Many early stage Companies in Europe are caught in a funding gap where they may need £1-2M of funding in a business that is too early for the majority of Europe’s “UN“-Venture capitalists and a little too much for the Angel community to put in at once.
Nothing is black and white and a few excellent companies can raise this amount via Angels, Small VCs and VCTs (Venture Capital Trusts) but there are many other cases where it’s not possible through these routes especially if you have little in the way of revenues or profits.
A further option with pluses and minuses is to list on a UK stock exchange.
Five years ago you could have considered the London AIM market but now the costs and entry points are far too high for early stage Companies – fees start at £500K and you need a valuation of £20M. You also need a track record of some sort and the ability to scale very fast to keep investors happy.
Now please bare in mind these observations are very general and all sorts of Companies have and do list on AIM but it’s much harder and much more expensive than it used to be and for obvious reasons those raising small amounts of capital with modest valuations don’t want to pay out £500K unless it makes real sense to do so. In some cases it will make sense to invest that amount for the visibility of AIM for example.
Stepping into the gap left by AIM is the PLUS (old OFEX) market. Back when AIM was less successful PLUS was seen as as rather dangerous place to raise funds and had very little liquidity and added little value.
Today PLUS has changed, it is now run more professionally by the Plus Markets Group, shares are tradeable by the general public and the reputation of the market is improving fast. The market is still much smaller, a lot less liquid and less attractive than AIM but it is a place an early stage Company can raise funds at a lower valuation £1-10M, there is no requirement for profits or revenues and you can raise £1M plus at a lower cost than AIM.
- Costs to raise £1M + are in the region of £150-200K
- You can list within 3 months
- The process is similar to AIM but a lot less onerous on the management team and legal requirements
- Brokers will do a lot of the initial ‘selling’ of your float with a smaller roadshow than AIM
- Your Company will be a PLC and have better visibility than an unlisted Company (a double edged sword)
- Your stock will be tradeable and as such could be an incentive to management via an EMI share option scheme
- PLUS is seen as a feeder market for AIM and its easier to hop onto AIM from PLUS than it is from a standing start
- Two thirds of the fees are contingent so it less of a risk if you don’t hit your minimum placement target
- The market is seen as an also ran at the present and puts off some potential investors such as VCTs
- You will have a fixed valuation that can easily fluctuate making buying you cheap an easy option for the competition
- You still have to a lot of the hard work required by AIM using up a lot of management time and resources
- You will have to pay twice if you want to list on AIM later there are no discounts for moving from one market to another
- There is no guarantee of success and you could lose £40K+ in up front fees if you don’t hit your minimum placement target
- The people that buy into PLUS Companies are typically VCTs and Angels, you could pitch them directly and save the cost
- Its costs much more than the typical 3-5% associated with funding via an Angel group
- Brokers often want warrants and options in your business as well as a hefty 5% commission on funds raised
As you can see there is quite a lot to consider when making this choice, the stakes are high, and you could get the money in other ways than PLUS but it has worked well for some Companies like Weetabix and Arsenal football club for example.
As ever advice is the key to making the right decision – make sure you talk to PLUS directly (they have some very useful literature that explains all) as well as their top brokers. In the case of IT I narrowed down the list of key brokers to St Helens Capital, Ruegg and Seymour Pierce.
Also, the costs for legal, accounting, brokerage and PR are very variable in my experience and it pays to negotiate everything!
PLUS is not the only market you can consider, there is a new kid on the block called AngelBourse that specialises in IT and smaller raises but I have no direct experience of it’s success. It acts like the many investment sites that tout your business plan to Angels but is also a formal market.
This what they say: AngelBourse provides an online platform where investors can view and research companies, participate in direct equity investments or buy and sell shares in unquoted companies.
Typically AngelBourse can help companies looking to raise in the region of £100k – £2m, be they start-up or well established businesses; but ultimately the most important factors are a strong management team, with commitment, ability and a good business proposition.
Placing your company on the AngelBourse market, a regulated trading facility and investor relations service fused into one low-cost package, creates a realistic exit strategy for directors and investors, allowing you to trade shares and value your business without the associated costs or full regulatory burden of the main markets.
It is an ideal stepping stone for companies considering a future listing on OFEX, AIM or the Official List and will let investors know you are serious about growth.
Finally, another slightly off the wall suggestion is Sharemark which can offer an alternative place to list and trade your shares.