Here's how it works. You are the chief executive of a small-cap company, doing something that the average man on the street cannot really get his head around. Your investors will not listen to pleas for extra investment and the numbers, well, the less said about them the better. On results day, what do you say to disgruntled, credit-crunched backers who have seen their investment dwindle over the last few months?
Most small-cap chief executives will throw their hands in the air and say it is the fault of the market. Investors are simply not interested in the small-cap sector and that is why the shares are down significantly.
Of course, in some cases that is fair enough, but in fact the market rarely gets it wrong for long. And certainly, that analysis cannot explain some superb performances by a handful of small-caps in the last 12 months that have been rewarded by the market for some stunning work. Take the biotech group Asterand. The group picked up a gong at last Thursday's PLC awards in London for the best performing share on the market in the last 12 months, with its stock up 156 per cent. The company, with its puny market capitalisation of less than £16m, should, according to the perceived wisdom, be one of those being ignored by size-conscious investors.
Instead Asterand, which describes itself as a "global supplier of human tissue and human tissue-based research services to pharmaceutical companies", has had a remarkable year with impressive numbers and operational progress. Despite the woeful markets, it even managed a successful placing of 4.3 million shares in November last year.
Asterand rubbishes the somewhat lazy argument that small-caps have not got a chance in these markets because investors are not willing to stick their necks out and back a small company. When chief executives next make the same argument when faced with pointed questions about disappointing share prices, investors and analysts should have Asterand in mind.
The battle of Redknee ends in strategic withdrawal
Last Friday, another three companies decided, for various reasons, that they had had enough of the AIM market and were delisting. Estimates vary, but according to some close to the small-cap sector, as many as 10 groups a week are deciding that there is no point maintaining a listing given investors' reluctance to buy AIM companies' shares and the general problem of illiquidity.
One of the latest was the Canadian-based software group Redknee Solutions, a company that offers billing services to wireless network providers. According to a source close to the group, Redknee, which also has a listing on the Toronto stock exchange, increasingly saw little point in shelling out the £200,000 or so it costs to maintain an AIM listing.
* In June last year, we looked at Cubus Lux, the Austrian-run, Croatian-based and AIM-listed tourist group, which has rights to build hotels, casinos and golf courses along a stunning piece of Adriatic coastline.
Not long after our piece was published, the group ran into certain financing difficulties, principally that its bankers, believed to be from Bank of Austria, ran into trouble and withdrew financing for the company's projects. Game over, you might think. Well, nearly, but the group has lined up another Austrian bank, understood to be the original lenders of the company's junior debt, Erste Bank. That is not the whole story. Because of the credit crunch, due diligence is taking a lot longer. This, of course, leaves Cubus Lux without the necessary funding for much of the rest of the year. So chairman Gerhard Huber and director Christian Kaiser have stumped up to buy 3.2 million new shares at 10p apiece, which should keep the group going until the bank funding comes on stream.