You can't create amarket by decree

The present gruesome June weather is one thing Michael Lawrence of the Stock Exchange will not be able to blame for what is highly likely to be a distinctly damp start next week to the Alternative Investment Market. Long in preparation and rich in promise and hyperbole, AIM is hobbling lethargically towards the starting post.

Small and medium sized companies are always looking for cheaper and simpler ways of raising money; the corporate finance community welcomes any arena to push its expertise and fees. The problems confronting the Stock Exchange were always how to translate this interest into a viable market place. The ill-fated USM failed to rise to this challenge. AIM is being introduced as a new, improved formula.

The reaction from the market place has for the most part been one of wait-and-see scepticism, however. There will always be star small cap firms, attractive to investors. The purpose of any market like AIM is to spread this attraction down the field to the also-rans. The reality that did for the USM, however, was that you cannot create a market by decree - either the liquidity is there or it is not. AIM will stand or fall by this same rule.

There are also doubts about its claim to offer cheaper access to capital. Any company coming to the market needs a sponsor, and few of these would be willing to lend their reputations without having carried out pretty thorough due diligence. That might push up the costs of raising money on AIM to the levels seen in venture capital circles.

The need to impose adequate investor protection rules has probably strangled at birth AIM's chances of transforming capital-raising possibilities for small companies. That, however, is one of the key challenges facing corporate Britain, as the Treasury recognises. We are good at starting small businesses, and have an impressive clutch of world-class companies. But in the middle ground, Britain is poorly represented. Poor management of the economy over a prolonged period is only part of the explanation; the other is inadequate long-term finance at an affordable price. The catalyst for change here may well have to come from a very different source, in the shape of a concerted shift towards long-term fixed-rate financing by banks. A stable low-inflation environment is also imperative. At this stage, however, AIM does not look as if it will star in the history books.

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