The AIM Campaign to Enlist IPO Candidates from the US: What It May Mean For Global Venture Capital

Joseph W. Bartlett, Founder of VC

Headed by the SJ Berwin and Fish & Richardson P.C. The Encyclopedia of Private Equity contains a Book on the metrics of US issuers, both public and private, listing and floating securities on the Alternative Investment Market, known colloquially as the AIM, a wholly owned subsidiary of the London Stock Exchange. Herewith some vital statistics on the AIM.

AIM: a market for companies of all sizes

Distribution of AIM Companies by Market Value

Jan 2004 vs Jan 2005

On Average, AIM companies have a market value between $15m and $100m.

Source: London Stock Exchange trade statistics - January 2005

Top 10 AIM sectors by market value and number of companies

September 2005

AIM a diverse market, with 32 sectors represented

Source: London Stock Exchange trade statistics - October 2005

Primary and Secondary Market Data

Distributions of AIM companies by market value Dec. 2004 vs. Dec. 2005

Primary and Secondary Market Data

The significance of the AIM may be materially enhanced if, as reported in the Wall Street Journal, Monday, March 13, 2006, NASDAQ is successful in its offer to acquire the London Stock Exchange.

As things now stand, the AIM is positioning itself as a global alternative for so called 'mid-cap companies' . firms with an expected market capitalization from, say, $50 million to $600 or $700 million. The AIM strategy is driven and fueled by several factors, including the post melt-down closure of the NASDAQ window for flotations which fail to anticipate at least a $600 million market capitalization. Under today's rules in the US, will sell side analysts walled off from corporate finance revenues, trading volume for a mid-cap security is generally not robust enough to compensate the analyst community to maintain coverage. And, absent analytical coverage, shares tend to flutter down into the so called "orphanage." Moreover, the $2 million or so added annual costs of complying with Sarbanes-Oxley, particularly Section 404, entails a significant drag on earnings for smaller companies. If the NASDAQ hitches up with the AIM, however, perhaps opening an integrated stock exchange which offers trading from 8:00 AM in London to 4:00 PM in New York, a powerful global facility could result. Assuming the AIM retains its point of view, and with enhanced and beefed up resources resulting from its alliance with NASDAQ, the global exchange could fill in a critical element in the global venture capital equation.

The short of the matter is that this writer does not ever recall, in his forty some odd years in the business, as much interest as exists today in spreading the US venture capital metric around the globe, particularly into emerging markets. In fact, a forthcoming trade book by me on venture capital . past, present and future . will feature the astonishing growth of professional interest in this event . spreading the Route 128/Silicon Valley phenomenon worldwide. The missing link however, has been a lack of a NASDAQ-type market, with an open window to emerging growth companies domiciled, say, in Central Europe; the Mid-East; Asia and (hopefully some day . perhaps soon) Africa. Of course, "gazelles" (as VC-backed companies are called) can always enjoy a trade sale as a liquidity event; but an IPO with US characteristics, particularly as a "portfolio maker" for the investment fund backing the company, has not been realistic up to now (other than episodically), anywhere but on NASDAQ.

That said, with a NASDAQ/AIM alliance, such an exchange may be in the cards. The possibility exists that the regulators would get it right, opening up, for example (as the AIM claims it does), analytical coverage of all listed companies, so as to enable institutional investors to evaluate the shares and keep the deserving issuers away from the penny stock orphanage. Moreover, the idea of saddling a responsible exchange member with obligations to police companies the member introduces to the exchange is solid in my view, particularly when issuers from areas outside the mainstream are competing for investor attention.

All of this may be pie in the sky, of course; but a confluence of factors may, in fact, be at work . e.g., globalization of course, heightened interest on the part of US and EU investors in emerging market profit opportunities, as emerging markets growth patterns robustly curve upward; and, hopefully, harmonization of international regulatory standards including accounting, transparency and best practices. All in all, an intriguing possibility.