Companies that list on AIM and raise less than £2 million spend on average a quarter of the money on professional fees, according to research by accountancy firm UHY Hacker Young and City law firm, Trowers & Hamlins.
And it suggests the exercise is just not worth it for many firms.
Peter Petyt, head of corporate finance at UHY Hacker Young, said that whilst listing on AIM was ideal for companies looking to raise £5 million or more, for smaller capital raisings, they should seriously consider going to business angels, private equity specialists, venture capital trusts and Government-backed regional venture capital funds.
UHY Hacker Young said the average fees for raising so-called pre-IPO finance was about seven per cent of funds raised.
The fees for raising capital on AIM are higher because there is a minimum level of due diligence needed for such a listing regardless of the amount of capital being raised.
Mr Petyt said: "The costs of raising pre-IPO finance are typically lower because the company is not producing public documents, so professional advisers are not taking on the same level of responsibility or depth of due diligence work as they do for an IPO.
"If a company is looking to float on AIM early in its development then it should examine how it can control its professional fees."
Pre-IPO finance was not an alternative to listing on AIM but rather it could be a cost-efficient way to prepare a growing company for a larger and ultimately more successful AIM listing.
Mr Petyt continued: "If a company can prepare itself well in the pre-IPO stage then it can significantly reduce the time it needs to invest in the float.
"Therefore the management team is not distracted from the day to day running of the business for too long."
Despite a slowdown in the number companies seeking to float on AIM during the first three months of this year, the market has delivered significantly higher levels of funds raised at admission compared to the corresponding period last year, according to separate research by Grant Thornton Corporate Finance.
A total of 120 companies were admitted to AIM compared to 130 in the first quarter of 2005, a decrease of eight per cent.
However, in terms of funds raised, AIM's latest perform-ance witnessed a massive 227 per cent improvement on the same period last year with over £1.75 billion in quarter one compared to £536 million in the equivalent period.
"After breaking record after record last year, both in terms of new admissions and fund-raising, AIM appears to be taking a small pause for breath - at least in volume terms," said Mark Taylor, a partner at Grant Thornton in Birmingham.