The Glasgow trading platform in a David and Goliath battle with London

The auction that took place at the London Stock Exchange | contributed

At a ceremony at the London Stock Exchange (LSE) on Wednesday, Oxford Science Enterprises (OSE) became the first entity to place shares on a new LSE trading platform for private businesses without needing to go through the usual stock market listing.

Using a new platform set up by the LSE for the purpose called the Private Securities Market, OSE - which commercialises Oxford University’s scientific research - auctioned shares held by a separate investment vehicle under a new regulatory regime known as the Private Intermittent Securities and Capital Exchange System (Pisces).

The aim is to give scaleups or businesses with a few million in annual turnover access to investors without having to go through the expense and regulatory hurdles involved in full listing on, for example, the LSE’s AIM market. It’s all part of an effort by the UK to breathe life into London’s capital market, which has suffered from a dearth of initial public offerings (IPOs).

Yet the LSE was pipped to the post earlier this month by a small player run out of Scotland: JP Jenkins. The platform, whose operations are in Glasgow, is where a board games developer called QPlay became the first business in the UK to offer a private company’s shares for trading under Pisces.

EO Mike McCudden | contributed

“It’s fun when it’s David and Goliath, right?” quips Mike McCudden, the Glaswegian chief executive of JP Jenkins, owned by a Glasgow-based capital markets technology company called InfinitX.

He says that while the much larger LSE has “considerably more firepower than we have”, JP Jenkins has 53 private companies on its platform, against one so far on the LSE’s private market.

They include Parsley Box, an Edinburgh-based maker of ready meals; Omega Minerals, a London-based mining company active in Canada; and Hornby, the company famous for its model train sets.

With public markets out of favour, such growth companies are finding it tough to access funding from investors because neither they nor company founders can expect to cash out their investments at a profit by exiting through a stock market listing – as has been the case in more benign conditions.

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The result is funders are unwilling to keep ploughing money into businesses that may never grow profitability, or which may not be growing their revenues, in a UK economy that’s anaemic at best.

Founders are thus stuck, especially in Scotland where they often fall back on taxpayer-backed sources of funding such as Scottish Enterprise and the Scottish National Investment Bank. Since neither has a mandate to fund with exits as an outcome, there are obvious limitations. Angel investors in Edinburgh are also less willing these days to repeat funding rounds with little prospect of an exit.

McCudden says that the role of JP Jenkins is therefore to “turn the flywheel of more capital allocation in the UK” by providing a vehicle for private growth companies to access investors differently.

JP Jenkins does this in four ways. First, it operates a “matched bargain system” under which the companies on the platform offer their shares to investors on a continuous basis throughout the year, tapping into a network of 65 intermediaries connected to its platform. Stamp duty is payable.

Second, with the Pisces regime coming into play last summer with the backing of the UK Treasury, JP Jenkins has since November offered companies the ability to offer shares through a periodic auction, a mechanism the LSE also used on its platform on Wednesday.

There is also a one-week window during which a company can offer its shares, with pre-set upper and lower price limits set to protect against unwanted volatility. Both of these methods are stamp duty exempt and come with other tax advantages under Pisces.

Finally, JP Jenkins is in the early stages of offering a corporate finance advisory service that connects companies with brokers in the City with connections to investors who might be interested in young businesses.

All of this is designed to offer companies a degree of exposure to prospective investors without having to go through the more expensive valuation process involved in an IPO. “It’s a sort of shop window, a halfway house between being private and fully listed that’s inexpensive to maintain,” explains Martin Bennett, head of investor relations at Omega Minerals.

JP Jenkins charges an average annual fee of £15,000 annually, while the LSE charges £25,000 for its platform (although this has been waived until December).

McCudden, former regional head for Scotland at spread betting firm CMC Markets before switching to rival IG Group, says that for Scottish companies JP Jenkins offers the prospect of raising profile south of the border “where all the capital markets activity is in London”.

The firm, which has 13 staff in Glasgow, is based there because of the city’s ready supply of people with the right skills – as larger financial services firms such as JP Morgan, Morgan Stanley and Barclays have found. “We know we can source people coming out of universities here, so we’ve got the skills on our doorstep,” McCudden says.

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Global expansion is on the horizon, as McCudden believes the same constraints face private companies elsewhere. JP Jenkins has applied for a licence to operate in Australia, and McCudden recently returned from New York, where he and colleagues met prospects on Wall Street. The ambition is “globally connected private markets,” he says.

Lucy Rigby, the UK government’s City Minister, this week welcomed the LSE and JP Jenkins moves under Pisces, saying they offered a “new route to liquidity and investors for growing companies”, while “keeping successful firms scaling here in Britain”. That’s the hope, at least.

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