TRENDS: Bay Area Looking to London

This could substantially increase the already strong business ties between Northern California and London. Also, as far as tech trends, this would probably spill over to startups in Seattle, Austin, Boston, DC and North Carolina as well-and that would transform AIM into a major player.
Bay Area firms taking stock on London
AIM's 'new Nasdaq' lures entrepreneurs across the pond
San Francisco Business Times - May 19, 2006by Mark Calvey

The London Stock Exchange's AIM is capturing the interest of Bay Area entrepreneurs and their financial backers as an attractive way for the region's young growth companies to go public.

San Francisco investment bank ThinkEquity Partners even dubs AIM the new Nasdaq.

"The biggest impediment to a robust U.S. IPO market is excessively burdensome regulation," said Michael Moe, chairman and CEO of ThinkEquity. "Sarbanes-Oxley compliance can easily cost $2 million for a small, emerging growth company. That's real money that could be used for more engineers, more salespeople, more research people and more investments in things that actually contribute to creating value."

That's a message echoed in seminars now occurring almost every other day in the Bay Area.

But the rising popularity of AIM is seen as more than just a reaction to Sarbanes-Oxley. The nature of the Nasdaq has changed considerably as small companies fear they'll get lost amid the much larger Nasdaq-listed companies, especially as many investment banks pull back on research coverage.

The rise of AIM also reflects the more competitive markets overseas as stock exchanges become publicly traded entities themselves.

Companies and venture capitalists are fairly tight-lipped on their interest in AIM, citing regulatory "quiet periods."

But the level of interest could have profound implications for U.S. financial markets. And once these companies take a look at AIM, it won't be surprising to see some opt to go directly onto AIM's parent, the London Stock Exchange.

So far, about 1,300 companies are listed on AIM, including 200 overseas companies. The total AIM market has a market value of about $100 billion. That's less than Google's market cap, but AIM's market cap has soared 78 percent in the last 12 months.

A sea change appears to be under way. Calls to bankers six months ago about AIM, formally known as the Alternative Investment Market, sparked a litany of the young exchange's shortcomings. Now bankers are tripping over themselves to tout AIM to the Sand Hill Road crowd.

"We're hearing from entrepreneurs and corporate executives who want to avoid the costly burden of Sarbanes-Oxley," said Amir Raveh, CEO and founder of MG Equity Partners, which is among the firm's pitching AIM in Palo Alto this week. MG also serves as a nominated adviser, or so-called nomad, required for companies listing on the AIM.

U.S. companies listed on AIM also must keep its U.S. shareholder based under 300 to avoid complying with U.S. securities regulations, including Sarbanes-Oxley. Bankers say that this hasn't been a problem so far.

Last month, Foster City-based Entelos Inc. raised $20 million in its initial public offering on AIM.

"We believe that the admission to AIM gives us the international visibility and funding opportunities to expand," said James Karis, CEO of the life science company that's developing predictive computer models of human disease.

Summit Partners portfolio company Burst Media, a Boston-based online advertising network, also went public last month on the 11-year-old AIM.

AIM and the London Stock exchange tout their role in "supporting the growth of U.S. small- and mid-cap companies." The exchanges also pitch their "balanced approach to corporate governance" as well as having the largest pool of capital in the world and serving as a gateway to European consumers and investors.

Admission documents for the AIM are vetted by the company's nominated adviser and not the exchange or regulators, the AIM notes.

Adding to the appeal, big institutional investors, such as Fidelity International, are participating more in AIM as they seek growth opportunities.

One sign that AIM's role in financing growth companies is a long-term play is the Nasdaq's aggressive moves to acquire a 24 percent stake in the London Stock Exchange. San Francisco private equity firm Hellman & Friedman is a significant investor in the Nasdaq. The New York Stock Exchange is also eager to invest in a European exchange in a spirit of if you can't beat them, buy them.

Seth Gersch, chief operating officer at ThinkEquity, believes the interest in AIM will continuing rising as momentum builds.

"It's hard to put the toothpaste back in the tube," he said.>