Aim is popular with that breed of private investor who likes the thrills and spills of small company investment. They're not deterred by the wider spreads they have to bear on these shares. But, oh boy, are they rankled by the placings to institutional investors which dilute them so heavily, such as the Pure Wafer issue discussed here last week.
I get many emails from readers about such iniquities. Whether these dedicated thrillers and spillers really would give up on Aim - as they so often threaten - is open to question. But their discontent clearly points to a silent majority who would consider it intolerable to invest in a market where companies routinely issue mountains of shares at huge discounts exclusively to large shareholders. Aim companies should be kinder to private investors. If they were, they would be more attractive to this important source of money.
Aim companies and the advisers who engineer these issues don't spite private investors for fun. They are driven by two factors. The first - sometimes difficult for private investors to grasp - is that if you want to raise £5m urgently, you don't have a ghost of a chance if you put the proposition to 2,000 shareholders. If you can't make it work with a dozen large shareholders, it isn't going to work at all. I've had private investors tell me their human rights are infringed when they're not offered the same terms as institutional investors. To them I say: "Get real. Your utility is vastly less than that of a big investor. You can't have the same deal."
The second factor is that EU legislation forbids a company from inviting more than 150 people to participate in a share offer without an all-singing all-dancing prospectus. By my estimate, such a document would easily double the professional fees and triple the time required. Faced with such a deterrent, even the high-minded would act low.
The government and the London Stock Exchange are actively seeking to revise this regulation. If they can get the limit lifted to 500 people, celebration would be in order. There is also a €5m financial limit on these issues, which needs to be raised. Keep your fingers crossed for a year or three while the EU machinery gets into gear. In the meantime, consider this: Aim companies could invite investors to register in a secure area of their websites as "Potential Private Placees", giving their current shareholding and other details, which would enable the company to assess whether they could make a meaningful contribution to a placing. Companies could assemble these private placee lists as a matter of routine, regardless of whether they were actively planning to raise money. There would be no administrative cost. Those on the list would be required to reconfirm their interest on a regular basis. Of course, the list would attract timewasters, but it would also attract serious investors and the sign-up questionnaire would enable the two streams to be differentiated.
Now consider the advantage to a company in possession of a healthy list of potential private placees. For a start, it could begin to get back in touch with all those private shareholders whose nominee accounts make them anonymous to the company. And, in the context of planning a placing, the company's situation would be vastly improved. For instance: "If we do two-thirds of the placing with three or four good institutions, we can do the rest with our private placees."
Private placees would have to step up to the plate. As I envisage it, once the bulk of the institutional placing was signed up, private placees would get email notice that an offer was in the works and would have to reconfirm their interest within hours. Assuming they did, the first 150 (or - realistically, if controversially - the most prospective 150) would get documentation, including the details of the subscribers and amounts in the institutional placing. Then they'd have 48 hours to pay up if they wanted to be included.
What would a good private placee list yield? My stab is half a million to a million pounds if only 150 people got the offer. Quite a bit more if it could be put in front of 500. Not to mention the bargaining power which companies would gain with institutional placees.
And they would be able to look shareholders in the eye and say, we did our best for you.
