We were fortunate enough to speak with Marcus Stuttard, Head of AIM and UK Primary Markets at London Stock Exchange Group, about high-growth businesses, support networks and the importance of equity finance.
Inside London Stock Exchange’s main foyer, staggered high-definition displays paint the far wall, streaming the rise and fall of stock prices in perpetual orbit. A cube obelisk rotates in the centre of the room, each face a mosaic of screens tracing and retracing the day’s stock and index prices, playing testament to one of the City’s most important financial institutions. Looking up, you can see glass office walls stretching far into the sky. But these impressive premises are a fairly new fit for the city’s premier financial institution – before 2004, London Stock Exchange was headquartered at Threadneedle Street.
What started off as a slapdash assembly of rowdy stockbrokers, ejected from the Royal Exchange for being too boisterous and forced to operate from the city’s coffeehouses at the turn of the 17th century, has grown into the largest equities exchange in Europe – and the fourth largest in the world. Today, London Stock Exchange holds a privileged central-market position where it has access to next-generation high-growth businesses and is able to influence policy development in relation to the market.
‘We’ve got a very broad church of companies on AIM, from relatively small businesses to those that have come to us as small businesses and grown significantly,’ says Marcus Stuttard, Head of AIM, London Stock Exchange’s leading growth market. ‘The market represents companies from across approximately 40 sectors.’
Established 20 years ago, AIM – then the ‘Alternative Investment Market’ – is London Stock Exchange’s market for ambitious growing companies looking to expand and raise capital. But, unlike many of the other growth markets that were established in the mid-90s, AIM operates on a global scale and, through its ability to balance strong investor protection principles with the needs of smaller companies, it has weathered numerous business cycles, such as the dotcom, mining, and oil and gas booms and busts, while many other growth markets stagnated or disappeared.
Fundamental to AIM’s success has been the support of the diverse range of market participants who make up the AIM community. ‘One thing that we increasingly seek to do is to use our entire network of contacts – investors, entrepreneurs, CEOs, chairmen of quoted and listed businesses – to provide their experience and help the next generation of companies,’ says Marcus, who has worked at London Stock Exchange for the past 21 years, becoming Head of AIM in 2009.
‘[AIM] provides companies access to a whole environment that helps them increase their profile, credibility and reach. That helps businesses not just from a capital markets perspective, but for example, allows them to win contracts that they might not be able to as private businesses.’
One of our key mantras is that we need to diversify the sources of financing for businesses, not just in the UK but across Europe.
This opening up of companies to a wider and more varied selection of prospective backers and influencers is at the heart of what has made AIM so successful. But Marcus thinks there is more that could be done to increase the means by which companies can gain support, and the way forward lies in expanding beyond traditional funding sources, like bank finance and debt, and into what is currently termed ‘alternative finance’.
‘One of our key mantras is that we need to diversify the sources of financing for businesses, not just in the UK but across Europe,’ explains Marcus.
‘Over the years smaller companies have become too reliant on just bank finance and on debt, and for a lot of high-growth businesses what they really need, rather than paying interest payments on debt or bank finance, is access to equity, which is the ultimate long-term form of finance.’
What is wanted, then, is an increase in equity investment. But how can this be achieved?
The answer is simple: we democratise how equity investments are made and make it easier for people to invest. Equity crowdfunding was the first step – and, after all, the stock market was one of the original forms of crowdfunding.
‘We need to have a mix of different equity sources and I think it’s massively helpful that companies now have better access to equity finance from an earlier stage, whether that’s through direct investment from business angels or syndicates of business angels, or whether that’s through crowdfunding,’ explains Marcus. ‘What we need to do as a financial community is make sure that, at the various stages of growth, equity finance is continuously available for companies.’
In the UK, the government has helped facilitate ongoing access to finance through the implementation of incentives, such as EIS and SEIS, which make investing in equity more attractive for retail investors and ultimately make it possible for companies to stagger tax breaks through different stages of funding. This is especially valuable for startups, which are then able to ensure that a particular set of tax breaks doesn’t cut off before they are able to raise the next round of finance.
‘That continuity through angel financing, crowdfunding and then through to AIM is very helpful, so I think we need to build on that kind of collaboration and make sure that, through to the public markets, AIM companies have access to the distribution platforms that the crowdfunding services provide,’ says Marcus.
Building on this collaboration is precisely what SyndicateRoom has in mind. In better linking these different stages of financing – from angel investing to crowdfunding to retail investing – and democratising access to public markets, investors can support growth businesses through the whole funding journey on a level playing field with professionals.
‘The retail component of AIM has always been very important,’ says Marcus. ‘[Not only] for providing companies with access to daily liquidity and trading, but also providing individual investors themselves with access to the next generation of high-growth businesses.’
AIM already offers access to a very deep pool of long-term capital, both retail and institutional, and Marcus notes that the capital raised by companies on the market has been consistent regardless of wider macroeconomic conditions – for example, in the period directly following the financial crisis, companies were able to continue to raise significant funding.
‘Companies on the market were able to go back to the market and raise £4bn, £5bn, £6bn a year in total in the years following the financial crisis,’ says Marcus. ‘That pool of long-term capital and investors that really understand growth businesses are key reasons why companies come to AIM.’
London Stock Exchange has indeed come a long way from its roots at the Royal Exchange and is continuing to push the boundary in the direction of democracy, towards a state of play where anyone can invest on a par with the professionals. Finally, the public markets are opening up to the crowd.
You can listen to the full interview with Marcus Stuttard below, conducted by Tom Hinton, SyndicateRoom’s ex-Head of Capital Markets.