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Everything you need to know about : AIM (alternative investment market)

Wednesday, 6 November 2019 15:55 PM | Finance for founders

alternative investment market

AIM is the Alternative Investment Market and the typical route for entrepreneurs looking to raise capital through an initial public offering. AIM launched in 1995 to offer smaller companies the opportunity to raise money from a wide variety of outside investors.
What is AIM (alternative investment market)
  • AIM was created by the LSE in 1995 to offer smaller companies the chance to raise money from outside investors
  • >3000 smaller, growing companies have joined AIM
  • AIM is better for businesses that are more capital hungry
  • Currently around 1,100 companies are on the market operating across 39 sectors in 100 countries
  • Contribute £15 bn GDP, £2.5m tax, 750k jobs
  • Tax environment - EIS/VCT /Business Property etc. Tax breaks apply
  • Less regulated -40 core rules - idea to make it easier to transition from private to public
  • c13% delist each year
  • Over 1500 companies are Listed on the Main Market and some of the biggest are capitalised at more than £90 billion
Investment criteria
  • Companies listing on main market must satisfy certain regulatory criteria (driven by t he European Standards and FCA), providing audited statements for at least three years and being valued at £700,000 or more.
  • AIM -no set criteria, no capital rating needed -but to regulate companies must have a NOMAD
  • If a company valued at £700k+ and applies, then AIM may have w ritten into agreement that they expect them to move to main market in due course
  • AIM created High Growth Segment that allows these larger companies to float on AIM
  • As most are now large institutional investors they are not looking at the difference between AIM and FTSE and will invest in both
  • AIM is part of the funding environment and offers long term access to finance. You can also go back to past investors
  • Institutional investors also tend to be longer term shareholders than if privately held
  • As the founder, you can have control over the structure of the investment register, i.e. do you want 10 institutional investors vs having 2 VCs invested privately -arguably offers more control and flexibility
NOMADs and Brokers
  • You must have a Nominated Advisor-40 approved by AIM, Corporate Finance Advisers, or Large Investment Banks
  • They will look at your management team and be the warranty to AIM
  • NOMAD can also be the broker but you can just do it separately
  • NOMAD will offer an IPO readiness check free of charge
  • Broker can set up 'Pilot Fishing Meetings' as well with 4/5 test institutions
  • Broker will organise pre-I PO roadshow of 10-80+ investor meetings around the country
  • Brokers also key to the market as they can also be the 'market makers' creating volatility in the market
  • If a company loses a NOMAD then shares are suspended -if no replacement w it hin 1 month then company cancelled from market
  • If a new NOMAD is appointed then AIM will meet with departing NOMAD to find out why they are Leaving
  • Overall costs 8.5-10% money raised
  • Broker - 3.5-5% of money raised for IPO and then 2.5-3.5% for ongoing further raises
  • NOMAD -annual fee -c. £40k
  • Lawyers, Accountants, NOMAD -set fee for float
  • AIM -£7k-£80k admission and then f6.5k annual fee -standard for all businesses
  • Once in 'the club' there is access to ongoing capital and acquisitions can happen through paper rather than cash so for capital hungry businesses it is an excellent option. BUT they must have an excellent growth story
Percentage floated
  • There is no min on AIM for what% go into freefloat but if <10% then AIM will question with NOMAD whether they are right for the market
  • 100% of shares put onto market - even if founders still own majority of them
  • Sometimes float can be a full exit for founders if investors don't see the need for them within the business as they don't need the overhang -however this is rare and most of the time Investors don't want founders or PE to be seen to be shedding shares as it will scare the market. So, float is an equity release rather than a full exit

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