London calling: Financing available
In Colorado, we are coming out of a recession in which our smaller, growth-oriented companies hunkered down, preserved capital and did what they could to stay alive. Now that the economy has bounced back, the need for growth capital at these companies is high.
Private financing for such companies can be tough to find, with a relatively small pool of local venture capital firms operating here compared with the heady dotcom days. So companies have to look outside the state for such financing, and without influential contacts, the going can be tough
Enter London’s AIM exchange, formerly the Alternative Investment Market, a stock exchange created by the London Stock Exchange in the early 1990s.
AIM was specifically created to meet the need for a smaller exchange, with more flexible regulatory requirements, lower costs and no limits on market capitalization or a minimum number of shares to be issued. It was also created to be self-regulating.
AIM has attracted many hundreds of US-based companies during its lifespan, but very few from Colorado. It’s time that changed. It is highly likely that there are many Colorado enterprises that would fit the AIM mold and it’s time that the business community got to know AIM and what it has to offer.
Underwriters do not exist on the AIM exchange, instead, nominated advisers, or Nomads, who typically work for a stock brokerage, review the company’s documents to learn about management, financial controls, and growth potential, to decide if it should be listed on AIM. They then are in control of company oversight and help the company with annual compliance reports to investors and updates every six months.
Nominated brokers (which are in many instances the same company as the Nomad) help with the IPO itself: marketing the stock to its pool of institutional investors that they know like to invest in AIM-listed ventures.
In 2013, 55 US-based companies listed on AIM, mainly smaller companies that needed capital for growth. Many professionals who are familiar with AIM say that an AIM listing typically replaces a final round of private financing, although some companies that are more mature list on AIM ahead of, say, the NASDAQ, because they are able to raise large sums (up to about $500 million) without paying the $2 million or $3 million per year that it costs to stay in compliance under the Sarbanes-Oxley regulatory rules for companies listed in the United States.
AIM also competes well with the Toronto Stock Exchange, where many US-based mining and energy companies have floated, in that compliance is less rigorous and therefore less expensive on AIM and the secondary market (raising equity funds after an IPO) is now very strong on the AIM exchange. AIM shares are also increasingly liquid. While Toronto has an aptly-named Venture Exchange that somewhat competes with AIM, the TSXv tends to attract companies that are at an earlier stage of fundraising. The market capitalizations of the companies listed on TSXv are also quite a bit lower than AIM-listed enterprises.
The bottom line is that a Colorado company that’s looking for growth capital can, in about four months, raise capital on London’s AIM exchange for less money, while deferring much of the cost of listing until after the IPO has occurred. If the raise is, for whatever reason, unsuccessful, companies can negotiate very favorable terms from its professional advisors to write down most of their fees for the deal. But such negotiations need to take place well before the IPO itself.
While London may seem very foreign, the initial communication with investment banks and brokers can be done via email and telephone. Once a company is satisfied that an IPO may well be feasible, it can then travel to London to present formally to potential nominated brokers and advisors. It should also be noted that the UK shares much of its business philosophy with the US and the US legal system originally derived from the common law developed in England and Wales. Communication is made simple as we speak the same language as the Brits.
Companies may have to do some legal re-structuring before going public and companies should talk to their tax advisor before considering a listing. US AIM-listed companies do not need a UK entity to list: they can stay where they are and use a US-based business entity (a corporation is a must) to issue shares.
To conclude, AIM may be a solid option to explore for companies that wish to stay in Colorado, take advantage of our state’s superb labor pool, but raise capital from US-based and global investors via London.