Why do stock markets matter for young companies?

Equity markets dedicated to growth companies are a key feature of today’s financial ecosystem. They can help smaller, younger and more innovative firms access funding from investors. At a time when economies worldwide are searching for new ways to increase productivity and innovation, these markets can fill an important gap.

Smaller and innovative firms often have strong growth potential, but they struggle to access traditional financing. Banks are usually reluctant to lend to young companies that lack a long operating history, stable cash flows or physical assets. Yet these firms are often rich in other valuable assets – patents, data and talented teams – that fuel innovation and productivity. This is where equity markets come in: by providing long-term funding from many investors who share the risk, they bridge the gap for high-potential companies.

Recognising this need, many countries have established equity market segments tailored specifically to growth companies. These markets lower the barriers to going public by reducing the costs of meeting regulations and offering more flexible rules, while maintaining core investor protections. The result? Promising firms can list earlier, raise capital to scale up and eventually graduate to the main market as mature, globally competitive companies. However, challenges remain in how these markets function.

Dedicated markets for growth companies are not new. Since the launch of Japan’s JASDAQ in the 1960s, numerous markets worldwide have sought to improve capital market access for young and fast-growing firms. This global expansion of growth markets reflects an important reality: traditional main markets often do not meet the needs of smaller and innovative firms. Companies are waiting longer to join main public equity markets. Exchanges have therefore adapted, creating more accessible platforms to support entrepreneurship and innovation.

Today, growth markets are truly global. According to new OECD data covering 71 stock exchanges in 59 countries, nearly 16 000 companies are listed on growth markets worldwide – almost one-third of all listed companies. Despite their large number, these firms account for only 4% of global market value, or roughly USD 4 trillion, highlighting both their smaller average size but also their potential to grow.

Growth markets are particularly prominent in Asia, which hosts more than half of all growth-market listed companies and around 80% of their combined market value. In Asia, growth markets represent about 10% of total market value, compared with 4% globally. Europe also plays a significant role, with more than 3 400 companies listed on growth markets across the region.

The numbers on capital raising tell an important story. Between 2019 and 2023, more than 4 200 initial public offerings (IPOs) took place on growth markets globally, surpassing IPOs on main markets. Crucially, 98% of the capital raised on growth markets went to non-financial companies, compared with 87% on main markets. While the total amount raised by growth companies was smaller – around USD 313 billion – it still represents roughly one-third of the capital raised on main markets. Growth markets are providing substantial funding to emerging businesses that might otherwise struggle to expand.

Technology companies dominate most growth markets. In some countries, such as the US, healthcare firms also play a prominent role, but the overall pattern is clear: growth markets are significantly more supportive of innovation-intensive sectors than main markets, which remain largely dominated by more traditional industries.

Founders and other strategic individuals typically retain around 27% ownership in growth companies, compared with just 7% in main-market firms. By contrast, institutional investors hold only 18% of equity in growth-market companies, compared with 46% in main-market firms. One key reason is that mainstream indices focus on large main-market companies, and these indices shape institutional investment flows.

Growth markets regulations are tailored to company size. Based on responses from 30 securities market regulators, core requirements – such as regulatory approval, audited financial statements and a prospectus – are rarely waived. Instead, flexibility tends to focus on requirements such as minimum capital, minimum shares available to the public, free float thresholds or years of financial history, which may be relaxed for younger firms.

While all jurisdictions require a prospectus for IPOs, many allow simplified disclosure for smaller offerings or companies. In the European Union, for example, IPOs below EUR 8 million may be exempt from a full prospectus, provided essential information is still disclosed in a lighter format. The aim is to match disclosure with the size and risk of the transaction, without undermining investor protection.

One hallmark of growth markets is the use of nominated advisers to support companies through the listing process and beyond. In 19 out of the 30 markets surveyed, companies must appoint an adviser during the IPO process. These advisers – often financial or legal firms – guide companies through listing, conduct due diligence and support ongoing compliance. By acting as an intermediary between companies and regulators, they help balance flexibility with investor protection.

Well-known examples include the UK’s AIM and Nasdaq First North in Sweden, where companies must always retain a certified adviser. Losing adviser support can lead to suspension or delisting, underlining how important this model is for market integrity.

Despite their progress, growth markets face challenges. Liquidity remains low in many markets, largely because institutional participation and analyst research coverage are limited, and ownership remains highly concentrated. Regulators also raise concerns about corporate governance practices and that the appropriate incentives are in place for companies to transition from growth markets to main markets.

Looking ahead, policymakers face the challenge of balancing the dynamism of these markets with the need to ensure investor protection. They should:

• focus on encouraging greater institutional investor participation, enhancing transparency and supporting market makers and research initiatives.
• support mechanisms to help companies to transition to main markets and improve governance over time.

Growth markets are not just a niche segment of capital markets. By fuelling innovation today, they can support the firms of tomorrow.