This article by Simon Walters, our managing director, appeared in the February 2006 edition of Real Business magazine

The sharedealing ladder has a new rung. Below the LSE, below AIM and below Ofex, comes the Unlisted Share Exchange, or USX, a place for shareholders of private firms to notify the world that they want to sell.

Founder David Rose explains, “Shareholders in private companies have had no market into which they can place shares for sale when they want to retire or realise this key asset for any other reason. And many entrepreneurs and companies would look at these shareholdings if there was somewhere to find them. The USX is for shareholders in private companies who wish to dispose of their shareholdings.” But he warns, “It is deliberately not a means of raising additional capital.”

Rose knows a fair bit about the latter activity. He already runs the Development Capital Exchange or DCX, where successful entrepreneurs can invest new monies in early-stage businesses. Members of DCX – who pay £90 per annum – are potential investors along the lines of those featured on TV’s Dragons’ Den and are mostly successful businessmen looking for new opportunities. And only members can access the opportunities – these are not deals that anyone can surf the web to discover.

But will Rose’s new exchange work? It will certainly be no rival for traditional stock exchanges, especially with its unregulated status. Despite this, Richard Webster-Smith at the London Stock Exchange considers that “any venture which increases opportunities for vendors and purchasers to be matched is welcome”. And a poll of my clients at FD Solutions indicated that 50 per cent of those looking for an exit would consider seeking incoming shareholders by this route.

The USX doesn’t claim to be any more than a noticeboard for the sale of shares in private companies, and is certainly not a trading platform for regular buying and selling, but aims to fill a real gap. “It was a natural extension to what we already do, as satisfied businessmen who had raised money for their company through us were now asking whether we could assist with an exit,” said Rose. It is also a means for those considering buying or starting a business to actually invest in a going concern, possibly in a sector with which they’re familiar, where they bring skills rather than just a cheque book.

Howard Leigh of Cavendish Corporate Finance recalls previous forums for selling private company shares struggling to find their niche. “But it could work well for small transactions for which the usual advisory fees are uneconomical,” he suggests.

Amendments to legislation in March 2005 now enable successful entrepreneurs to access such investment opportunities, so long as the individuals self-certify as sophisticated investors who understand the risks involved. This makes it much easier for buyers to enter a market like this.

USX will need a few successes under its belt to achieve wide acceptance. That requires gaining the confidence of the angel investment organisations that already back the DCX fund-raising market, such as Beer & Partners, Angel Bourse and Blackstone Franks. But with 200,000 to 500,000 people in the UK looking to invest up to £500,000 in businesses, the USX could become a lively and liquid exit route.

Simon Walters is a director of FD Solutions, a group of chartered accountants who operate as part-time finance directors to small and medium-sized businesses. Simon can be contacted on 07714 237523 or at: