Imagine you run a small, Aim-quoted company. You’re making good progress and, on the advice of your nominated adviser and broker, you set out to raise £2m by issuing new shares to fund expansion and ensure the financial health of your business.
Your brokers are confident of securing the funds so you agree to a roadshow. But after a week, they come back to report they can raise only £1m, and at a substantially lower valuation, likely upsetting existing investors. Meanwhile, market talk has led to a gradual but costly fall in your share price.
You’ve already committed to paying various advisory fees so you proceed, ending with less than half what you’d expected, with a diluted equity base.
This story will resonate with both companies and brokers. Despite the departure of several companies from Aim in recent years, many of those remaining pay the ongoing costs of listing while struggling to raise further equity, being seen as too small, too illiquid or both.
There’s room for a far more creative approach from companies and advisers. For example, crowdfunding campaigns are gaining recognition as a viable way of funding growth companies; ISDX (now NEX)-listed winemaker and craft brewer Chapel Down supplemented a £3.95m raise with investment from equity crowdfunding platform Seedrs.
This method allows quoted businesses to tap a source of capital hitherto out of reach while enabling retail investors to access opportunities of a type historically reserved for professional investors.
This re-imagining of the fundraising process redistributes value towards end users and away from intermediaries. So where do the traditional middlemen fit into this developing landscape?
Brokers want to win business and earn fees but commissions are low in the secondary market and, therefore, the mid to long-term performance of a client company might not always be front of mind.
An ill-advised listing or fundraise can result in a significant ongoing financial burden for a business, and the benefits cannot be guaranteed. So, with the number of funding options now broadening, realigning the interests of all stakeholders in the fundraising process will be vital to the broker’s continued success in this area.
As for Aim, crowdfunding reveals its main flaw – companies seek the most efficient way to reach the widest audience of investors and can sometimes struggle to achieve this via the sub-market. A streamlined digital crowdfunding process provides this access as well as a significant cost saving for the company, with fees likely to be much more manageable.
For companies on Aim, there is one very effective additional form of growth finance that’s completely transparent and non-dilutive while offering great value and certainty of funding: corporate bonds.
Many listed companies have told me that they were unaware that they could issue bonds or hadn’t even considered doing so, either due to their size or the high cost attached to the process.
Bonds have been around for centuries, serving as a bedrock in the London markets. Traditionally issued by larger companies, governments and public authorities, they found favour with investors seeking income combined with relatively low risk.
The Order Book for Retail Bonds (ORB), launched by the London Stock Exchange, sought to widen the range of qualifying companies, but is still usually only economic for companies raising £20m or more.
This is where we hope to fit in, bringing down the barrier to entry yet further. Both quoted and private companies have raised upwards of £500,000 through our platform via the issue of either straight bonds or convertibles. Far from replacing or competing with brokers and advisers, we see our relationship as complementary and supportive, adding another option to the fundraising ecosystem.
The more diverse that this ecosystem becomes, the more competition, collaboration and innovation can thrive and the greater the benefit for companies searching for access to suitable funding solutions.