Selling Stock Abroad
Thomas Burnham may look like an ordinary restaurateur. But when it comes to raising money, he sees himself as a pioneer. "We are the Lewis and Clark of new equity markets," Burnham proclaims. "We are definitely in uncharted territory."
Burnham's franchise company, the South Beach Café, entered that uncharted territory in 1996, when it became one of the first American-managed companies to float its stock on OFEX, a small-scale trading facility in London that will list small companies and start-ups. Back then, Burnham, a former Domino's Pizza executive, had two outlets, which he'd started a year earlier in East Lansing, Mich. But Burnham saw the United Kingdom and Europe as promising franchise markets.
Through OFEX, Burnham's London-based holding company, South Beach Café PLC, issued 10% of its stock, raising nearly $600,000. Soon after, Burnham opened his first store in London. After the entire company hit about $1.5 million in revenues, Burnham in 1997 transferred his listing to the Alternative Investment Market (AIM), a market operated by the London Stock Exchange.
Welcome to the new Wild West of equity markets. OFEX is just one of a spate of new bourses to sprout up around Europe in the past two years. Others include the Brussels Stock Exchange, France's Le Nouveau Marché, Frankfurt's Neuer Markt, and the EASDAQ (European Association of Securities Dealers Automated Quotation), based in Brussels. These new exchanges tend to have more lax listing and filing requirements than bigger, more-established markets.
To list on OFEX, for example, you don't need an extensive operating history, and you can offer as little stock as you desire. But you must find a "sponsor," such as an accountant or a lawyer, who is licensed with the UK Securities and Futures Authority (or one of the other self-regulatory organizations) and who can verify your company's financials. The final hurdle: a credit check by the exchange. "We don't expect the sort of due diligence that would be conducted for the London Stock Exchange," says John Jenkins, chairman of J.P. Jenkins Ltd., the principal market maker for OFEX. "Instead we rely on UK law to hold the directors responsible should there be a problem."
These markets are only in their infancy. But Paul Gompers, professor of finance at Harvard Business School, expects the new exchanges to spark European entrepreneurial innovation. "It's an amazing opportunity for growth in these countries," he says.
But it's anybody's guess how well these exchanges will fare long-term. While U.S.-based companies can theoretically list on OFEX, Gompers says it's much better to raise money in the markets where you operate. "You really want to raise equity where you can get known and noticed," he explains.
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