London’s junior market AIM has had a difficult time in the last few years. IPOs have stalled, funds raised have been restrained, and many businesses have been attracted to a growing array of alternative sources of capital, such as private equity and private debt, family offices and online platform based funders, which do not carry the same cost or regulatory requirements.
However, given that the scale of funding required to help businesses survive this current pandemic is immense, all available sources of capital need to be harnessed. Yet, naturally private providers such as venture and private equity are largely focusing on their own portfolios.
This gives AIM, the traditional home of the innovators, the disruptors, the scale-up businesses that will be fundamental to the UK’s economic recovery, an opportunity to re-assert its historic role, in its 25th anniversary year, and help ensure those businesses secure the funding they need.
Funding the future
To be fair to the UK Government, ministers have of course helped provide funding through a variety of mechanisms to companies who need it during the pandemic. But the fact remains, however, accessing such low interest loans, under CIBLS, has been difficult for many businesses. Indeed, one recent survey found that 53% of coronavirus emergency business loan applications had been turned down.
In addition, despite noble intentions, the Government’s £500m “Future Fund” loan scheme risks exacerbating existing inequalities. That’s because the way the Fund is structured favours companies already backed by venture capital, which the evidence shows disproportionately support those founded by men in London and the southeast.
But whilst normally we might expect venture capital and private equity to fill the gap not covered by Government support, such sources of capital appear to be sitting on their hands. In fact, in Q1 2020 overall, just 344 equity deals were made into private UK companies – the lowest figure since Q3 2014 (when it was 322), and representing a 32% decrease from Q4 2019 (which stood at 507).
So against this backdrop, AIM has a fresh opportunity to re-assert its relevance and showcase its capabilities.
Still AIMing high
For growth businesses which have reached a certain size and scale, AIM has always been and remains a vital source of funding. Exactly a quarter of a century on from its launch, it is still Europe’s top destination for fast-growing firms looking to go public. In 2019, AIM delivered around two thirds of European growth market funding.
Additionally, the UK’s ‘junior’ market has kept growing; in its first five years the average amount of money raised from new admissions was £2.8m, a figure that has risen to £20.4m over the past five in reflection of the high growth companies it facilitates.
And in the face of all the gloom and uncertainty, total money raised on AIM in the first five months of this year was £2.2bn. This compares to the £1.94bn million raised on AIM over the same period last year; representing a growth in capital raising despite the more difficult market conditions.
Secondary fundraising has also been brisk. Between January and May 2020, 158 companies raised over £1.9bn in follow-on capital, including 27 healthcare companies, many of which are leading research into treatments for COVID-19, including a number of fundraisings that finnCap Group arranged.
In recent weeks we raised £12.6m for pharma services company Open Orphan, £7m for molecular diagnostics company Genedrive, £14m for drug discovery and development firm Synairgen plc and £48m for life sciences firm Avacta – in all cases helping them to secure the funds needed to continue their work in tackling the COVID-19 pandemic,
Range of factors are drawing companies back to AIM
Listing on AIM has clear positive benefits. Companies and investors have access to liquidity and transparent pricing to a greater or lesser degree and levels of disclosure and protection some of which are enshrined in law and others in the rules of the exchange.
Moreover, given that AIM has such a diversified investment base, (the AIM Index is particularly well supported by retail investors, who hold around 24% of the total fund) means that companies are not exposed to the threat of a singular or limited number of VC’s pulling out of a deal.
Indeed retail investors are a key mainstay of the market, which is why although it’s understandable that some companies need to raise capital urgently in the midst of this pandemic, wherever possible, retail investors should be included, particularly as platforms such as PrimaryBid exist to make this process very simple and effective.
AIM also remains something of a third way between the wider market and the autonomy that an unlisted company would experience. Indeed, unlike the London Stock Exchange’s Main Market, AIM does not require a minimum issuance of equity , neither does it reject companies below a defined market cap ; a fundamental element of why it is seen as the destination for high potential growth businesses.
These factors have helped drive AIM’s success, which has seen it grow from an exchange with ten companies, valued collectively at £82m, to a market today with 863 companies with a combined market capitalisation of £104bn. Also, such a flexible regime, suitable for rapidly growing and changing companies, has allowed businesses not only raise an impressive £45.4bn in initial IPOs, but a further £72.4bn in follow on funding too.
Company you keep
There is a further reason why the ambitious growth companies of today should be eyeing AIM: the index has always been the place for the change makers and ground breakers. Such a trend is just as applicable today where the index is weighted towards the industries of the future – with technology, energy and healthcare companies alone accounting for 43% of the companies currently listed.
If the UK is going to recover from the economic damage of this pandemic, these types of companies are more important than ever. We need, in fact, to ensure a supportive ecosystem for such firms and ensuring they have access to funding is fundamental to this.
I know from my experience that AIM is the natural home for such firms. And I believe that many more will find a home on AIM in the months and years to come