Catching the Wave: Capitalize on New Opportunities in Private Placements

December 23, 2020 Enterprise, Entrepreneurs, Start-ups, Small Businesses, Equity Crowdfunding, Alternative Funding, FinTech and Alternative Finance, Fintech Services, Fundraising, Investing, Trading, Innovation and Resources, Legal Issues, Regulation, Consultation, Online Funding / Investing Portals, Venture Funding and Building, Voices No comments

Katipult | Vuk Stojkovic | Dec 23, 2020

Private markets just completed a decade of explosive growth. According to McKinsey’s “A new decade for private markets” review, 2019 saw record numbers in terms of private placement volume, with global private deal annual volume reaching $919B. The opportunity is here, and it is enormous. This article covers select insights from industry thought leaders on the latest trends in technology-first private placement markets.

5 Private Placement Insights

Market Growth

Currently, forecasts are putting global alternative AUM at over $20 trillion by 2025, which is twice the value they were at in 2018. The number of deals more than doubled from 2009 to 2019. Behind these figures is strong investor demand, supercharged by recent regulatory changes.

Regulatory Changes

Recent SEC regulatory changes have served as a catalyst and provided more options for equity capital markets to source capital from individual investors, creating a necessity for organizations to prioritize building out compliance and syndication processes for retail participation. Due to the administration involved with the participation of larger numbers of investors, many firms have only made their private deals available to institutional investors, with retail participation hovering around 10%. Firms looking to capitalize on the new influx of retail investors are prioritizing efficiency improvements of internal processes.

New Investor Class Emerging

According to Blackstone, the percentage of its capital contribution by retail investors will shift dramatically in the first half of the next decade. By 2025 retail investors are projected to have a level of capital contribution equal to that of institutional investors. This means that organizations seeking sustainable growth in the space need to couple their private placement strategy with internal technology projects that prioritize building out compliance and syndication processes necessary for retail distribution.

See: Top Investors Advice To Prepare For The Next Decade

Although the demand for private deals is reaching record highs, there is not enough accessible supply of investment opportunities. As a result, competition amongst quality firms is accelerating to fulfil investor appetite.

The Bottleneck: Manual Processes

Firms relying on spreadsheets, email, and physical mail in 2020 will find it increasingly difficult to scale their business. The main factor behind the low rate of retail participation in deals is the inability of firms to increase the number of investors they are able to service without significantly expanding their workforce. The largest culprit is the legacy systems and processes that bring inefficiency to workflows such as investor onboarding, document execution, signature collection, and payment reconciliation.

On top of not being scalable, these outdated processes often come with human error and correction efforts are tedious, expensive, and create opportunity cost. A situation such as COVID-19 only exacerbates these issues since the old processes are simply not equipped to handle the logistical challenges organizations are now faced with. Centralizing these workflows on an online platform is allowing firms to maintain business continuity while simultaneously removing old operational issues.

Top Firms are Digitizing

Even though there is now an industry consensus on the value added by digital solutions, many smaller firms have not yet committed to a necessary digital transformation strategy like the industry’s largest firms. There are various reasons keeping organizations from making technology a priority, however their competitiveness is declining as a result. While the goals of digitization projects may vary from firm to firm, some common business outcomes that need to be addressed include lowering operational costs, enhancing investor experiences, driving new revenue, and improving reporting and decision making.

See: Digital Financial Inclusion in the Times of COVID-19

Three Must-Have Solutions When Digitizing

Replacing labor-intensive, ad hoc tasks with standardized and automated workflows will deliver benefits across all business segments; accelerate growth through shortening the deal cycle, enhance investor relationships and drive cost reduction and back-office productivity.

It should be noted that back office efficiency is not the only facet of digitization that delivers value to firms; the adverse impact that manual processes have on the quality of investor experience is also eliminated. Whether it is during the onboarding process or after the fact, users should be able to complete all interactions with a firm conveniently and access all necessary information in a way that is intuitive and seamless. Platforms that help organizations achieve this are going to be much more than a productivity tool by the people using them.

1. Investor Onboarding

This crucial part of the investor journey is perhaps most visibly impacted by solutions such as the one offered by Katipult. The onboarding process is currently plagued with inefficiencies that can be entirely removed by digitizing the entire workflow. This includes systems to manage digital form submissions, ensure compliance, and automate KYC.

See:

SEC Proposes to Update Accredited Investor Definition to Increase Access to Investments

Alberta and Saskatchewan securities regulators seek comment on proposed new exemption designed to facilitate access to capital

2. Subscription Document Generation (smart forms)

Smart forms are a high impact feature of private placement software that allow firms to scale the volume of deals without expanding the workforce. Smart forms keep track of appropriate investment vehicles and investor exemptions, and merge all required information in a guided workflow to ensure accurate execution of signatures and initials.

3. E-Signatures

High on the list of priorities for leading firms has been replacing “wet” signatures with their electronic or digital counterparts. This allows firms to avoid playing tag with investors whose investments can’t move forward because of a missing signature. Collecting these electronically plays an important part in improving both the company’s back office efficiency as well as the investor experience.

It is important to understand the business fit of an e-signature solution before you go ahead with the implementation. There are many off-the-shelf solutions available on the market and companies need to plan in order to avoid going through a huge digitization project that ends up with disjointed solutions that don’t work together. A fully integrated solution is key, so whether you decide to integrate separate solutions or find one purpose-built for your platform, just make sure you have a clear path to making the whole ecosystem work together.

About the Author: Brock Murray is Head of Global Development & Director as well as co-founder and founding CEO of Katipult | TSXV: FUND. Under his leadership the company entered 20 unique regulatory environments, successfully completed a public listing, and attracted enterprise customers such as ATB Financial.

This article appears as a featured article in NCFA's digital magazine, Fintech Confidential (Issue 3 Dec 2020). Click to read the latest thought leadership, insights and trends about Fintech in Canada:

Checkout NCFA's digital magazine, Fintech Confidential (Issue 3, Dec 2020) --> here

NCFA Jan 2018 resize - Catching the Wave: Capitalize on New Opportunities in Private Placements The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org