(c) 1995 Copyright Nando.net
(c) 1995 Reuter Information Service
LONDON (Nov 30, 1995 - 19:08 EST) - A small but fast-growing British
start-up company is preparing to set up a stock market on the Internet
world-wide computer network that it hopes will help other nascent
firms raise capital more cheaply.
"We see ourselves very much as addressing the so-called equity funding
gap," said Jack Lang, director of Electronic Share Information Ltd
(ESI), of Cambridge, which has been offering access to share trading
via the Internet since September.
That service, providing access by Internet to Charles Schwab's
Sharelink, already has 10,000 subscribers.
"It's growing at a rate of 100 (new subscribers) a day," Lang said,
referring to the current service, which has recently been beefed up
with more information and graphics.
ESI, which Lang founded along with technology entrepreneur Hermann
Hauser, is currently raising capital to build a system to help other,
similar start-up companies raise money more cheaply from sophisticated
investors using the Internet.
"There's a portion between 2 million pounds ($3 million) and 10
million pounds ($15.5 million) where it's typically too large for a
bank, but too small to economically raise it on the market," he said
in the interview.
Venture capital investment by British-based funds and firms alone
surged to a record 2.1 billion pounds ($3.25 billion) in 1994,
according to the British Venture Capital Association.
Lang estimates investment by individuals, or so-called "business
angels," may have been as much as double that amount. An Internet site
with ready access to people with funds to invest, such as that which
ESI has built up with Sharelink, could then offer those investors
access to smaller firms which account for the economy's most explosive
growth.
"We think that by building up our existing investor base in
conventional trading, that gives us a good base from which to offer
new companies," said Lang, noting this would give private investors a
greater opportunity to accumulate capital gains.
To create a market for small companies, ESI would need to prepare a
formal application to the Securities and Investments Board, Britain's
chief financial regulator, to become a Recognized Investment Exchange
(RIE).
ESI has said since its inception roughly two years ago that it
intended to seek such status, and it follows in the footsteps of
Tradepoint Financial Networks Plc, which was approved as an RIE in
June and opened for business in September.
Tradepoint, which provides computerized order-driven trading of 400 of
the most active British shares, has so far failed to attract
substantial volume.
Both systems provide a challenge to the centuries-old virtual monopoly
of the London Stock Exchange over British share trade. The LSE is
developing its own order-driven capability, due in August 1996, and
launched a separate Alternative Investment Market in June targeted at
smaller companies.
ESI projects it can provide a niche market that would make it
economical for small companies for whom the cost of raising money on
AIM may still be prohibitive.
ESI would not comment on when it might formally apply for SIB
approval, but it had been expected to do so by mid-1996.
An SIB spokeswoman declined comment on ESI's status, noting the
board's policy of not discussing individual inquiries or applications,
but she said the regulator had received a flurry of inquiries from a
variety of groups about financial markets.
"It is a natural progression. We started with carrier pigeons and
we're now, in certain instances, talking through computer technology,"
she said of the rush of interest in computerized systems. "It doesn't
make any difference whether it's paper-based, or electronic. The rules
still have to be applied."