NEX Exchange: A growth-first approach to entering the public market

What do Arsenal Football Club, Chapel Down and Coinsilium all have in common? They all have shares listed on NEX Exchange, one of the fastest growing public markets in the UK today. However, the public market isn’t just for large firms. CEO Patrick Birley explains why NEX Exchange is a natural fit for SMEs.

While an IPO is normally seen as the preserve of companies at or beyond the £100 million mark in revenues, small and medium businesses can benefit from going public too. “It’s a great opportunity for UK SMEs to be able to think about accessing capital in the public markets without having to be main market size,” says NEX Exchange CEO, Patrick Birley. “For SME’s looking to dip their toes in a public market for the first time, NEX Exchange offers a low cost and simple route to achieving public market status.”

Lowering barriers for SMEs

NEX Exchange is an independent UK stock exchange regulated by the Financial Services Authority, with a focus on smaller businesses. This means that the rules and requirements for a company to be admitted to trading are significantly less complicated and burdensome than they are on AIM, says Birley.

Unlike other junior stock markets such as AIM, the costs of joining NEX Exchange are significantly less, and may be taken out of the funds that are raised by a company on the market at the time of admission. The typical admission process takes around three months.

“The most obvious advantage to joining NEX Exchange is an increased opportunity to raise equity-based finance if you are an early-stage company. Around 80 per cent of funds raised by companies on the market to date have been for funding growth rather than initial starting up. That says it all,” Birley adds.

Each company is different, but on average, Birley estimates that a company of £10 million to £20 million market cap will have to spend between £75,000 to £100,000 to come onto the market, which he says is around 25 per cent the cost of floating on AIM.

“So many companies have to raise money to pay for the cost of coming on to the market. It’s a real barrier for early-stage companies. With lower costs, people can come on board much earlier, and get good discipline on preparing for real growth,” he adds.

Building a foundation for further growth

Joining NEX Exchange provides an independent valuation for your business, and companies on the market may be able to use their shares as a currency for acquisitions. Additionally, your company’s shareholders, from the founders to equity investors, are better able to realise the value of their investment through a regulated market in the company’s shares.

“We’re an exchange that’s part of a community at the centre. Whether brokers, investors, or issuers, we’re all trying to get to the same objective,” says Birley. Traditional stock exchanges are focussed on liquidity and trading volume. They have systems set up for high frequency trading and the cost for that is completely disproportionate to customers who are early-stage companies, he adds.

“The broker community connects with market makers in a very simple, low tech environment. These are growth companies. They don’t trade 20 times per second, and so we’re almost luddite in our approach because these companies have to be cautious about overspending.”

In terms of employee motivation and retention, companies joining NEX Exchange can set up transparent employee share schemes which can incentivise and motivate staff early on in the growth journey.

NEX Exchange is generally ideal for companies looking to raise below £5 million, although there are no limitations on the type of business, industry, or size of companies that can join. Birley believes that as a fast-growing organisation in its own right, the platform’s own ambitions mirror that of the issuers on the exchange. “The exchange model doesn’t need to be all that heavy. We connect issuers with investors in the simplest, clearest way possible, by lowering the frictional costs of the two meeting each other,” Birley adds.

NEX Exchange itself operates like a well-oiled machine, and as Birley explains, with 85 companies on the exchange at the moment, the model can afford to be lean and agile. “Ultimately, what we’re trying to do is recreate an old style coffee house stock exchange with simple rules, and everyone is a part of it. Just like the issuers on NEX Exchange, we’re ambitious, and excited about the future.”

 

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