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The junior London stock market is suffering from an image problem among technology entrepreneurs, a report has warned.
There is a worrying 'dearth' of technology businesses that have any desire to list on AIM, the research by Nabarro found.
The law firm highlighted what it said was a mismatch between investors' strong appetite for growing technology stocks and the attitudes towards listing on AIM among the entrepreneurs who run such companies.
An AIM listing is the planned 'exit strategy' for 23 per cent of UK technology entrepreneurs, Nabarro said, yet half of directors said that they would seek to list on an alternative index, including London's main market.
Nabarro said that a "combination of ambition and fear" was blocking more flotations on AIM. On one hand, the reluctance to list on AIM "may signal that founders are holding out for a bigger more ambitious exit further down the line", Nabarro said, yet on the other there were significant concerns over the costs, red tape and additional scrutiny associated with the market.
Richard Carter, chief executive of Nostrum, a technology supplier to banks and retailers, said that AIM had an image problem among some technology entrepreneurs. "There is a view that AIM is not the whole market and if you're going to go to the effort of listing, then you may as well go for the full exchange," he said.
The report called for advisers, investors and the market itself to do a better job of "articulating the benefits of AIM to technology company directors."
AIM has suffered several recent blows, including the suspension of shares in Quindell, the insurance software company caught up in an accounting scandal, and a downturn in flotations. Last year, as the market celebrated its 20th anniversary, flotations were at disappointing levels, with 39 companies raising only £600 million, compared with 85 businesses raising £2.8 billion in the previous year.
Daniel Domberger, at Arrowpoint Advisory, said that private equity often offered an easier way to raise growth funds than AIM. "CEOs who want to spend loads of time talking to current or potential investors will love the profile that an AIM listing provides," he said, "but the liquidity it offers is limited, the analyst coverage derisory and the distractions significant."
The lack of interest from entrepreneurs was contrasted by investor demand, Nabarro said.
More than half of investors with holdings in AIM stock plan to increase their exposure over the next five years, the law firm said, and more than a third expect to at least maintain the same level of exposure. Nabarro noted that the junior market's technology stocks had outperformed the wider Alternative Investment Market by a margin of 54 per cent since the financial crisis.
Alasdair Steele, corporate partner at Nabarro said: "Our research shows there is an appetite for investment across the technology industry, but lack of awareness of the benefits of an IPO on AIM could be stunting growth in the sector."