Letta to recommend creation of EU Deep Tech Stock Exchange

In a highly-anticipated report to be presented on Thursday (18 April), former Italian prime minister Enrico Letta will recommend creating an EU stock exchange tailored for deep tech startups, according to a draft seen by Euractiv.

These capital-intensive startups in fields like quantum computing and biotech develop their technology based on substantial scientific or engineering breakthroughs, making them especially important as Europe’s competitiveness in the global tech scene lags.

The issue of competitiveness has risen to the top of the EU agenda in recent months due to a mix of geopolitical and trade headwinds and macroeconomic shifts affecting the bloc’s long-term performance.

Outlining several problems in the bloc’s stock exchanges that prevent deep-tech startups from getting the funds they need in the EU, Letta says an EU-level “less risk-averse […] prudential regime […] could be envisaged” for institutional investors buying into deep-tech assets.

Ecosystems flourish around these technologies, contributing to economic growth, which “explain for a large part the growing gap between the US and EU,” Letta writes. He did not clarify whether the gap refers to economic performance, tech innovation, or something else.

However, these endeavours come with high investment risks that can only pay off in the long term, Letta writes.

“There is no or little market for it to start with, and no guarantee of a breakthrough,” and the sector is characterised by many bankruptcies.

In the EU, global banking rules set out under the Basel II standard “entail” a “penalty” for high-risk investments, as these need to be hedged by setting aside more capital to cover stronger liquidity risk, the report says.

Letta continues that at the pivotal point when a startup has a viable product or service and needs a massive cash infusion to scale up, which they usually do through an Initial Public Offering (IPO), these up-and-coming firms are faced with the dire situation of Europe’s stock markets.

“Firstly, they realise that no national stock exchange in the EU is large enough to raise the capital they need at speed and cost-effectively compared with the USA. […] Secondly, they see that market valuation – amount investors are paying above the ‘floor price’ set to buy new shares – in EU countries is much lower than in the USA,” Letta writes.

The US is the top market for tech IPOs globally, with startups, including European ones, flocking to list on its public markets, reducing value for the EU economy.

European markets are also fragmented, with stock exchanges operating under national authorities that, the report says, handle these startups erroneously based on revenues and profits.

An EU stock market would increase the available capital by pooling resources but “cannot remedy the specific [regulatory] problems affecting deep tech start-ups,” the report says.

In the US, the Nasdaq stock exchange is home to the world’s largest and most cutting-edge tech companies, such as Elon Musk’s electric vehicle firm Tesla and semiconductor maker Nvidia.

In China, a board or subsection of the Shenzhen Stock Exchange, ChiNext, targets tech companies and is marketed as the country’s Nasdaq. In 2019, another tech board was launched in the Shanghai Stock Exchange.

[Edited by Anna Brunetti/Alice Taylor]

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