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NewMedia Spark, Jellyworks, Antfactory and now Oxygen. They might have silly names, but for the firms acting for these internet incubators they represent serious business. Within days of floating on the Alternative Investment Market (AIM) last week, Oxygen’s shares had shot up to 65 pence from an issue price of two pence. This gave the company a market capitalisation of £240m, even though it had only raised just over £2m when coming to market.The share price surge partly comes down to frothy publicity surrounding the company’s advisory panel, which includes such figures as Elizabeth Murdoch and PR king Matthew Freud.More importantly it also shows that the tremendous investor appetite for these companies, and the internet start-ups they seek to invest in, has not diminished.With a higher share price, the incubators and other listed internet companies have the opportunity to tap the market for more funds and make a further spread of investments. This means repeat business for firms in at the ground floor, advising on further fund raisings and investments.Lesley Gregory, the Memery Crystal partner who advised Oxygen’s nominated adviser Seymour Pierce, reports that the firm has advised on 10 AIM flotations in the last six months alone. Another eight are in the pipeline.And, as Gregory freely admits, her experience is far from unusual. Others to have picked up work include SJ Berwin & Co (Oxygen), Lawrence Graham (Jellyworks), Nabarro Nathanson (NewMedia Spark) and Stringer Saul (eVestment).With so many small and medium-sized firms reporting an unprecedented level of work, it is hard to believe that less than a year ago AIM was widely derided as a failure. Unsurprisingly, the larger City practices have began to take notice of this boom, despite previously sniffing at the thought of doing AIM or Ofex work. But the small- and medium-sized firms hold significant competitive advantages. For one thing, the structure of the largest firms is simply not appropriate to this sort of client. After all, these companies do not want to spend the next few years paying off the original bill. And if they are offered discounted fees, they tend to resist any later increase. Nor will the largest firms be able to provide the partner level involvement that many internet entrepreneurs demand. So for once the City giants will have to continue looking on with envy.

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