How does PLUS compare to AIM for growth companies?
I have completed the first stage of my business plan and was contemplating taking on some investment at this time. I had previously considered AIM, but the market seems quite poor at the moment. I’ve read a little about PLUS, but I’m unsure if that is the right move either. I’d really appreciate some independent advice on sources of funding in a tough economic climate.
A. Colin Mills writes:
T he junior markets – AIM and PLUS – are always more volatile than the main list. Currently, the difficulties affecting larger listed companies are magnified. Investors see smaller companies as riskier, liquidity has dried up and funds have sold their stock to satisfy investors. All these factors mean new funds raised on AIM will mainly be to aid listed companies in distress, rather than supporting the expansion of new ones.
The following statistics show the scale of the problem. In 2006, there were 462 new listings on AIM, last year there were just 114, and of the 29 that took place between September and December, only 13 were new companies. In terms of money raised, the picture is similar: £9.9bn of new money was raised in 2005, compared to £1.1bn last year and only £27.7m in the last four months of the year. PLUS statistics are harder to find, but it appears that trading volumes have held up better than on AIM, although new issues are a rarity.
So with the junior markets not really an option, where else can an ambitious entrepreneur look for growth funding? Since 2005, several pre-initial public offering (IPO) funds have been available to businesses that have a realistic chance of an IPO within six to 18 months. The criteria for accessing the finance will have tightened significantly in the last year, but since the funds are privately raised from business angels, venture capital (VC) trusts and government-backed regional VC funds, the costs are lower and the appetite for risk is greater than in the junior markets.
As for accessing the money, a good adviser can determine where finance is available and what the investment criteria are, but today the fundamentals of business are more important than they have been for years. A promise of great things in the future is not enough. Currently a strong management team, a clear strategy, a demonstrable track record, the ability to identify and manage the potential risks and generate cash are prerequisites. New money is hard to find, but not impossible, and going to market will not be the answer for some time to come.