Shining a light on the tough outer shells of likely investors

Shining a light on the tough outer shells of likely investors

A natural biopolymer based on crab and shrimp shells, algae and seaweed does not appear to be the ideal product for a company to present to hardened Aim investors.

Given the tough market conditions, you might think most of them could be expected to run a mile, especially since the company in question is based in the US.

Last month ProPhotonix convinced me that it would become only the second US company to join Aim since Resaca Exploitation, a specialist in revitalising the old oilfields of Texas, which floated in the summer of 2008.

ProPhotonix is planning to be a market leader in high-brightness, energy-efficient light emitting diode light engines. After selling its North American fibre optic operations it is hoping to attract investor interest this side of the Atlantic because its LED operations are based in Cork, Ireland, and its laser operations are in Stansted, Essex.

The company had planned to raise £6m and join Aim by the end of September. But it has had to postpone the expected first date of trading to October 29.

So it has been beaten to market by Halosource, the maker of the natural biopolymer. It has raised $50m (£31.5m) of new money, or about five times what ProPhotonix is seeking, and will have a market capitalisation of about £100m. The shares, placed at 135p each, will be admitted to Aim on Monday.

A demonstration last week of the biopolymer’s effect when added to a jar of dirty water certainly had the wow factor. The contaminants coagulated and sank to the bottom. The company claims the product removes clean water from dirt, rather than the other way round.

But that is only one part of the business. The more powerful attraction to investors is the company’s water purification devices, which use a biocide manufactured in the form of insoluble beads that kill viruses and bacteria on contact.

The target market is consumers in emerging economies such as China, India and Brazil. A device fitted with a cartridge of the beads about the size of a 35mm film cassette can provide a family with clean water in the kitchen for six months. It is the only purification device intended for long-term daily use to be registered by the US Environmental Protection Agency.

Early investors in Halosource, which is based in Washington state, have included Unilever and Mars, as well asOrigo, the Aim-quoted private equity vehicle specialising in Chinese companies. Origo saw the potential for Halosource in the Chinese market and invested $10m in 2008 for a 15 per cent stake. It has sold down its stake to about 4 per cent in the flotation, realising $11m.

My problem with technology that has the wow factor can be summed up by the sorry saga of NXT, which demonstrated its fantastic flat loudspeaker technology in 1997. Next week the FTSE Fledgling company hopes to complete plans to raise up to £8m through a placing and open offer at 3p a share, a 72 per cent discount to the price before the offer was announced. Its market capitalisation now is just £5.8m.

Halosource has a long way to go from revenues last year of $11.8m and a net loss of $9m. But its flotation should be seen as encouraging for Aim.

John Kaestle, its enthusiastic chief executive, says he did not get “the deer in the headlights look” that appeared on the faces of potential investors in the US when he explained his target market was consumers in developing countries.

“London and Europe are ahead of the US in terms of clean technology,” he says. “We got a great reception – nothing I have seen or heard would dissuade me from coming back to raise more capital.”