Names
When banks or brokers promote a new issue, it does
not in itself mean that the issuer is a good company,
or on offer at a good price. The banks should ensure
high standards of process, including disclosure, but
they earn their fees from a flotation regardless of
how well the shares later perform.
Venture capitalist backing gives a fillip to capital
markets but do not assume that you will benefit. A
deal will have been planned to give the VC a profitable
exit from its stake, perhaps 40 per cent of the equity.
As a small investor, you are unlikely to have the
same opportunity.
Markets
If you invest in companies floating on the Main Market
of the London Stock Exchange, you will benefit from
more rigorous standards than on other UK markets.
The AIM offers some great opportunities if you can
stomach the risks of a non-regulated market. PLUS-quoted
stocks have competing market makers, which provide
the market with liquidity. For more about these two
junior markets.
Practical steps
To subscribe to a new issue, you can often apply through
your broker, or a website that specializes in new
issues. For some internet company flotations, your
application must go through the issuing company’s
own site.
As an online applicant, you will download a form,
which you must com¬plete and send with your cheque
to the book runner of the deal by snail mail because
the signature must be original. Note that multiple
applications are easily discovered and can lead to
prosecution.
Be selective. It is easy to be seduced by glowing
online write-ups of pending new issues, and the technology
can make the application process seem no more complicated
than pressing a few keys on your computer. It is the
quality of the company, its valuation, and sector
and market conditions that count, and they will not
always all be good.
I should mention that online subscription to a popular
deal can have technical complications. Once I registered
for the share offering of a Scandinavian internet
company and the prerequisite downloading of the prospectus
proved almost impossible. New issue subscribers have
reported similar experiences elsewhere.
