Tech Stars Conference: What's next for EMEA tech?

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Katharina Ochs: Hi, you're listening to What's The Deal?, our investment banking series here on J.P. Morgan's Making Sense podcast. I'm your host, Katharina Ochs, from the EMEA Equity Capital Markets team. Today, we're going to talk about the J.P. Morgan Tech Stars Conference that took place earlier this month here in London. The conference brings together founders, CEOs, and investors to discuss key trends in the market, the sector, and more. We saw really strong attendance again this year, with over 100 technology companies participating and meeting with over 500 investors in one-on-one groups and larger panel discussions. Joining me to discuss some of the highlights and insights from the conference are Aloke Gupte, our co-head of International Equity Capital Markets, and Matt Gehl, co-head of EMEA Technology Investment Banking. Aloke and Matt, welcome to the podcast.

Matt Gehl: Thanks for having us.

Aloke Gupte: Thank you, Kathi.

Katharina Ochs: It was really an exciting few days last week that we had with interesting sessions, fascinating companies. So maybe, Aloke, Matt, what were your personal highlights and key takeaways that you took from the conference?

Aloke Gupte: Look, I think there were a number of them, but in the interest of brevity, maybe I'll highlight three. One was, you touched upon, Kathi, a number of people that attended across the three days, and that was fantastic to see. But it's really actually the connectivity that this event fosters between those people. That's not just about investors meeting companies. It's also about companies meeting companies, investors meeting investors. That, I think, is the magic of this event. It brings people together and it helps you foster new connections. It deepens existing ones, and that was great to see. I think the second thing I'd flag is that the Tech Stars brand has now been around for a long time. It's been more than a decade.The Tech Leadership Forum, which is part of Tech Stars, is only three years old. But collectively, the event really seems to have seeped into the consciousness of the tech ecosystem, not just in London here, but all across EMEA, as well as across the pond. We had a lot of attendees from the U.S. this year as well. So this is really an event which is on the calendar, people keen to attend. You saw a lot of senior CEO and founder attendance there. The third takeaway was we had some great panelists and sessions. I thought it was exceptional listening to Andy Murray, fantastic champion and his perspectives of life on and off the court were great to hear. I think I might add, who knew that Matt Gehl was Andy Murray minus the talent and great in determination? So I'd say tennis's loss is J.P. Morgan's gain.

Matt Gehl: I protest the comment that I don't have any talent, but maybe that's not what you said. But I think Andy showed what the combination of drive and exceptional talent can do and I think gave some really interesting life lessons that were applicable, not just on the tennis court, but for CEOs and for investors out there in the crowd. And I think his humility and ability to tell his story was a really inspiring way to start things off. So I think that's a great couple of highlights there. Look, I think then turning a bit more practical. I think what was really interesting for me at the conference was, last year it was more let's get to know each other. Let's talk about things for the future. This year with an improved market for tech, with more IPOs having happened, we were seeing much more tangible discussions and we've seen a lot more follow-ups initially. Companies were more actively talking about raising capital, whether that was a purely secondary round, a combination of primary or secondary round. We were seeing them openly talk about with investors and we're seeing investors booking follow-up meetings with those companies versus last year was ‘Great to see you. Let’s touch base in 6 or 12 months.’ So I think that was really, really positive to see. The second big thing I want to come off of what Aloke said we're seeing a resurgence of U.S. interest in investing into Europe. We saw more U.S. investors over here than we have in the past. We're seeing that in all of our rounds right now. That's the crossover funds. That's the growth equity funds. And increasingly, not just the U.S. funds, but we're seeing a number of the sovereigns out of Canada, out of Singapore, out of the Middle East that are really looking to get involved in a private round. So that was a big takeaway for me. This wasn't just a nice get-to-know-you for an IPO in two or three years. This is let's put money to work in your company over the next six months.

Katharina Ochs: Sounds good. And definitely both of these topics, something that I want to pick up a little bit later again. I personally really thought the session on the U.S. elections was super interesting. It really helped me connect dots and topics that I just didn't connect, coming from educated U.S. experts. So maybe Aloke, did this come up, also considering it's so topical with elections just a few weeks away? What was the mood at the conference about the U.S. elections?

Aloke Gupte: Yes, look, first up, it was a fantastic and clearly topical session with the election just a few weeks ahead of us. I should call out a big thanks to Governor Christie and Paul Begala for sharing their candid views. I think everyone enjoyed listening to them. In terms of the mood of the conference, it seems to be quite a widespread belief that this election is frankly just too close to call. It feels like a toss-up and that's clearly what many of us think and clearly what the conference attendees seem to think as well. The interesting part to take away really is that whilst there are significant areas of policy differential between the two sides, there are also some commonalities. There are some elements on the geopolitical side on the trade side, et cetera, which are common irrespective of who wins. Spending will go up irrespective of who wins. That will create its own set of opportunities and challenges for the economy. And if you generally look at where the mood of the market is, people are sort of saying this is close to call. There are some differences, but hopefully, the similar points are vast enough or meaningful enough such that you won't actually see too much of a disruption in terms of deal flow and activity and, the mood of the market, so to speak. That's clearly the hope as of now. time will tell., so we'll wait and see what happens.

Matt Gehl: So Aloke, maybe to build off your comment there, the election is coming up soon. I think we heard it was too close to call. But I think what's interesting is the focus from technology CEOs and technology investors is really the same no matter who wins. A number one focus is going to be the regulatory environment. The regulatory environment has really had a chilling impact on deal activity over the last several years. And that's not just the U.S. It's in the U.K. It's in Europe. It's in Asia. And so whoever wins, if they take a bit more business-friendly approach to regulatory environment, not just from antitrust, but to AI and to other areas, there's some optimism. You could start to see an unlocking of some of the M&A in the overall space. So I think that's the number one focus from the investor base is going to be on regulatory and who's most friendly, most aggressive, and we'll have to see what happens in a couple of weeks.

Katharina Ochs: Like you said, Aloke, it's only three weeks away, so we'll see what happens. One topic that I think has to be more discussed than the U.S. elections has to be artificial intelligence, and this wouldn't be a podcast on technology if we didn't touch on it. I know in many sessions, or at least all of the ones that I attended, it was also a topic of conversation of the presenters and the companies. So Matt, maybe one for you. How do you see it transform the tech sector going forward?

Matt Gehl: I think it's about big trend. I haven't seen anything like it since the rise of the Internet early in my career, where the whole industry coalesced around one thing. That was the topic to invest in. Right now, if you don't have an AI story, you simply aren't going to raise capital. So everyone is focused on it. There's very divergent views on how it's going to impact different companies. Everyone says they're a net beneficiary. That cannot possibly be the case, but it's got everyone excited again around investing. But I'd say two things I'd call out. One of the things that's having a little bit of a chilling impact is on some enterprise software investments because with AI causing such disruption in major corporates, there's a potential reallocation of technology budgets, and what we are seeing is elongation of sales cycles. Some of the enterprise software that's selling into large-scale enterprise is seeing a situation where maybe there's some reallocation to AI spending versus traditional seat license software. So that's causing a little bit more lumpiness in some of the numbers. Then we've seen that actually disrupting some processes. It's caused some companies to think about potentially delaying their IPOs a little bit until they've got more visibility.  On the other side, the companies that have really been AI first from the get-go have risen to the front. And these are the companies that are still raising private rounds at north of 15 times ARR. So if it's been embedded in your DNA from day one, you're batting investors away. If you're potentially facing a little bit of a slowdown in your spending because AI is disrupting your customers a little bit, it's having a slight chilling impact. But beyond talking about some of the private companies here, I actually think I want to get Aloke’s view here because the IPOs in tech, there's only been, I think, eight or nine of them year to date. Every one of them has come to market with a pretty strong IPO story. You look at the likes of Menestera or Reddit that were done earlier this year. How are the public investors looking at AI and how is that driving IPO demand?

Aloke Gupte: Yes, I think it's a great question, Matt. And this is clearly the thematic of our times, as you clearly pointed out. One of the things that investors are clearly looking at is you also saw that people were looking not just at the conceptual dynamic of what AI brought to those businesses, but they were also looking at the other factors you'd look at for any other business, which is what kind of sustainable growth do you have? Is there a path to profitability if not existing profitability? What kind of scale can you actually operate the business at? So some of these elements are actually, frankly, common across sectors, but the addition of AI is just sort of ticking the boxes of if people sit down at the start of the year and say, ''I'm going to buy 15 or 20 IPOs this year, what needs to be top of the list?'' AI is definitely the thematic that seems to be there. I think as we move forward into 2025 and this becomes a much more entrenched approach where many businesses actually come out and say that they have this AI component or pillar to their entire strategy, maybe markets will be a bit more discerning as to where there is a lot of depth within that, where that is very real and relevant to the business. So that distinction will perhaps come in time, but at this point in time, it's a very valuable thematic to have. It's an essential thematic to have, and all of these companies are met with a very positive reception.

Katharina Ochs: Considering we've talked a little bit already about the technology IPOs expected to come, and given there has been some lows over the recent years, but it seems to be more constructive at the moment, Aloke, how do you feel about European technology IPOs coming back to market? Do you see the activity picking up again, maybe going back to 2021 levels?

Aloke Gupte: Yes, I think the quick answer, Kathi, is yes. Though you might say that I'm slightly biased on this particular topic. Let's set the context a little bit before we get into that. The last three years have not been a homogenous set of three years. What you saw in the beginning across 2022, and maybe the first half of 2023, was there was a big pivot from growth to profitability. And a lot of companies had to go back to the drawing board and figure out how exactly they were going to meet that new paradigm. And then you started to see a bit of a change, particularly in the second half of 2023, and certainly with a stronger accent on it in 2024, is growth started to come back. You know people still value profitability, but the matrix for now, as we talked about in the earlier question, is really what is your long-term sustainable growth? How can you maintain a good degree of profitability within that or have a good path to profitability, which is relatively near term? And I think a slightly underestimated criteria, which is scale. If you think about it, it's the IPOs that are large and meaningful that have done better over the last few years than the ones that are typically smaller. So those are the dynamics and trends in the market. The second part I'd say is that tech has been the top-performing industry from a public market performance perspective in 2023 and 2024. Now, both of those were also slightly different. In 2023, it was completely led by the large-scale tech, the Mag 7. The performance of the Mag 7 was four times the performance of the NASDAQ and so on and so forth. That has altered slightly in 2024. The large companies have continued to do well, but many others have done well as well. What we're starting to see is the creation of conditions which will be quite appropriate and ripe for companies to go IPO. For the IPO market itself, this has been a build-back year. You know we all wish, and Jamie talks about this as well, about why we haven't seen more IPOs. What we have seen this year is that IPO volumes in both the US and Europe are up three times from what was albeit a low bar last year. Most of those IPOs have performed well. If you look at the top 20 IPOs that have happened globally this year, 17 of them have traded well. So it's a great build back here. We think that hopefully markets will take this momentum into 2025 and you'll start to see a lot more IPOs happen at that point in time. Some of that has been why people have waited has been because of markets. They’ve wanted to see that the market is strong and stable for a period of time before going ahead. But some of that is also just to see confidence within their own business and see that the business is set up in a great way to meet these three or four criteria that we've been talking about. So, yeah, going back, in short 2025, bigger year for IPOs than 2024. 2026, bigger than 2025.

Katharina Ochs: Sounds good.

Matt Gehl: Yes, and maybe jumping on top of that, you said, are we going to go back to where we were in 2020 and 2021? I don't think we're going to go back to where we were. I think we've learned a lot of lessons and I love to mention how the market has moved on. And actually you know we probably won't have as many tech IPOs in '25, '26 as we saw in 2020 and 2021. We may raise more money for these IPOs because the IPOs that are coming are bigger. There's more investor demand and the IPOs that are being prepared are being done so with much more methodical time being spent with the story, with the investors, getting to know people. We were doing IPOs in some cases, three months from the company deciding they wanted to go public to going out, never having met investors back in '21. There was a bit of a FOMO where you had to get public as fast as possible. Now it's a conscious decision that going IPO is best for my business for the long term. And so the IPOs are going to come are going to be must-own IPOs much more so than '21. It was like, I need to get public because everybody else is. I think that's going to be a very positive dynamic for this reopened IPO market we're going to see going forward.

Katharina Ochs: Yes. The conditions are there from the market perspective for companies in a good shape to list. You've talked about the U.S. investors having an increased interest in European tech IPOs. Do you think that means that more European technology companies are going to list in the U.S., or do you think they might choose their home grounds after all?

Matt Gehl: Yes, I think at least initially we probably will see a bit of a shift to the U.S. The reality here is the company needs to choose the exchange that is best for them. And there's no one-size-fits-all answer. If you're a global enterprise software company with sizable revenues in the U.S., with your competition in the U.S., with your biggest customers in the U.S., the U.S. feels like the more natural home. If you're a semiconductor company, the price is all of your revenue in U.S. dollars, and the majority of the market cap is there. You're more likely to gravitate to there. If you're a European-only software business with good growth, high profitability, Europe is more likely to be your home, a dedicated marketplace business. And so I think companies will find their natural home. What you probably won't see is anyone making a decision, ''Oh, the valuation at this period of time is better There's a scarcity effect.'' They're going to make the decision based on what's right for the next 5 or 10 years of the company, rather than optimizing for the short term. And I think we saw some companies looking to do that at the tail end of the last cycle. But what that means is because Europe's been building more global champions over the last 5 or 10 years, that there are more companies that are able to go public in the U.S. And I think whether companies are going public in the U.S. or Europe, that's a great win for the European ecosystem. So while the governments might not love if some of our great champions go public in the U.S., as long as the R&D base, the management base stays in Europe, it's a win for the whole sector.

Aloke Gupte: Couple of things that add to that is, if you set out really what are the various parameters that companies look at? They look at, what are management and shareholder objectives long term? That's an important factor. When you look at some of the more prosaic and technical factors, you think about depth of demand and valuation and where is your comp set based. And then actually comes to the stuff that really makes a difference. Matt touched upon it. Natural home is a really good way of putting it. You know you're listing once, but you're going to be listed for a long period of time. Therefore, long term, where do you really belong? Where are your revenues coming from? What would give you an investor base or a shareholder register that is very long-term, that is a mix of the right kind of global names with some local names if you were to choose Europe and so on and so forth? I think in a nutshell what will happen is that a good number of companies will choose to list in the U.S. because it makes absolute sense for them to do so, as Matt's highlighted. And a very sizable number will choose to, stay at home in Europe because that makes a ton of sense for them.

Katharina Ochs: Exciting. Looking forward to the wave of European tech IPOs then. Now, we've talked a lot about the public markets, but maybe taking it a step back and looking at private companies again, could you both give us some perspective as to what was the mood at the conference, more on the private companies?

Aloke Gupte: Look, there's a definite buzz. I think the quick takeaway is that we're incredibly busy on private rounds at this point in time. It's a race against time through to the end of the year, but we have a number of transactions that could be up for close. And that is great to see because it is true that across '22 and '23, you saw a big slowdown in activity as far as the private markets were concerned because you saw the public markets in a significant amount of pain. The public markets did recover, but private markets, if you look at all of these cycles over the last, 10, 15, 20 years, you'll find that private markets always recover 6 to 9 months after the public markets. And that's exactly what we've seen here today. I think going back to the earlier point we talked about, the level of attendance that we had, the conversations that people were having, Matt touched upon the fact that this year felt much more like there was a touch-and-feel element to it, that these are deals we can do now. You know people talking about it from that lens. We certainly feel that the mood in the private markets has improved substantially. Is there a place where it was in 2020 or 2021? No, but that's similar to the IPO market. That's frankly no surprise.  But we're starting to see investors get more active. We're starting to see companies raise capital. We're also starting to see an interesting trend around secondaries, where a lot of secondary rounds are happening right now. It's a great opportunity for companies to actually write and clean up their shareholder registers. It's an opportunity for some of the early investors in these companies to take money off the table at valuations, which are increasingly becoming more attractive. The type of investor that is focused on private capital right now is starting to expand again. So we're seeing obviously some of the high growth we see is there. We're seeing the sponsors there. We're seeing the sovereign wealth funds there. We're seeing family offices there. So there's a great amount of variety there. Even the crossovers have started to become a little bit more active. So we're pretty bullish about the private capital markets. We have a number of things, as I said, that we hope to close through the course of the year. And again, much like the IPO market, we see that as an improving trend through to 2025.

Matt Gehl: Building on that, I think Aloke mentioned the secondary topic. If you go back two years, most secondary deals were being done by companies. I don't want to say from a position of weakness because they're not selling, but oftentimes because a shareholder just absolutely needed the capital. Now they're being done in a situation where investors are pounding on the door of these companies saying, how do I invest? These companies in some cases have no need for primary capital. They've raised substantial capital back in 2021, '22, more than they even expected or needed. They're not in a rush to go public. So they're saying, well, how do I bring new people into the cap table? Aloke mentioned a lot of value of cleaning up the cap table. The benefit of that is, one, it can make it simpler for the IPO. It can also reduce some of the pressure to potentially need to be in that first wave of IPOs. And so when we're seeing companies going out and raising pure secondary, instead of everyone talking about how big of a discount, we're starting to talk about how big of a dollar value can I invest in the company. And we're seeing private rounds in many cases for secondary deals not being priced at any discount at all because we're seeing the crossover fund saying, ''This is my opportunity to build a position ahead of an IPO.'' So I think that's probably the most positive signal I've seen in the private markets in the last three years. And we're hoping it's going to continue. The other thing that's really interesting if you think from a private standpoint right now is with the US investors coming back into Europe, a desire to invest, it's moved beyond just wanting to invest into the UK or into Germany or France. We're seeing people look much further afield. We're seeing interest in the Middle East come up very substantially. We've got a number of Middle Eastern clients that were at the conference that are going to be thinking about raising capital. And I think you've got a much more diverse investor base that's looking to invest there. So the primary capital is looking further afield rather than just in the home markets they've been in the past.

Katharina Ochs: Interesting. And do you feel like it ever has been market dynamics like this before, or is this like a first that you see all of this coming together?

Matt Gehl: I think back in the glory days of four-plus years ago, you could pretty much do anything, public, private, maybe not as much in the Middle East. So I don't think we're back quite to that level. So as Aloke was saying, we're seeing the building blocks. The public markets are up. We're seeing IPOs get done again. That's now translating into the private market initially with primary capital and now we're starting to see secondary capital. The next phase is going to be hopefully a big ramp in IPOs at some point in the course of '25. I think everything's there. I think the one thing that I mentioned earlier is around M&A. I think that's the big thing we need to be thinking about is in an ideal world when you're doing an IPO, you're able to run a dual-track process. Potentially, if you're a financial sponsor, it's nicer to sell everything at once. If you're a CEO, it's great to actually go public and have that public currency. The IPO markets are recovering. The M&A markets, that regulatory aspect I talked about, is still a giant uncertainty. So if we get some more clarity that regulatory environment might be a bit better, we could have everything coming together for a really improved environment, both IPO and M&A next year. That's a tech banker's dream.

Katharina Ochs: Thanks, Matt. That actually brings me right to the last point I just wanted to touch on, which is where do you see the tech sector and also capital markets in the sector going maybe in like one crisp answer, Aloke, we've heard now where Matt sees it going. What's your view? Where do you see it going?

Aloke Gupte: I see more issuance and I see more business for us, which is going to be great. I think, look, I echo everything that Matt said. We've got all the right conditions for a lot of companies to raise capital, be it primary or secondary in the private markets, as well as go IPO across 25 and 26. I would just sort of lengthen that time period to say I think we will see a pickup in '25, but we might see a dramatic pickup in '26 as well. I think we do have a very long-term mindset. And so we feel really good about it. I think really, pivoting away slightly from your question, Kathi, I also did want to actually just take a minute to thank Matt for his partnership on the entire Tech Stars event. From both of us, I want to take the opportunity to thank the many people, you  know you included, who worked incredibly hard across many different teams in the organization to make this a big success. Tech Stars is really important to us. We're looking forward to being back next year, bigger, better, and, hopefully in great market environment.

Matt Gehl: Let me just echo that. Aloke's been a fantastic partner. I think we spend more time with each other than our clients and our families over the past couple of weeks, and big thanks to the team. We really do hope to make this, I think, year 13. Next October is going to be even bigger, even better. We really do look forward to even more people coming out. If you haven't heard of the conference before, please do reach out to your J.P. Morgan contact. We'd love to have every corner of the globe, every type of technology company, every type of technology investor be here for the event next year. So it's only getting better in the tech industry, and our conference will follow suit.

Katharina Ochs: Really looking forward to it. Just to recap, today we talked about some of the key themes moving the sector and the market at the moment, including the upcoming US elections, artificial intelligence, and we spent some time talking about private and public capital markets and where we see the sector and the market going in the next few years. So big thanks, Aloke and Matt, for joining me and taking part in this podcast today.

Matt Gehl: Thank you, Kathi. You've been a fantastic host. Did a great job at the conference. I really appreciate you having me here.

Aloke Gupte: Thanks a lot, Kathi. It was a delight to be here, and always great to chat with you, Matt.

Katharina Ochs: Thanks, everyone, for tuning into another episode of What's The Deal?. We hope you enjoyed this conversation. I'm your host Katharina Ochs. Until next time. Goodbye.

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