John Jenkins: He'll have a good day at the Ofex

The chairman of Ofex tells Leo Lewis why his market for small companies is standing tall amid the investment ruins

Wreckage has strewn the UK investment scene in the past two years, but a few areas aren't just still standing, they're standing tall. While the UK's main stock market hits new depths, fortunes are kinder than ever at Ofex, the exchange for smaller companies.

For John Jenkins, founder and chairman of Ofex, the post-bubble environment has offered a series of rich pickings. He set up the exchange in 1995 with the aim of promoting "retail venture capitalism" and is delighted to find that the spirit of swashbuckling investing is still alive.

"People are now getting over the dot- com disasters in their portfolios, and bigger horror stories such as Marconi. It was those disasters that destroyed the availability of punting money," he says. "We are starting to see a real appetite returning now, but it's coming from people with a better understanding of what they are doing. They've realised that those old price-to-earnings ratios were ridiculous. Investors are starting to turn past the first page of the prospectus."

Over the past seven years, Mr Jenkins has made sure that his company has stuck to the original plan. The idea behind Ofex had two strands: small firms, particularly those spearheading some scientific development, would gain quick access to much-needed capital; and private investors could buy into these minia- ture revolutions at the ground floor.

Along the way, interest in Ofex has grown steadily. It has provided 463 com- panies with access to capital, and currently runs trading in the shares of 189 companies. Building on that, the exchange has attracted a number of larger corporate names, and its total market capitalisation now stands at over £1bn. At the top of the list of Ofex's biggest companies are Weetabix, Arsenal Football Club, Shepherd Neame, Britain's oldest brewery, and a variety of niche IT firms.

But Ofex took its biggest step forward earlier this year when it officially became a regulated exchange. Before, it had suffered from what Mr Jenkins describes as a "perception challenge". Because it was unregulated, people felt justified in thinking of Ofex as a sort of investment wild west. The fact that trading and company information was conducted over the internet only added to that view.

In its non-regulated days, Mr Jenkins had to endure a barrage of low-level criticism for the supposedly looser controls placed on Ofex-listed firms. That charge still seems to make his blood boil: "We never started the punch-ups, but we had to defend our reputation. Some of the stuff being said was really spiteful. All I can say is that you have to jump through a lot of hoops to get regulation, and we wouldn't have got it if we hadn't been good boys for five years."

Even before regulation, Mr Jenkins had the means to discipline companies, and was prepared to use them: "We have had to get tough when companies lose a bit of focus. We have the same weapons as the London Stock Exchange – fines, suspensions of trading – and yes, we've had to apply them."

The seven years of trading have taught Mr Jenkins how to deal with part of that problem. He and his team now devote a lot of their time to educating companies about what it means to be listed, before they go ahead and take that step. "You have to explain to them that the leap from inventing something in a trading estate in Harlow to taking on 200 shareholders at a meeting is a huge leap," he says. "We hold workshops where we ask them straight: 'do you know what you are letting yourself in for?' "

Another perception challenge was that it was generally reckoned that once any decent company had cut its teeth on Ofex, it would quickly seek a listing on either the regulated Alternative Investment Market (AIM) or even the London Stock Exchange. That has indeed been the case for 15 per cent of Ofex's stable, but Mr Jenkins believes it is no bad thing. "It is satisfying to see Ofex companies moving to Aim. You have to be adult about things and realise that successful companies eventually need to find bigger ways to fund themselves," he says.

But the issue does expose a problem that dogs Mr Jenkins and his team of market makers and salesmen. "Liquidity. It's the holy grail, and everyone asks me about it," he says. The trouble is that many Ofex stocks are only sporadically traded. Most go through a trading spree around their results statements, but some can go for weeks at a time with volumes near zero. Since the firms that leave Ofex for bigger things tend also to be the most heavily traded, their exit removes a significant chunk of liquidity.

Regulated status is already bringing in what Mr Jenkins believes will be the next big wave of investment. As British universities come under pressure to commercialise the results of their research, they are producing more and more spin-out companies – often built round a single theory or piece of technology. The new status of Ofex has made it an obvious destination for risk-shy universities that want to appeal to adventurous money. Ofex already has to its credit the promotion of Turbo Genset, a spin-out firm from Imperial College, to AIM.

Other prospective companies have been the cause of some concern: "We had a guy come in who reckoned he'd invented the growth gene in rabbits and that a solution to China's problems might be to create and breed enormous rabbits," says Mr Jenkins. "He had an aircraft hangar in Australia where he was going to farm them and it scared us to death. I mean, how big were their burrows?"

With his sons also working at its offices in Tower Hill, Ofex is a family business, and Mr Jenkins believes it will be in safe hands when he retires. "There's something happening all the time, and I enjoy it at the moment. The boys will tell me when enough is enough."