Alternative Investment Market
The Alternative Investment Market (AIM) was first established in 1995 by the London Stock Exchange as a way for newer firms to gain access to public funds.
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The AIM market allows for greater regulatory flexibility relative to the main market, with no minimum capitalization requirements. It serves as a way for small firms to raise capital that they wouldn’t otherwise be able to obtain if subject to the same regulations. The market is open to businesses backed by venture capital, bootstrap funding, and other early-stage firms looking to finance their growth initiatives.
The AIM is tracked through three different indices: the FTSE AIM All-Share Index, FTSE AIM UK 50 Index, and FTSE AIM 100 Index.
At its June 1995 launch, the AIM consisted of just 10 companies, worth an average of £8.2 million each. As of the end of 2017, AIM was made up of 960 companies (808 UK-based, 152 internation) worth an average of £111 million each (USD$155 million), putting its total capitalization at £107 billion (USD$150 billion).
Alternative Investment Market Regulatory Model
The AIM has relatively few regulatory rules. Even then, to list on the AIM, companies need not comply with all of them via its “comply or explain” approach. Namely, if a company chooses not to comply with one or more of the exchange’s rules, it must explain why it isn’t doing so.
Given that so many companies on the AIM are in the early stages of operation, regulatory opt-outs are generally made over concerns regarding their financial burdens. Corporate governance matters – rules and regulations pertaining to how a company is controlled and directed – are largely dictated by the laws where the AIM-listed company is domiciled and can vary widely.
Risks of AIM Companies
AIM companies tend to be small and often unprofitable, and therefore riskier relative to the average company on the public markets. Given retail investors generally lack the resources to assess the risks of these companies, the investor base is heavily concentrated among larger institutional investors and high-net-worth individuals.
But despite the riskier financial profiles of many of these businesses, the default rate in any given year approximates just 2%.