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Last August, President Donald Trump’s administration took a 10 per cent stake in chipmaker Intel. Now the UK has tipped funds into software platform Kraken, a rather less pivotal part of the tech sphere.
Numbers, as you would expect, are a whole lot less ballsy on the British side of the Atlantic. The $8.9bn of federal grants Washington switched into equity in Intel would have bought Kraken lock, stock and barrel. Far more modestly, the British Business Bank, the state’s economic development lender, is investing £25mn ($34mn). Assume Kraken lists at the $8.7bn valuation achieved at its last funding round, that does not even buy 0.4 per cent.
So what does it buy? Kraken is not about to kowtow to government demands to keep unproductive processes running; nor would Whitehall expect it to. A company that powers business processes for utilities is not too big to fail, although it would certainly be jarring if electricity bills got muddled up or there was less smoothing of demand across the grid.
Nor is it an obvious national champion in the way of a chipmaker. The BBB’s newly beefed-up mandate hints at selecting winners: in common with the zeitgeist from Beijing to Washington, it has a five-year strategic plan. Among other things, this allows it to quadruple the maximum investment in a single company to £60mn and enable “strategically important scale-ups” to grow at home.
True, government money can lure in others. Look at Intel, which received $2bn from Japan’s SoftBank on the heels of the government stake. But wooing investors does not appear to be especially problematic for Kraken, which was spun out of Octopus Energy. Its roster of investors spans Canadian pension funds, an Australian utility and fund manager Fidelity among others.
More prosaically, Britain wants Kraken to launch its expected initial public offering in London. Greg Jackson, founder of Octopus Energy, says it’s a “coin toss” between London and New York. The hope is that £25mn weighs the coin in London’s favour: UK business secretary Peter Kyle told the FT it was part of efforts to keep the company in the UK.
Nice try. But Kraken, like its cephalopodan namesake, will go where the liquidity is, and the higher valuations that it helps to support. Based on last month’s fundraising, it already trades on 17 times contracted annual revenue of $500mn, many knots ahead of its peer group. Software-as-a-service companies have performed poorly of late; still, those listed in the US are nearly all valued more highly than London-listed Sage Group.
Perhaps Britain’s best bet is that Kraken does indeed list in the US, securing a bouncy valuation. That might seem like letting a big fish get away. But it would also allow BBB to exit with a handsome sum that it could then push into the genuinely small companies that make up the UK’s economic backbone — which after all is where the lender’s roots lie.