The microcap explosion

Katie Martin (0:06)

Pushkin. When we talk about stock markets, and over here on the Unhedged podcast, we do that a lot, we tend to focus on a tiny handful of massive companies. We are guilty as charged in that regard. But there's a good reason for that, which is that plenty of US companies are bigger on their own than the entire FTSE 100 index of UK stocks, for example. Apple is one of them. But what about the Tiddlers? Today on the show, that's what we're going to talk about. Eeny weeny companies that are suddenly rushing onto US stock markets. Welcome to Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at FT Towers in London. Joining me down the line from New York City, we have George Steer from the markets team. George, hello.

George Steer (1:01)

Hello, Katie.

Katie Martin (1:02)

How are you? We used to work together in London. Do you miss me terribly?

George Steer (1:05)

Every day. Every day.

Katie Martin (1:07)

That's the correct answer. We also have from New York City, Aiden Reiter from the Unhedged newsletter. Aiden, I gather you are a little horse, like a Shetland pony.

Aiden Reiter (1:18)

Yes. I was at my college reunion over the weekend, and I spent too much time shouting over really loud music, asking people, so what have you been up to for the last five years?

Katie Martin (1:27)

Yes. Good stuff. As long as you were having fun. So, George, you're out there in New York. Why, oh why, are you wasting the FT's time writing about tiny companies when you could be writing about big, important ones? Like, what's going on here? Why is there a rush?

George Steer (1:42)

For the record, I do. I have written a few times about some big companies. But the small companies are far more fun, in my opinion. They're far more volatile, they're illiquid, and they tend to have made it onto the US stock market thanks to some interesting banks that we normally don't cover. So yeah, the traditional large cap IPO market has been quite quiet since I arrived, because of tariff stuff, mostly. The small cap IPO market, on the other hand, is booming.

Katie Martin (2:11)

So IPOs for the uninitiated are initial public offerings, which is where, like, it's when a company lists on a stock exchange for the first time. And these are like big moments for markets, they're big moments for the companies. It's like, woohoo, you made it, you're on a big stock exchange. But a lot of these things- You get to ring a bell. What could be better?

George Steer (2:30)

It's really fun.

Katie Martin (2:31)

But some of these companies are pretty teeny weeny and they do quite weird things.

George Steer (2:36)

Yes. So we wrote a few weeks ago about micro caps, micro cap stocks, which we define as any company that has listed in the US and raised less than $50 million in the process.

Katie Martin (2:50)

Five zero.

George Steer (2:50)

Five zero, five zero, yeah. And yeah, the market for these kinds of companies, these listings is going gangbusters. We've had 42 small offerings in the last three months of 2024, and there were 41 in the first quarter of this year. That's the two busiest quarters in records back 15 years for the small cap or micro cap IPO market.

Katie Martin (3:13)

That is double weird, because bankers that I speak to say that, you know, for big companies, the market has just slammed shut.

There's a tiny trickle of big companies that are listing on the stock market, which is very much not what people had expected. People thought this was going to be a runaway, super sore away great year for companies listing, because it was going to be a great year for markets. That has not worked out at all. There's a whole different set of issues that come with that. But so why? Why do we have all of these tiddlers?

George Steer (3:44)

A few reasons, I think. The first is that NASDAQ tightened its rules around which kinds of companies can list on its exchange. So the other day, they enacted a ruling that means that companies have to raise at least $15 million when they IPO. So knowing that this rule was coming, a lot of the smallest companies rushed to get in ahead of time. So there was a rush that began last quarter of last year, but it hasn't really slowed since the ruling came into effect. Obviously, the companies that would have raised less than $15 million have dried up, but there have been plenty of deals, I think, at least 15 since mid-April involving companies that have raised between $15 million and $50 million.