Since the end of August, European Union companies and businesses from other countries have been able to use a new method to raise capital by share issue-the NewConnect alternative market on the Warsaw Stock Exchange (WSE). Up to then Poland's main vehicle was the primary market. In addition, there are other direct and indirect methods of investing on the WSE, such as the over-the-counter market (CETO), bond issues and investment funds.

NewConnect is a complimentary market to London's Alternative Investment Market (AIM). NewConnect is an alternative market system controlled by the WSE outside the regulated markets. It is designed for small and medium-sized enterprises (SMEs) wishing, in practical terms, to raise the equivalent of 1 to 10 million euros in any European currency. Raising amounts under 1 million euros may in practice be expensive and not attractive to investors. SMEs, the powerhouse of the economy, often have problems raising funds because they: are too risky for bank loans (insufficient security); are too small for an investment fund to carry out full due diligence; are too risky for one fund (requiring several investors to spread the risk); do not have a clear investor exit strategy; or have an insufficient history. SMEs with growth potential or potential products from new technologies have been unattractive to investors.

The simplified regulations for the private placement option reduce costs for companies wishing to raise funds. The Information Document can be in Polish or English (good news for most Europeans) made available for public information on the NewConnect website. After complying with the regulations, listing should take less than a week.

A private placement is one of two methods to obtain a listing that decrease the cost of raising capital. Both involve Authorized Advisors and Market Makers approved by the WSE, having greater responsibility in the listing process and the period after the debut.

To reduce the risk to the investor resulting from the simplified procedures, there are safeguards such as the Authorized Advisor's responsibility for:

• choosing an appropriate client for listing,
• monitoring the Information Document preparation and its approval,
• supporting management improvements in the company,
• monitoring how the cash raised is spent,
• for at least one year assisting the company's management in its reporting obligations.

If all works well then such a market for capital generation will benefit European companies, especially Polish and UK (Polish shareholder) SMEs.

Joe Smoczyński
Baker Tilly Smoczyński i Partnerzy is a NewConnect Authorized Advisor and a WSE Partner firm for SMEs.