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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Zilch Technology Limited is

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Speaker 1: a buy now, pay later firm based in the UK.

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Speaker 1: The fintech startup launched its platform in September twenty twenty.

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Speaker 1: By November twenty twenty one, it was valued at over

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Speaker 1: two billion dollars, setting a record as the fastest European

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Speaker 1: company to reach double Unicorn status. Zilch Technology is expected

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Speaker 1: to go public later this year and the London Stock

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Speaker 1: Exchange should be the company's natural home, but there's a

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Speaker 1: very real chance that Zilch might forsake its hometown and

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Speaker 1: move to New York.

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Speaker 2: We spoke with the chief executive officer, Philip Bellman. He said,

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Speaker 2: as a CEO, what you're thinking about is two things.

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Speaker 1: Sagarika Jason Connie covers stock markets and investment strategy for Bloomberg.

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Speaker 2: One is, obviously, how do you create the revenue? How

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Speaker 2: do you create the profit on the business side of things,

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Speaker 2: And the other side is how do you get the

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Speaker 2: best valuation for your firm possible?

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Speaker 1: Yes, profitability is important. The companies looking to maximize their

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Speaker 1: valuation have to think about location too, and for a

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Speaker 1: long time, Europe hasn't had a great sales pitch.

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Speaker 2: US TOCs on average trade at twenty two times earnings,

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Speaker 2: which is a near sixty percent premium over what companies

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Speaker 2: can currently command in Europe. In fact, another source that

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Speaker 2: I was talking to they used a very interesting turn

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Speaker 2: of phrase. They said, in Europe, a lot of the

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Speaker 2: times companies trade at a lower valuation than is fair

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Speaker 2: just because they have a European postcode.

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Speaker 1: I'm Sarah Holder, and this is the big take from

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Speaker 1: Bloomberg News today on the show, how Europe's broken financial

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Speaker 1: markets are stifling innovation there and what the continent is

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Speaker 1: trying to do to keep its homegrown company from skipping town.

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Speaker 1: So you've described European markets right now as broken. What broke? Then?

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Speaker 2: If we knew how to answer that question, we wouldn't

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Speaker 2: have arrived at the deep dive of the story that

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Speaker 2: we've just penned down. Look to give you a very

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Speaker 2: high level sort of comparison with the the US market.

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Speaker 2: By definition, it is one market, despite the fact that

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Speaker 2: it's much bigger as an area than Europe. Europe doesn't

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Speaker 2: have one financial market. It has twenty seven financial markets.

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Speaker 2: And that is the very crux of the issue. When

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Speaker 2: you have a fragmented system like that, you have different

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Speaker 2: listing regulations for each country, you have different capital requirements,

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Speaker 2: the way that you approach investors is different. In a

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Speaker 2: market like that, when companies plan for their future, it

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Speaker 2: becomes difficult for them to say, this is a seamless

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Speaker 2: experience that I'm going to have, which the US offers them,

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Speaker 2: not just for companies who want to list in the

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Speaker 2: public markets, but also on the other side, for people

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Speaker 2: who want to buy into public markets. You know, I

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Speaker 2: was talking to one of my sources for the story

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Speaker 2: and they said, in the US, you could be a

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Speaker 2: taxi driver in Manhattan and you would still have an

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Speaker 2: opinion on Nvidia, you would still have an opinion on Apple.

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Speaker 2: In Europe, that culture doesn't exist, and that's the result

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Speaker 2: of several factors, cultural, geographical, but also the fact that

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Speaker 2: there is no one single platform that people can go

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Speaker 2: to and say, this is what I define as a

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Speaker 2: European market.

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Speaker 1: What does that mean for European companies.

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Speaker 2: It means smaller pools of capital that they can potentially access.

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Speaker 2: It means having to go through various different listing regulations,

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Speaker 2: the kind of political and regulators read challenges that they

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Speaker 2: navigate to get to the market, they have to jump

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Speaker 2: through bigger hoops, or a lot more hoops than they

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Speaker 2: would in the US. It also means reaching that investor.

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Speaker 2: We have statistics that show that in the US, right

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Speaker 2: from the venture capital level all the way through to

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Speaker 2: public markets, there's a lot more engagement. So that means

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Speaker 2: there's more interest from potential investors, whether that be your

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Speaker 2: institutional investors, whether that be your venture capitals or the

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Speaker 2: common man. In Europe, there's a lot more impediments to

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Speaker 2: reach the audience in the investing community. That often means

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Speaker 2: that you end up having to settle for lower valuations.

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Speaker 2: It means you are dealing with a market that is

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Speaker 2: not very liquid.

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Speaker 1: After all. Higher valuations mean more money raised if and

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Speaker 1: when the company goes public, which means more money for

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Speaker 1: its founders, early investors, and more investment to help it

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Speaker 1: continue to grow.

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Speaker 2: You want to get the biggest bang for your buck.

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Speaker 2: It just comes down to that, right It makes you

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Speaker 2: more established. Having a bigger valuation means that your brand

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Speaker 2: is better respected in the market. It means more publicity.

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Speaker 2: It just you compete with the global biggest behemoths. You're

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Speaker 2: taken seriously. The bigger you are, and by bigger, the

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Speaker 2: more valuable you are.

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Speaker 1: Give us a sense of the scale of these challenges

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Speaker 1: for European markets. How far behind are European markets lagging

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Speaker 1: compared to other markets like the US stock exchanges.

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Speaker 2: In the past three decades, not a single European company

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Speaker 2: that is currently worth over one hundred billion euros has

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Speaker 2: been set up from scratch in this region. In the US,

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Speaker 2: you've got the biggest companies that you talk about that

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Speaker 2: have a price tag of one trillion dollars and higher.

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Speaker 2: In Europe, the biggest company is not even valued at

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Speaker 2: five hundred billion dollars, let alone a trillion. So trillion

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Speaker 2: dollar club is well beyond any ambitions at the moment.

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Speaker 2: In the US, not only do you have a handful

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Speaker 2: of them, but all but one is tech. The only

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Speaker 2: one that is valued over to trillion dollars that is

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Speaker 2: not tech is Berkshire, Hathaway, It's Apple, Microsoft, Nvidia, you

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Speaker 2: name it. It's all tech. Right, So that is the challenge

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Speaker 2: also for Europe where you end up competing in this

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Speaker 2: old world versus New world. Pop new world is innovation,

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Speaker 2: it's tech, it's AI. What's coming next, right, Europe's makeup

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Speaker 2: of stocks, if you look at it is very old economy.

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Speaker 2: It's your drug makers, it's your industrials, it's luxury goods makers,

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Speaker 2: it's food and beverage. They tend to be companies that

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Speaker 2: are a bit more what we are in the geeky

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Speaker 2: equity world. We talk of them as defensives, right. These

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Speaker 2: are stocks that you tend to want to pick up

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Speaker 2: at a time when you don't want to take a

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Speaker 2: lot of risk, when you're not willing to put in

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Speaker 2: a lot of your money. So at a time when

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Speaker 2: there's good global growth, there's no overarching phase of a recession,

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Speaker 2: you go to the risky stocks which will give you

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Speaker 2: again higher returns for the money you put into them,

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Speaker 2: which is tech, which is in the US.

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Speaker 1: Sagarika says, these dynamics are prompting many tech companies to

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Speaker 1: leave Europe altogether and move their headquarters to the US,

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Speaker 1: and that's created even more problems for local European economies.

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Speaker 2: It has a trickle down effect into various strata of society, right,

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Speaker 2: because when you list somewhere, it is natural that your

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Speaker 2: head office tends to be in the country that you are.

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Speaker 2: Then domicilent that you are listed in. Rather, when your

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Speaker 2: head office is there, you create jobs there, the wealth

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Speaker 2: creation is there. You are adding to the productivity of

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Speaker 2: that country. Not just that when you're adding, you tend

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Speaker 2: to add there, but also when you are trimming. When

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Speaker 2: this talks about layoffs, you tend to protect the headquarters.

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Speaker 2: It is the peripheral offices that are trimmed down first. Again,

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Speaker 2: it could be a concept that was inspired in Europe.

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Speaker 2: The company started off in Europe, but now just the

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Speaker 2: fact that it's listed in the US means that not

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Speaker 2: only will they grow there, but they'd also protect those

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Speaker 2: businesses or those interests more in a downturn than they

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Speaker 2: would they're now peripheral offices in Europe.

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Speaker 1: Well, Sagariga, you mentioned the fact that Europe's stock markets

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Speaker 1: are fractured. Obviously there's many, there's not just one. Brexit

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Speaker 1: was another factor that majorly fractured the EU's economic power.

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Speaker 1: Has Brexit had an impact on the challenges we're talking

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Speaker 1: about for European.

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Speaker 2: Markets, Absolutely without a doubt, because when you're talking about

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Speaker 2: the capital pools that you can access now you have

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Speaker 2: one more right, But it's not just from the point

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Speaker 2: of view of Okay, there's another market. It's also psychological.

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Speaker 2: Europe's benchmark index, the stock six hundred, still has UK

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Speaker 2: companies that are a part of it. So you think

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Speaker 2: of it psychologically as being part of Europe, but it's

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Speaker 2: not really. It's got its own rules, it's got its

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Speaker 2: own challenges, its own gaps, its own political and fiscal drama.

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Speaker 2: In the last two three years, France, Germany, the UK,

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Speaker 2: they've all had political crises in just the last twelve months.

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Speaker 2: Right as an investor, when you think about it, not

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Speaker 2: only are you then having to grapple with different rules,

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Speaker 2: different listing rules, different regulations, but then there's also political

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Speaker 2: crisis fiscal crises going on in the major economies in Europe.

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Speaker 2: That's not really a point of attraction, and it is

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Speaker 2: a visual circle because it feeds one into the other.

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Speaker 2: Broken markets means lower productivity means a weaker economy, and

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Speaker 2: a weaker economy means lower appetite to invest, lower incentive

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Speaker 2: for companies. It's not a high growth economy for companies

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Speaker 2: to access the public markets in so it's sort of

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Speaker 2: a feedback loop which is hard to get out of.

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Speaker 1: As Europe tries to break out of this vicious cycle

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Speaker 1: and keep its homegrown firms at home. It faces competition

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Speaker 1: not just from the US, but from Asia as well.

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Speaker 1: What's next for European markets after the break? European companies

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Speaker 1: and startups have been defecting to more lucrative financial markets

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Speaker 1: in the US for a while, and now that President

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Speaker 1: Trump has promised to slap tariffs on EU exports, Europe's

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Speaker 1: markets have been under even more pressure. But Bloomberg Sagarika

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Speaker 1: jason Khani says it's not just the US that Europe

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Speaker 1: has to look out for.

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Speaker 2: It also faces a massive competition from Asia. Based on

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Speaker 2: data from a think tank called New Financial this report

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Speaker 2: was released last year and the data is through twenty

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Speaker 2: twenty three, that showed that Europe's total share of the

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Speaker 2: global capital markets stood at eleven percent, where it had

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Speaker 2: started at sixteen percent in two thousand and six. The

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Speaker 2: strange bit, or the unexpected bit, I should say, is

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Speaker 2: that the US has also conceded a small share from

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Speaker 2: fifty six to forty eight. That the exponential growth that

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Speaker 2: we saw was in Asia, where Asia's share went from

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Speaker 2: thirteen percent in two thousand and six to a whopping

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Speaker 2: twenty nine percent. So almost a third by twenty twenty three.

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Speaker 2: So that speaks for itself in terms of what Europe

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Speaker 2: is up against when it has to claw back share.

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Speaker 2: Look at the makeup of it right when you talk

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Speaker 2: about China, when you talk about Korea, the companies that

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Speaker 2: are coming out of their very tech focused they have

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Speaker 2: become integral parts of the tech supply chain, which, as

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Speaker 2: we've discussed, is the high growth new World economy space

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Speaker 2: of the market. So Europe is certainly facing a tough

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Speaker 2: battle against the US, but also Asia, which has proven

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Speaker 2: to be more relevant in the tech space than Europe

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Speaker 2: has managed so far.

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Speaker 1: But Sagarika says that European governments are trying to come

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Speaker 1: up with a way to fight back and give its

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Speaker 1: markets more of a competitive edge.

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Speaker 2: They've been very vocal. There is a lot of not

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Speaker 2: just awareness, but their policymakers are actively addressing the issue.

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Speaker 2: Right There was the much awaited report by Mario Draghi

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Speaker 2: that came out last year. It called for more synergies

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Speaker 2: that would spark innovation because he said that one of

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Speaker 2: the biggest challenges for Europe was that a lack of

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Speaker 2: an integrated capital market, which was, as he said, stopping

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Speaker 2: the cycle of innovation in its tracks. The EU Listing

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Speaker 2: Act was enacted in December, is being phased in slowly,

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Speaker 2: but one of its key aims. One of the agendas

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Speaker 2: is simplify the requirements to list and raise capital on

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Speaker 2: European exchanges, so make it easier for companies, give them

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Speaker 2: those incentives to stay in Europe, to bring more capital

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Speaker 2: into Europe, to bring more business into Europe. The UK

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Speaker 2: has also undertaken the biggest reforms in its own words

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Speaker 2: in three decades. These are again very geeky terms, basically

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Speaker 2: to relax voting rules and share structures, the way that

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Speaker 2: companies are made up, how much they can sell, et cetera.

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Speaker 2: We spoke to the London Stock Exchange and one of

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Speaker 2: the things they said was that the focus is not

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Speaker 2: just on the supply side, which is to incentivize companies

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Speaker 2: still list here, but also on the demand side to

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Speaker 2: create that wealth for people to want to buy those shifts,

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Speaker 2: to want to invest their capital here as well.

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Speaker 1: We talked about the differences in investing culture between the

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Speaker 1: US and Europe. Do you expect to see pension reform

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Speaker 1: or other government intervention to amp up that demand side

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Speaker 1: and get people excited about investing in European markets.

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Speaker 2: Absolutely. The involvement of pension funds in the equity market

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Speaker 2: is something that has been a key focus. When we

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Speaker 2: hear from policymakers the local pension funds in the UK,

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Speaker 2: their exposure to UK equities has fallen to just four

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Speaker 2: point four percent of their total portfolio, so they tend

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Speaker 2: to be still more heavily weighted toward real estate. You know,

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Speaker 2: it's a very savings driven mindset in Europe rather than

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Speaker 2: an investment driven mindset. And for there to be bigger

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Speaker 2: participation in capital markets from the commonman, from households, from

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Speaker 2: pension funds, that needs to change and that has emerged

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Speaker 2: as well. If the area is a focus.

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Speaker 1: It's not just the short term economic consequences that Europe

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Speaker 1: has to worry about. There's also that vicious cycle to disrupt.

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Speaker 1: If Europe doesn't adapt, innovate and regain its footing in

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Speaker 1: the global market, the next generation of startups and talent

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Speaker 1: could be lost to the US or to Asia. So

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Speaker 1: I asked Sagarika, when will we know if any of

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Speaker 1: these interventions are working.

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Speaker 2: I think that you listing act itself is a good

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Speaker 2: starting point in terms of a yardstick. The agenda is

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Speaker 2: for them to be phased in through the rest of

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Speaker 2: this year. What will tell us if the tide is

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Speaker 2: studying Very honestly, the proof is in the pudding. The

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Speaker 2: moment startups in Europe start to consider and put their

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Speaker 2: money where their mouth is, when they start listing here,

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Speaker 2: when they start getting serious about you know, this is

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Speaker 2: our home. We're not considering the US at this point.

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Speaker 2: We think that there is enough value that is being

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Speaker 2: generated here. We're going to stay here. The moment we

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Speaker 2: see that sort of a trend start to accelerate, that

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Speaker 2: means it's working, and we hope it does. We live

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Speaker 2: here after all.

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Speaker 1: Well, we'll be watching alongside you. Thank you so much, Sagerka,

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Speaker 1: Thank you, Sarah, Thank you for having me. This is

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Speaker 1: the Big take from Bloomberg News. I'm Sarah Holder. This

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Speaker 1: episode was produced by Jessica Beck. It was edited by

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Speaker 1: Tracy Samuelson and Farah elba Rau. It was fact checked

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Speaker 1: by Adrianna Tapia and mixed and sound designed by Alex Uguiera.

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Speaker 1: Our senior producer is Naomi Shadin. Our senior editor is

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Speaker 1: Elizabeth Conso. Our executive producer is Nicole beemster Boord. Sage

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Speaker 1: Bauman is Bloomberg's head of podcasts. If you liked this episode,

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Speaker 1: Thanks for listening, we'll be back tomorrow