In 1995, the London Stock Exchange launched the Alternative Investments Market (AIM) to offer smaller firms a less regulated market upon which to float their shares. While initially viewed by many as a novelty, it has begun to gain scale and respectability as more and more international firms are using it for going public. While many firms listing there do not have the requirements to list on LSE or Nasdaq, an increasing number do but are electing to avoid the costs and SOX burdens associated with a US IPO. Should this trend (and similar ones in Asia) continue, it will clearly begin to threaten the US’s role as the financial market of the world.
Rob Schultz recently put up a great post on London Stock Exchange’s AIM market. He pointed out that pre-SOX, it cost his firm, DigitalWork, about $1M to go public. I believe that if the AIM can survive the next market down draft (emerging marketplaces are disproportionally hit), that it will increasingly become a major challenger to Nasdaq, especially for firms with market caps below $500m. Today, it is not even close to having the volume or number of investors that Nasdaq does. However, as more and more smaller, emerging US firms elect to by-pass our increasingly expensive and cumbersome IPO market, it will see a significant increase in its liquidity. Future regulation and bureaucracy in the US will dictate how large the AIM will become.
This movement is very similar to the threats the Chicago futures and options markets faced over the past decade. They moved aggressively to address concerns and weaknesses and are now stronger and more dominant than ever. How our markets and regulations adapt will determine the eventual outcome of this movement. As a VC, all other things being equal, I would much rather take a firm public in the US where we are more familiar with the legal system, institutional investors, etc. We will see…