Six months in Silicon Valley is a long time. Twelve months ago, Internet phenomenon You Tube didn't even exist. Yesterday, Google snapped it up for $1.65 billion in stock.

Yet, there is another shift of even greater seismic proportions sweeping Silicon Valley that is grabbing fewer headlines. Twelve months ago, no one had even heard of London's Alternative Investment Market (AIM). Today, more than 100 Silicon Valley start-ups are lining up to launch IPOs on this still little-known London market half a world away. Seat-of-the-pants Silicon Valley entrepreneurs are flocking to "Old Europe" to fund their high risk, high reward tech ventures.

Even though AIM has been around for 12 years, no one in Silicon Valley paid any attention to it until about six months ago. That's when AIM executives hit the road, hosting more than 30 conferences in the United States to woo companies in Silicon Valley, New York, Boston, Atlanta, Denver and Minneapolis. AIM’s pitch is straightforward and its rules are simple and short. By listing your company on AIM, you spend your time on building wealth and not your money on compliance. The result? Today, listing on a foreign market is the hot topic of conversation among Silicon Valley bankers and lawyers.

The Bogeyman Named Sarbox

The popularity of AIM has as much to do with the U.S. regulators shooting themselves in the foot as it does about the newfound lure of London. AIM's PR efforts reminded fast-growth companies in Silicon Valley that they have better things to do with their precious cash than to spend it on the high costs of complying with Sarbanes-Oxley (Sarbox).

Going public in the United States today is brutal. Start with a $100,000 fee to get listed on the NASDAQ. Add to that $2 million in annual compliance costs. Throw in the hassle of recruiting independent outsider directors. If your company has revenues of $100 million, you've already spent 2% of your revenues on compliance costs alone. In contrast, a listing on the AIM costs an average of $922,000. Suddenly, the siren call of an AIM listing grows almost irresistible.

The consequences of Sarbox speak for themselves. Only eight Silicon Valley companies went public in the United States last year, compared with 25 in 2004. The anemic level of 2005 is similar to the dog years of 2002 and 2003 -- and a piddling 10% of the level at the peak of the dotcom boom. Nationally, there were only 56 venture-backed IPOs that raised a total of $4.5 billion during 2005. That's a 59% decline from the previous year. As a venture capitalist grimly noted: "Clearly, the low end of the NASDAQ is broken. We can no longer in good conscience recommend to our small portfolio companies that they go public on NASDAQ."

London Calling

The London Stock Exchange launched AIM in 1995 in a bid to attract growth companies to its lumbering, big cap dominated stock market. Today, AIM lists 1,600 companies, with a total market capitalization of about $140 billion. AIM attracted 519 companies last year alone -- more than four times the 126 new listings on the NASDAQ. AIM has quadrupled its listings since 2000; NASDAQ's are down 65% during the same period.

Here's why AIM is so attractive to fast-growth companies. Unlike NASDAQ, AIM has no minimum size requirements for a company to list. While the average market capitalization of NASDAQ companies is $1.1 billion, the average on AIM is $65 million. AIM also provides access to investors who otherwise wouldn't invest in North America-based companies. An AIM listing can mean a higher profile, too. Every stock on AIM has at least one analyst assigned to it -- ensuring some level of coverage among institutional investors.

Some sniffy Silicon Valley venture capitalists don't really see AIM listings as true IPOs. Their view? AIM functions as a public venture capital market. Companies are raising relatively small amounts -- typically less than $20 million. And a London listing has some downsides. You have a new shareholder base to manage in Europe. And there are restrictions on how U.S.-based individuals can hold stock in U.S. companies that have listed abroad.

With NASDAQ dominated by large companies, it is no longer the playground of up and comers as in the past. Comparing AIM to NASDAQ, the old hands argue, is like comparing apples and oranges. Better to think of AIM like AAA baseball club -- where companies go to get some seasoning before being called up to the big leagues. The most successful companies will want to list ultimately on NASDAQ anyway.

London's AIM -- One Among the Many?

That's a myopic view. The bottom line is that Silicon Valley companies are voting with their feet. What's more, many companies are looking beyond even London and AIM. Rock Mobile -- a Chinese company that licenses mobile music entertainment such as ring tones -- recently decided to list in Tokyo. MyTree, of Bangalore, decided to list on the Bombay Stock Exchange. The rationale? Bombay was up 50% last year, and many U.S. mutual funds invest there already. Apax Partners in Silicon Valley has taken seven companies public on foreign markets in London, Milan, Frankfurt and Vienna during the last two years.

Today's thinking may be: "Let's do India first, and get ourselves big enough, and then we can always go the U.S. later." But that rationale ignores the success of tech giants such as Satyam Computer Services, Tata Consultancy Services and Wipro Technologies. All of them became multi-billion dollar companies on the Bombay Stock Exchange and National Stock Exchange of India -- without the benefit of a NASDAQ listing. Yesterday, a listing on NASDAQ marked a company's coming of age. Today, it may be simply just a waste of money.

Sincerely,

Nicholas A. Vardy
Editor, The Global Guru

P.S. Global Bull Market Alert subscribers can tell you that there are big profits to be made by investing in markets and companies across the globe. And it's as easy as buying GE or Microsoft. Global Bull Market Alert subscribers have made double- and triple-digit percentage profits from investments ranging from Indian outsourcers to Brazilian discount airlines. Join them to turbocharge your own profits.

Sign up now to receive The Global Guru e-Newsletter FREE! Email Address: Yes! Please send me Nicholas Vardy's FREE weekly newsletter, The Global Guru.