ALEX BUMMER: Raising tech funds makes it hard to see the hype from reality

Launch: Google and Nasdaq executives, including Google co-founder Larry Page, (center), at Google's Nasdaq Stock Exchange in New York City in 2004

It’s a lottery to see the winners among the technical technology IPOs. I was on assignment in the US in 2004 when Google floated and mistakenly decided it wouldn’t work because it would be strangled by filmmakers, publishers and the record industry who would besiege it with copyright cases.

The search engine was such a powerful tool that the shares of the renamed parent alphabet have since risen.

There is reason to carefully scrutinize digital companies entering a tech bubble.

Launch: Google and Nasdaq executives, including Google co-founder Larry Page, (center), at Google’s Nasdaq Stock Exchange in New York City in 2004

The great reception for the float of Manchester-based online fitness and beauty outfit The Hut Group is obviously welcome for a London Stock Exchange aiming to lead Europe as a center for technology trading.

The wisdom of allowing a company to be dominated by its founder, the beautiful Matt Molding, gives a serious silence.

Best for The Hut is the support of former Tesco boss Sir Terry Leahy (his current share is worth £ 88m), who also helped launch discount chain B&M.

Whether you believe in Myprotein’s muscle-building properties or not, The Hut’s real value probably lies in its proprietary technology, which could potentially make the body’s Ocado beautiful.

More in the tradition of California spinouts is Snowflake, which raised £ 2.5 billion in New York this week and valued the venture at £ 23 billion. Snowflake is active in the cloud data industry.

The cloud has been a huge value driver for both Amazon and Salesforce. Snowflake is also backed by Silicon Valley venture capital pioneer Sequoia, led by Briton Michael Moritz, who helped bring Google, Oracle and Nvidia to the public markets.

Equally fascinating is the march of Swedish fintech creation Klarna. A new fundraiser led by Silver Lake Partners pushed its valuation to just over £ 8 billion, making it one of the most valuable fintech companies in Europe now that Germany’s Wirecard has been imploded.

Klarna has revolutionized online purchases on fashion sites such as H&M through the interest-free buy now, pay later model, a fintech version of what used to be called the never, never.

Consumers are billed electronically and pay in installments. It is trying to become a payment system of choice as Covid-19 has led to a shift to online shopping. Klarna claims 9.5 million customers in the UK, 85 million worldwide and 12 million app users, and has signed up 200,000 retailers.

Money is made with a levy that is charged to retailers for each transaction. It was able to raise new cash despite a large increase in losses in the first half of this year to £ 46 million due to Covid.

Buying fast fashion online in installments, when global unemployment is on the rise, may not be the safest model.

But established banks have been so busy updating and cyber-resilient IT from the past that they’ve left room for newcomers like Monzo and Klarna.

Raising technical funds makes it difficult to separate hype from reality.

Nuclear option

As encouraging as foreign investment in British infrastructure may be, it leaves Britain vulnerable to decisions made abroad.

Japan’s Hitachi is the latest potential investor in the next generation of British nuclear power that gives up the ghost.

Hitachi took over the Wylfa energy project in Wales when two German utilities – RWE and E.On – decided that the costs made no sense after Angela Merkel shut down all nuclear projects following the 2011 Fukushima disaster.

Japan is blaming Covid-19’s investment climate, although the OECD says the UK will be the fastest growing G7 economy by 2021, growing at 7.6 percent.

If China is removed from the list of potential investors at Sizewell and elsewhere due to anger over the crackdown in Hong Kong, the government will soon be left without foreign options.

It could potentially kill two birds with one stone if ministers decided to fully endorse Rolls-Royce’s Small Modular Reactor (SMR) program based on the nuclear expertise of the submarine engineering group.

A regional network of SMRs could ensure that the UK has the basic energy supply it needs and provide an important lifeline for Rolls as aerospace orders sag due to the epidemic.

R&D and technology are very much alive. The government should help Rolls scale up, if necessary, with loan guarantees and equity, and reclaim control over the UK’s nuclear fate.

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Himanshu Singh

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