AIM4Tech

"There's No Liquidity On AIM"

I was out to lunch - literally and not metaphorically - and my guest, having listened to me outlining the Restoration Partners' vision piped up and said -

"But that's great! It's a compelling story how you intend single-handedly to address the chronic tech underbanking in Europe using, as fuel, the US companies' mass exodus to AIM.

But they won't come will they - there's no liquidity on AIM?"

Reaching back into my muscle memory for the best and snappiest response I patiently began to explain that his position was rooted in mere propaganda - poison slipped into the collective water supply by retro-thinking capital market players. Namely bankers and others who don't travel well who, without recourse to the data have decided that as proponents of Nasdaq, it is necessary to be opponents of AIM.

The position as presented by the data, I said, is clear. There is plenty of liquidity on AIM and any view to the contrary was mere prejudice and sophistry.

I was doing rather well - at least when scored on the vehemence scale - when he took advantage of an inhalation moment and said;

"Data? What data?"

Astute as I am, I spotted that this wasn't the moment to play for time so I let the "Data is a plural" point go.

Instead I said that, from personal experience over the last decade, quality companies have little or no trouble raisng follow on money from the AIM market and secondly institutions have little or no difficulty selling their positions if they need to.

Granted, AIM doesn't have the retail-driven volatility that comes from thousands of retirees day trading their IRA accounts, but that behaviour is called instability and not liquidity.

Rather than waste time over lunch, I suggested that he could take the fact of AIM's liquidity as read and that we could therefore talk about the strengths and weaknesses of the market that were relevant to CEOs of tech companies and not waste time on what kept the ignorant observer awake.

That worked for lunch, but on the way back to the office I recalled an old adage about an ounce of fact is worth a ton of rhetoric and so I pulled together the following graphs which support my assertion.

As you will see, on AIM, liquidity is in no danger of going out of fashion.

To get a better handle on it, start with this chart which summarises the key market volume indicators.

The principal take away here is that 102 billion shares traded in the first 9 months of the year with a share value of $86bn (using today's embarrassing exchange rate!)

This next chart shows the liquidity highs and lows over the period from January to September and you'll see that even on a bad day there is a lot of movement of stock.

Finally, the third dimension of the picture is provided by this final chart which reminds us that AIM's history has left it with a majority of relatively small market caps whose constituents tend to have very low trading volumes:

With the bulk of the companies worth less than $50m, 102 billion shares and $86bn of value can be judged in the correct light!

So, though the absence of these data may have dampened the spirits at my lunch - hopefully they will have lifted yours!

Liquidity, liquidity, liquidity.

My career in the IT industry started at IBM a very long time ago.

Back then sales training took years – not because we were slower, but because in those days, selling was considered an honourable profession requiring its practitioners to have a thorough grounding in commerce, technology and the art of selling.

A stark contrast with today’s approach which all too often consists of the rapid fire delivery of a product’s details in the hope that one of them will pique the prospect’s interest and lead to a sale.

In those days before the Age of the Feature Puke, IBM sales peoples’ behaviour was prescribed in a small but weighty book called the Business Conduct Guidelines. Younger readers wil be amazed to learn that it wasn’t published by the SEC or the Association of State Attorneys General. No it was produced by – IBM!

Oh, for the Golden Age when capitalism was good and business people were presumed innocent!

But I digress. One of the principles of operation back then was called “No Disparagement” and it meant that however hard and dirty a sales campaign became, we IBMers could never openly knock the competition. Not their products, their services or their personal habits.

That made selling more difficult of course, but then the Geneva Convention makes warfare more difficult.  And it doesn't stop the good guys winning eventually.

The way we overcame the absolute ban on disparagement was to use much subtler techniques to spread FUD – fear, uncertainty and doubt - so that we could support the prospect through their moments of insecurity and so win the deal.

Of the techniques available to us, the incontrovertible assertion/open questioning combo was a favourite.

“The trouble with mission critical networking is that your business (ie your job) depends on it absolutely. We at IBM have SNA – actually our Nobel Prize winning scientists invented it – what does XYZ Inc offer you?”

That usually did the trick. But if the poor prospect had already thought to research the issue and so had an answer, he could still be brought to his knees. All the trained IBMer had to do, as the prospect defended our enemy's products, was to raise an occasional, inquisitive eyebrow and to look vaguely into the distance. A sure fire way of communicating sympathy, if not mild contempt, for the poor sap’s gullibility at having swallowed the competition’s line. Never failed!

But what does all of this nostalgia have to do with liquidity?

The answer lies in the biggest question that I have encountered when talking about AIM with owners and leaders of businesses in the USA.

Actually, it’s rarely a question – it’s usually a statement that goes along the lines of “The trouble with AIM is that there’s no liquidity.”

I've heard it posed so many times that I have no doubt that this particular FUD-bomb has been planted by fans of Nasdaq who hope, in the face of incontrovertible evidence to the contrary, that the forces of evil will be vanquished some time soon and Nasdaq will once again welcome early stage tech businesses!

This FUD-bomb's a dud though.

There are two ways of looking at liquidity:
1. Is there sufficient trading volume for a willing seller to be able to find a buyer; and
2. Can companies raise further rounds after the IPO?

The answer to the first question is easy to see from this chart:

It is true that pre-2005 it might have been possible to accuse AIM of failing the liquidity test, but 546 million shares and $434m a day says that things have changed.

The second question gets an equally robust answer as seen in this picture:

As you can see, of the $22bn raised so far this year for companies on AIM, 40% or $8.5b was follow-on money.

$434m a day and $8.5bn of further money so far this year should be enough to quell the fear, uncertainty and doubt of any CEO or VC thinking of taking their business to the next step as a public company.

But I suspect that now Nasdaq owns 25% of the London Stock Exchange the FUDmeisters will hush their mouths!