Small-Cap IPOs Shun U.S.

An upstart stock exchange in London is giving the long-established Nasdaq a run for its money.

Since the beginning of the year, the Alternative Investment Market, or AIM, has been the venue for 150 initial public offerings that raised an aggregate $7.7 billion; the 48 companies that went public on the Nasdaq raised a collective $5.8 billion.

A large part of AIM's attraction is its significant cost advantage over U.S. exchanges. But perhaps even more important is the almost visceral distaste that Silicon Valley venture capitalists and entrepreneurs have for the Sarbanes-Oxley Act as well as regulations requiring companies to expense the cost of stock options.

"Sarbox has pulled a trillion dollars out of the U.S. market," says Timothy Draper, a well-connected venture capitalist and founder of Draper Fisher Jurvetson. "We're shooting ourselves in the foot." As to regulation-light AIM -- "I love it," he says.

That trillion-dollar figure may be something of an exaggeration, but for the relatively small companies that go public on AIM -- the average market cap on the newer exchange is just $80 million vs. about $1 billion on the Nasdaq -- lower compliance costs are deal makers.

To be sure, most AIM-traded companies are European-based, but as the cost of going public in the U.S. increases, and regulators here become more demanding, more companies are willing to take their business overseas.

As of June 30, 17 U.S.-based companies went public on AIM this year, compared with 19 in all of 2005, says Anne Moulier, AIM's business development manager for North America.