09 Apr Smallcap World Still Struggling

According to the DealFlow Report, the first quarter of 2013 has remained weak in financings for smaller public companies. IPOs, venture deals PIPEs and reverse mergers all declined. Follow-on public offerings, however, did go up. Liquidity is the word of the day as investors would rather know that they can immediate trade the shares they purchase in an offering. IPOs are still struggling because of the delays, risks and expenses associated with them.

The question, of course, is whether we are facing a systemic challenge for smaller companies or whether this is just the down part of a cycle for availability of capital.  In the article both views are expressed. One investment banker said, “Usually when it feels this bad it means things are about to get better.”  The irony is that while the stock market is shooting through new highs and large cap companies are setting funding records, the lower end of the market still struggles.

The main engine of activity right now are “shelf” offerings where companies on larger exchanges or with $75 million in market value in the over-the-counter markets can sell tradable shares at any time. Smaller companies do not have the ability to use “short form” registration to complete these offerings. My view: all SEC reporting companies should be able to sell shares off the shelf. I hope the SEC commissioners will consider extending the availability of short-form registration to all.