Then?
If we knew how to answer that question, we wouldn't have arrived at the deep dive of the story that we've just penned down. Look to give you a very high level sort of comparison with the the US market. By definition, it is one market, despite the fact that it's much bigger as an area than Europe. Europe doesn't have one financial market. It has twenty seven financial markets.
And that is the very crux of the issue. When you have a fragmented system like that, you have different listing regulations for each country, you have different capital requirements,
the way that you approach investors is different. In a market like that, when companies plan for their future, it becomes difficult for them to say, this is a seamless experience that I'm going to have, which the US offers them, not just for companies who want to list in the public markets, but also on the other side, for people
who want to buy into public markets. You know, I was talking to one of my sources for the story and they said, in the US, you could be a taxi driver in Manhattan and you would still have an opinion on Nvidia, you would still have an opinion on Apple. In Europe, that culture doesn't exist, and that's the result of several factors, cultural, geographical, but also the fact that there is no one single platform that people can go to and say, this is what I define as a European market.
What does that mean for European companies.
It means smaller pools of capital that they can potentially access. It means having to go through various different listing regulations, the kind of political and regulators read challenges that they navigate to get to the market, they have to jump through bigger hoops, or a lot more hoops than they would in the US. It also means reaching that investor. We have statistics that show that in the US, right from the venture capital level all the way through to
public markets, there's a lot more engagement. So that means there's more interest from potential investors, whether that be your institutional investors, whether that be your venture capitals or the common man. In Europe, there's a lot more impediments to reach the audience in the investing community. That often means that you end up having to settle for lower valuations. It means you are dealing with a market that is not very liquid.
After all. Higher valuations mean more money raised if and when the company goes public, which means more money for its founders, early investors, and more investment to help it continue to grow.
You want to get the biggest bang for your buck. It just comes down to that, right It makes you more established. Having a bigger valuation means that your brand is better respected in the market. It means more publicity. It just you compete with the global biggest behemoths. You're taken seriously. The bigger you are, and by bigger, the more valuable you are.
Give us a sense of the scale of these challenges for European markets. How far behind are European markets lagging compared to other markets like the US stock exchanges.
In the past three decades, not a single European company that is currently worth over one hundred billion euros has been set up from scratch in this region. In the US, you've got the biggest companies that you talk about that have a price tag of one trillion dollars and higher. In Europe, the biggest company is not even valued at five hundred billion dollars, let alone a trillion. So trillion dollar club is well beyond any ambitions at the moment. In the US, not only do you have a handful
of them, but all but one is tech. The only one that is valued over to trillion dollars that is not tech is Berkshire, Hathaway, It's Apple, Microsoft, Nvidia, you name it. It's all tech. Right, So that is the challenge also for Europe where you end up competing in this old world versus New world. Pop new world is innovation, it's tech, it's AI. What's coming next, right, Europe's makeup of stocks, if you look at it is very old economy.
It's your drug makers, it's your industrials, it's luxury goods makers, it's food and beverage. They tend to be companies that are a bit more what we are in the geeky equity world. We talk of them as defensives, right. These are stocks that you tend to want to pick up at a time when you don't want to take a lot of risk, when you're not willing to put in
a lot of your money. So at a time when there's good global growth, there's no overarching phase of a recession, you go to the risky stocks which will give you again higher returns for the money you put into them, which is tech, which is in the US.
Sagarika says, these dynamics are prompting many tech companies to leave Europe altogether and move their headquarters to the US, and that's created even more problems for local European economies.
It has a trickle down effect into various strata of society, right, because when you list somewhere, it is natural that your head office tends to be in the country that you are. Then domicilent that you are listed in. Rather, when your head office is there, you create jobs there, the wealth creation is there. You are adding to the productivity of that country. Not just that when you're adding, you tend
to add there, but also when you are trimming. When this talks about layoffs, you tend to protect the headquarters. It is the peripheral offices that are trimmed down first. Again, it could be a concept that was inspired in Europe. The company started off in Europe, but now just the fact that it's listed in the US means that not only will they grow there, but they'd also protect those businesses or those interests more in a downturn than they would they're now peripheral offices in Europe.
Well, Sagariga, you mentioned the fact that Europe's stock markets are fractured. Obviously there's many, there's not just one. Brexit was another factor that majorly fractured the EU's economic power. Has Brexit had an impact on the challenges we're talking about for European.
Markets, Absolutely without a doubt, because when you're talking about the capital pools that you can access now you have one more right, But it's not just from the point of view of Okay, there's another market. It's also psychological. Europe's benchmark index, the stock six hundred, still has UK companies that are a part of it. So you think of it psychologically as being part of Europe, but it's
not really. It's got its own rules, it's got its own challenges, its own gaps, its own political and fiscal drama. In the last two three years, France, Germany, the UK, they've all had political crises in just the last twelve months. Right as an investor, when you think about it, not only are you then having to grapple with different rules, different listing rules, different regulations, but then there's also political crisis fiscal crises going on in the major economies in Europe.
That's not really a point of attraction, and it is a visual circle because it feeds one into the other. Broken markets means lower productivity means a weaker economy, and a weaker economy means lower appetite to invest, lower incentive for companies. It's not a high growth economy for companies to access the public markets in so it's sort of a feedback loop which is hard to get out of.
As Europe tries to break out of this vicious cycle and keep its homegrown firms at home. It faces competition not just from the US, but from Asia as well. What's next for European markets after the break? European companies and startups have been defecting to more lucrative financial markets in the US for a while, and now that President Trump has promised to slap tariffs on EU exports, Europe's
markets have been under even more pressure. But Bloomberg Sagarika jason Khani says it's not just the US that Europe has to look out for.
It also faces a massive competition from Asia. Based on data from a think tank called New Financial this report was released last year and the data is through twenty twenty three, that showed that Europe's total share of the global capital markets stood at eleven percent, where it had started at sixteen percent in two thousand and six. The strange bit, or the unexpected bit, I should say, is that the US has also conceded a small share from
fifty six to forty eight. That the exponential growth that we saw was in Asia, where Asia's share went from thirteen percent in two thousand and six to a whopping twenty nine percent. So almost a third by twenty twenty three. So that speaks for itself in terms of what Europe is up against when it has to claw back share.
Look at the makeup of it right when you talk about China, when you talk about Korea, the companies that are coming out of their very tech focused they have become integral parts of the tech supply chain, which, as we've discussed, is the high growth new World economy space of the market. So Europe is certainly facing a tough battle against the US, but also Asia, which has proven to be more relevant in the tech space than Europe has managed so far.
But Sagarika says that European governments are trying to come up with a way to fight back and give its markets more of a competitive edge.
They've been very vocal. There is a lot of not just awareness, but their policymakers are actively addressing the issue. Right There was the much awaited report by Mario Draghi that came out last year. It called for more synergies that would spark innovation because he said that one of the biggest challenges for Europe was that a lack of an integrated capital market, which was, as he said, stopping
the cycle of innovation in its tracks. The EU Listing Act was enacted in December, is being phased in slowly, but one of its key aims. One of the agendas is simplify the requirements to list and raise capital on European exchanges, so make it easier for companies, give them those incentives to stay in Europe, to bring more capital into Europe, to bring more business into Europe. The UK has also undertaken the biggest reforms in its own words
in three decades. These are again very geeky terms, basically to relax voting rules and share structures, the way that companies are made up, how much they can sell, et cetera. We spoke to the London Stock Exchange and one of the things they said was that the focus is not just on the supply side, which is to incentivize companies still list here, but also on the demand side to create that wealth for people to want to buy those shifts, to want to invest their capital here as well.
We talked about the differences in investing culture between the US and Europe. Do you expect to see pension reform or other government intervention to amp up that demand side and get people excited about investing in European markets.
Absolutely. The involvement of pension funds in the equity market is something that has been a key focus. When we hear from policymakers the local pension funds in the UK, their exposure to UK equities has fallen to just four point four percent of their total portfolio, so they tend to be still more heavily weighted toward real estate. You know, it's a very savings driven mindset in Europe rather than
an investment driven mindset. And for there to be bigger participation in capital markets from the commonman, from households, from pension funds, that needs to change and that has emerged as well. If the area is a focus.
It's not just the short term economic consequences that Europe has to worry about. There's also that vicious cycle to disrupt. If Europe doesn't adapt, innovate and regain its footing in the global market, the next generation of startups and talent could be lost to the US or to Asia. So I asked Sagarika, when will we know if any of these interventions are working.
I think that you listing act itself is a good starting point in terms of a yardstick. The agenda is for them to be phased in through the rest of this year. What will tell us if the tide is studying Very honestly, the proof is in the pudding. The moment startups in Europe start to consider and put their money where their mouth is, when they start listing here, when they start getting serious about you know, this is our home. We're not considering the US at this point.
We think that there is enough value that is being generated here. We're going to stay here. The moment we see that sort of a trend start to accelerate, that means it's working, and we hope it does. We live here after all.
Well, we'll be watching alongside you. Thank you so much, Sagerka, Thank you, Sarah, Thank you for having me. This is the Big take from Bloomberg News. I'm Sarah Holder. This episode was produced by Jessica Beck. It was edited by Tracy Samuelson and Farah elba Rau. It was fact checked by Adrianna Tapia and mixed and sound designed by Alex Uguiera. Our senior producer is Naomi Shadin. Our senior editor is Elizabeth Conso. Our executive producer is Nicole beemster Boord. Sage
Bauman is Bloomberg's head of podcasts. If you liked this episode, make sure to subscribe and review The Big Tape wherever you listen to podcasts. It helps people find the show. Thanks for listening, we'll be back tomorrow