Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
The London Stock Exchange (LSE) is well-known. Perhaps less prominent, however, is one of its sub-markets: the AIM, or Alternative Investment Market (formerly the Unlisted Securities Market). Founded 19th June 1995, AIM can be a great source of investment opportunities for people looking to add smaller, “riskier” and high-growth-potential companies to a portfolio. In this guide, our team at Bure Valley Group explains what the AIM is, how it works and ways that it can be mined for exciting early-stage investments.
We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
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What is AIM?
The Alternative Investment Market currently lists about 950 companies which can be characterised as “small to medium” enterprises (SMEs). Since 1995, the 3,800+ companies which have listed there have raised over £109bn in capital. The main difference between AIM and the LSE is that companies in the former are not publicly-listed, meaning they are subject to less-stringent rules about how they are governed and with fewer regulations. For instance, during the UK’s time as an EU member, AIM-listed companies were not subject to EU directives – unlike those on the LSE.
Since AIM companies are not required to disclose as much information to the wider public as those listed on the LSE, the former’s investor base is mostly institutional investors and wealthy individuals. These have the knowledge and resources to conduct in-depth inquiries into the activities and finances of AIM-listed companies. Examples of AIM companies include ASOS, Boohoo Group and Jet2.
The benefits & risks of AIM
There are at least two advantages to investing in AIM-listed companies. Firstly, many of the companies on the Market have high-growth potential due to their early-stage nature. Their target markets are often not already dominated by big players, unlike publicly-listed companies such as banks, miners and oil giants – where market share is basically a zero-sum game between big players who cannot dominate. AIM investors, therefore, have the potential to capitalise on the high growth of these companies – generating strong returns if they achieve their potential.
Secondly, investing in AIM companies can be very tax-efficient. For instance, an investor could build a portfolio of AIM shares in an individual savings account (ISA). This allows you to invest up to £20,000 per tax year and receive dividends, interest and capital gains without tax. When you die, moreover, your AIM shares may benefit from inheritance tax (IHT) relief since many of the companies listed on the Market qualify for Business Property Relief.
However, there are drawbacks to AIM investments that need to be considered. Most notably, the risks of investing in AIM companies is often greater than investing in publicly-listed ones. Bear in mind that there is no minimum market capitalisation (market cap) requirement for companies looking to list there. This means that a business could list on the Market without a trading record – inhibiting an investor’s ability to do meaningful due diligence. Smaller companies are also less likely to survive economic instability (e.g. interest rate rises) and can be more illiquid than public shares; i.e. they are harder to sell, because fewer people trade the shares.
Given the aforementioned risks, it is important to consider working with an experienced network of investors before committing large sums to AIM shares. At Bure Valley Group, for instance, we offer a platform where sophisticated investors can meet, discuss ideas and work on exciting projects together. Rather than buying individual AIM shares, moreover, another option is to put money into SMEs via investment funds – to achieve more diversification.
Alternatively, those interested in early-stage investment opportunities might want to consider avenues outside of AIM. Again, at Bure Valley Group we offer a range of pre-vetted investment startup opportunities which gives you that extra degree of confidence in the company’s business model and “stress test” profile. Many of our investment opportunities also qualify for tax-efficient schemes such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). This helps you to minimise risks to your capital – e.g. through “loss relief” rules – and can improve your “real returns”, for instance, by letting you claim back some of the value of your investment against your tax bill.
Bear in mind that, regardless of how AIM shares or other SME investments are committed to a portfolio, the value and availability of any tax relief depends on your personal circumstances. For instance, AIM shares must be held for a minimum of two years to qualify for IHT relief. The performance of your investments will also vary depending on your asset allocation, investment horizon and factors in the markets and economy (e.g. conditions brought about by COVID-19).
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827