Editor’s note: This article, which originally appeared on the blog of Paul Stevens, fund manager on the smaller companies’ team at UK-based Octopus Investments, is reprinted by this publication with permission. WealthBriefing is grateful for permission to share these thoughts with readers. As ever, the views expressed here are not necessarily endorsed by this publication.

A recent Financial Times article (“Investors want action to halt IPO drought”) highlighted frustration aimed at the initial public offering market, with calls for a review of the process around how companies are floated.

The thin deal flow has created a frenzy within an investment bank community desperate for business, and this in turn has been fuelling overly-optimistic company valuations. As a result, those businesses have made their way onto the market have all too often watched their share prices slide back sharply, before meeting the more modest valuations of companies already on the market.

This frustration is not one we share in the world of smaller companies on AIM [London’s Alternative Investment Market]. The second half of 2012, a year in which there was a noticeable improvement in the perception of smaller companies generally, also witnessed a marked increase in the number of companies joining the junior market, with great success.

There have been a number of innovative technology-focused smaller companies which have found life extremely comfortable on AIM. WANDisco, which floated in May, has risen a spectacular 200 per cent since. Blur Group joined AIM in October and, after some initial skepticism, has started to attract significant investor interest, rallying 82 per cent from its float price. Fusionex International rounded off last year’s technology-led IPO revival with a 68 per cent increase in its share price after floating in December.

Of the 41 companies that joined AIM and raised money in the first 11 months of 2012 the average return to investors was 27 per cent (Allenby Capital, 28 November 2012).

The fundraising activity has not been limited to IPOs. A number of small quoted companies have successfully raised new money through the placing of shares and investors in the likes of Futura Medical (+22 per cent), Earthport (+37 per cent) and Ideagen (+26 per cent) will have all benefited from the investment opportunities that are being presented by interesting technology businesses looking for growth capital.

We have a meeting with the management of another planned AIM IPO hoping to list in February, and we are currently reviewing a number of other secondary share issues from companies also looking to fund their growth plans. Furthermore, the relaxation of the rules regarding VCTs and EIS [venture capital trusts and enterprise investment schemes] fundraisings made in the last budget statement means that investors can gain access to this revival in small fundraisings, with significant tax reliefs to boot.