Is AIM replacing venture capital?
The view from here
How do we, the venture capitalists, see AIM? In my view, AIM’s reputation is now established: it has proved itself as a working stock market. It has more than 1,500 companies, many of which are solid businesses with significant growth potential. There is undoubtedly a need for the continuing professionalisation of the nominated advisers who bring companies to AIM (known as Nomads), but it’s a sign of the credibility of AIM that these days it’s the Nomad’s reputation that suffers when a stock should not have been brought to the market rather than AIM’s.
For venture capitalists and other early-stage investors, such as business angels, AIM offers an alternative source of growth capital at reasonable prices for pre-profit, or almost profitable companies alongside venture capital funding. In a market where expansion capital for technology companies is becoming increasingly difficult to attract, AIM offers a really good alternative to US venture funding, private placement with institutional investors or investment from a corporation, which will invariably have its own agenda.
The report, cited above, on the London markets’ attractiveness for venture-backed IPOs, showed that between 1994-2004, some ten per cent of AIM IPOs came from private equity and venture portfolios, as against nearly 50 per cent on the main market. But the percentage increased over the period, with nearly half of all private equity-backed IPOs in 2004 going onto AIM. Taking into account the ratio of early-stage venture funds to buyout funds, the figures are not surprising, but I suspect 2005 and 2006 will show an increase in the number of venture- backed IPOs on AIM.
The report also showed that over the course of one year, post-flotation, private equity-backed IPOs outperformed other IPOs, which reinforces the received wisdom that venture capital and private equity investment prepare companies for public listing extremely well. This is a trend I would expect to continue.
Pot of gold
Last, but not least, what does AIM offer its investors? For public company fund managers, AIM provides the access to growth stocks early on that pre-IPO placements used to give, in the heady days of the stock market bubble. It’s accepted that venture- and private equity-backed companies tend to have better systems and governance than companies floating from other ownerships. This has helped effect a sea change in the past two years in the approach of major institutions to AIM – today virtually all major institutions hold stocks on AIM and fund managers accept that these stocks are investments for long-term growth rather than short-term liquidity. This change has been one of the main drivers of AIM’s growth and success.
However, one relationship that is missing in the process of funding growing businesses is between the institutional fund manager and the venture capitalist. The private market is all about relationships; the public market is about counter-party trades – you don’t know who is selling and buying your stocks because all trades are intermediated by brokers. To me, it is both interesting and alarming how little the venture world knows about the fund manager world and vice versa. It may be in all of our interests to improve our understanding of each other.
AIM adds to the diversity of expansion capital for technology companies at a vital stage in their growth. In an evolved market, everyone needs diverse ways of raising capital and an element of competition is healthy. AIM strengthens, not divides, the entrepreneurial economy; we welcome its success.
*The London Markets and Private Equity-backed IPOs, available from the BVCA (www.bvca.co.uk).
| Previous page |
Anne Glover is CEO of Amadeus Capital Partners, the European technology investor. A graduate of Cambridge University with an MBA from Yale, she began her career with Cummins Engine Company in the US. She then spent five years with Bain & Co before joining Apax, where she invested in early-stage companies. Before co-founding Amadeus in 1997, she was COO of Apax-backed Virtuality Group Plc. Anne was Chairman of the BVCA 2004-2005. Email her on info@businessxl.co.uk.