Category Archives: Fundraising and Investing
Tech CEOs call on political parties for policy action to drive digital economy
National Post | Andy Blatchford | Oct 5, 2019
The letter was drafted by a lobby group representing signatories run domestic firms that employed more than 35,000 people last year and generated more than $6 billion for the economy
OTTAWA — More than 110 Canadian tech CEOs have signed an open letter urging political parties to take action to strengthen the country’s innovative economy, and avoid falling further behind international peers.
So far, major parties have put forward pledges in areas like affordability, first-time home-buyers and climate change, but the campaigns have offered few promises designed to drive economic growth in the digital age.
“We’re writing because Canada’s productivity is lagging and our future economic prosperity is at risk,” reads the letter addressed to Liberal Leader Justin Trudeau, Conservative Leader Andrew Scheer, NDP Leader Jagmeet Singh and Green Leader Elizabeth May.
“You can help by developing economic policies that advance innovative Canadian companies, including increasing their access to skilled talent, growth capital and new customers.”
The letter was drafted by the Council of Canadian Innovators, a lobby group representing some of the country’s fastest-growing companies. Combined, its signatories run domestic firms that employed more than 35,000 people last year and generated more than $6 billion for the Canadian economy.
See: Advancing Competition in a Changing Marketplace
The industry’s push comes with just over two weeks left in the election campaign. To date, major political parties have sprinkled pledges related to the sector, including vows to support clean technologies, bolster data privacy for citizens and clear away regulatory entanglements.
Canada's productivity is lagging and our future economic prosperity is at risk
The Liberals have promised to impose a three per cent tax on revenue generated in Canada by foreign tech giants, including Facebook, Amazon and Google. Other parties have also said or signalled that they would tax these companies, which, unlike domestic firms, have not been subject to taxation in Canada.
But Canada’s homegrown industry warns that far more needs to be done.
The industry has been calling for the creation of a national data strategy and more efforts to ensure Canada reaps the full benefits of its intellectual property.
The top concern is a big shortage of skilled labour in Canada, the council said. It cited a recent study that found one in four graduates from science, technology, engineering and mathematics programs have left for the United States.
Ian Rae, CEO of Montreal big-data firm CloudOps, said his engineers receive unsolicited job offers, usually with big salaries and mostly from U.S. tech firms.
See:
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[Report] A New North Star: Canadian Competitiveness in an Intangibles Economy
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Incumbents, consumer complacency barriers to innovation in Canadian banking
“We need to be thinking in Canada about the future economy and the fact that the globe seems to be in this enormous shift towards the globalized digital economy,” said Rae.
He said deep-pocketed foreign investors have also had their eyes on Canadian firms with potential. The risk, he said, is that these companies are bought out before they can grow and generate wealth and employment returns in Canada.
“A lot of these U.S. companies are cherry-picking Canadian scale-ups before they scale up, so that the ultimate net benefit tends to flow outside of the Canadian economy,” Rae said.
Tech CEOs have said the Liberal government’s efforts in recent years to support high-growth firms have offered little for emerging scale-up companies that have already outgrown the start-up phase.
David Ross, CEO of Ross Video, said a recent study by the University of Toronto found that Canada was an international laggard when it came to scaling up private firms to the billion-dollar mark, companies also known as unicorns.
The study showed Canada was last among the 36 advanced economies of the Organisation for Economic Co-operation and Development.
“The situation is so bad that even if we were to create four times as many unicorns, we would still be in last place,” said the study from the university’s Impact Centre.
Ross, whose Ottawa information and communications technology company has 650 employees, said the performance “should be a bit of a crisis for our politicians.”
“Canada should be more than rocks, trees and oil,” Ross said.
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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
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The future of fintech: lending + services
In 2006, LendingClub introduced a then-novel business model: the ability to offer online personal loans to millions of underserved customers. The peer-to-peer lender was a media and investor darling, hailed as a tech-enabled alternative to traditional banks. When LendingClub went public in 2014, it was valued at $8.5 billion, the year’s single largest US tech IPO. Now, five years later, that fintech pioneer has lost 85 percent of its market value.
Meanwhile, mobile upstart MoneyLion launched in 2013, also providing online personal loans—a direct competitor to LendingClub. Today, MoneyLion claims more than 5 million users and is valued at nearly $1 billion.
See: Peer to Peer Lending: The Future of Fintech is Now
LendingClub had significant competitive advantages, from low customer acquisition costs—back then, personal loans keywords weren’t nearly as competitive on Google and Facebook was actively promoting LendingClub as an early F8 partner—to improved underwriting (the company provided lenders with access to customers’ credit score, total debt, income, monthly cash flow, and social data). So why is LendingClub experiencing growing pains while MoneyLion sees significant growth? Though the latter started out solely as an online lender, it quickly morphed into an all-in-one lending, savings, and investment advice app.
A new wave of fintech startups understand that regularity and rhythm are the basis of any good relationship. Take Tally, for example, which is building a large-scale lending business via automating credit card payments. Or Earnin, which provides ongoing value by granting customers access to an earned wage advance, say, every two weeks. Credit Karma hooks users by offering regular updates on your credit score. The services these companies provide to users—conveniently packaged in app form—go beyond loans. And by driving continued engagement, these companies don’t have to pay to reacquire customers.
In addition, the business (in this case, providing or facilitating loans) actually improves the customer experience and the overall product. Credit cards are a classic example. By using them to make payments, the consumer earns rewards—improving the experience and the product—while the credit card company makes money via the interchange. Likewise, for Credit Karma members, taking a personal loan can reduce credit card debt, thereby improving their credit score. Another example outside fintech is Google Ads (formerly Google AdWords). When useful results are returned, it actually improves the utility of Google Search, giving consumers a reason to re-engage with the broader product. Thus, a flywheel is created between customer retention and monetization.
See: Lending Loop Surpasses $50 million Milestone and helps thousands of Canadian Businesses and Investors
In the coming years, fintech companies will continue to duke it out for dominance in various core verticals, whether that’s financing a home, paying off student loans, or managing credit card debt. But the real test of who will own the money button on your phone will be in who can build enduring customer relationships. By being holistic, fintech companies can earn a place in users’ regular app rotation—then cross-sell into new product areas. Even as businesses like LendingClub and Prosper are losing ground, peer-to-peer lending remains a $138 billion market. The next wave of lenders, though? They’re pocket-sized financial assistants.
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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
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Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?
Crowdfund Insider | | Oct 7, 2019
Last week, the Alberta Securities Commission (ASC) adopted a “Blanket Order” for “Startup Crowdfunding Registration and Prospectus Exemptions.” In effect, the ASC was seeking to improve access to capital for smaller firms – a good thing- but the move also highlights the disparity between the provinces and a greater need for national harmonization of online capital formation rules. Financial services in Canada are all regulated at the provincial level thus there exists a degree of disparity regarding rules.
While a smaller country by population, Canada has consistently ranked high in entrepreneurship and innovation. According to a recent KPMG report, the Canadian Fintech ecosystem is thriving but, like any other country, more can be done.
Crowdfund Insider reached out to Denise Weeres, Director, New Economy at the ASC and Craig Asano, Executive Director and founder of the National Crowdfunding and Fintech Association of Canada (NCFA). The NCFA has long led the charge advocating on behalf of Canada’s emerging Fintech market and various securities crowdfunding platforms.
The New Economy Division of the ASC works closely with staff to coordinate efforts to facilitate capital-raising by new economy companies entering the capital market. The Division also strives to anticipate and act on issues and opportunities relating to emerging financial technologies (Fintech).
Our discussion with the two innovation proponents is shared below.
The ASC update to rules is in advance of national harmonization. Why update now?
Denise Weeres: It takes a while to get a national instrument in place. We wanted to allow Alberta businesses and investors to be able to participate in this regime now.
What is the status of harmonization?
Denise Weeres: All of the CSA [Canadian Securities Administrators] jurisdictions are working cooperatively on the national instrument – we are looking at harmonizing and exploring targeted amendments to improve upon the existing regime.
The maximum raise amount appears to be low in contrast to some other jurisdictions. Are there any expectations for this amount to be raised?
Denise Weeres: The maximum raise is consistent with the other participating CSA jurisdictions start-up crowdfunding regimes.
Start-up crowdfunding is intended for the very early-stage businesses. It requires a very simple offering document – and significantly doesn’t require financial statements.
A funding portal that is not registered as a dealer can be used too. The limits reflect the fact that investors likely won’t get all the information they would typically (both at the time of the offering and thereafter) and they may be using a funding portal that isn’t registered and wouldn’t get the protections associated with a registered dealer.
But start-up crowdfunding is not the only way to crowdfund in Canada. It’s just one of a number of options available.
See: Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market
For example, businesses can crowdfund through a registered dealer funding portal under the offering memorandum [OM] exemption where there is no limit at all on the maximum raise and much higher amounts for the amount that individual investors can invest;
- $10K for anyone,
- $30K for an “eligible investor” e.g., someone who had had and expects to have $75K net income or has $400K net assets
- up to $100K for an eligible investor who also gets advice from a dealer that the investment is suitable for them and
- no limit for accredited investors.
Under the offering memorandum exemption, the offering document has more detailed disclosure – more similar to the offering document used for U.S. crowdfunding – and like other jurisdictions, it involves a funding portal that is registered as a dealer.
In #Canada, businesses can crowdfund through a registered dealer funding portal under the offering memorandum (OM) exemption where there is no limit on the max raise & much higher amounts for the investors
Craig, how is the Canadian ecosystem evolving, in your opinion?
Craig Asano: The Fintech ecosystem in Canada is growing, albeit not fast enough! ‘slow and steady’ compared to high competition, fast iterations and market depth of UK/US markets but Canadian tech is starting to attract the interest of US funds and international Fintech brands are taking notice too of which many are planning to include Canada in their rollout plans (ie Revolut).
New Fintech startups are launching all the time in a growing number of private and public incubators, accelerators, innovation hubs and grassroot event ecosystems that include a wide range of AI/data, Regtech (KYC, compliance automation), peer to peer debt/equity platforms, digital asset, crypto, DLT, NEO/challenger bank, Insurtech, personal finance, wealth management and alternative investing models.
Although the ecosystem is evolving the average consumer is conservative with lower Fintech awareness and adoption rates (similar to the US) than comparators in Europe and Asia. Incumbents are strong and many Fintechs have partnered with institutions to tap capital resources, customers, data and global expansion infrastructure. Canadian markets are smaller than the US and while it’s easy to launch it’s challenging to achieve sustainable business with significant compliance costs to operate across the country while acquiring customers not yet fully accustom to switching financial products. There have been many successful fintech startups that are scaling from Lending Loop to Wealthsimple to Borrowell and FrontFundr who are all providing consumer-centric, simple to access, low cost, and tech-enabled financial products and services for new economy.
Open Banking is a juggernaut of an opportunity for data-driven Fintechs and consumers looking for choice, lower fees and innovative products but conversations are at a standstill until after the upcoming election. The Ministry of Finance in Ottawa and appointed open banking advisory committee are no doubt watching the implementation challenges of PSD2 in Europe along with the progress being achieved in countries like Australia who are advancing national innovation initiatives like Open Banking ahead of Canada (and the US for what it’s worth). Will these delays put Canada behind the eight-ball, or will we be able to catch-up quickly (leapfrog) and marry our robust tech sector with a historically strong banking system and begin to replace outdated infrastructure?
Specific to crowdfunding regulation in Canada, there’s still a long way to go to remain globally competitive in terms of caps, operating costs and the appropriate amount of regulation for the risk while making it feasible for licensed dealers and funding portals to have a sustainable practice. The lack of harmonization and overly complex set of rules initially caused quite a backlash to the reputation of industry.
At present, there are far too few crowdfunding platforms and we need more operators to increase market volumes and reignite transactional interest among service providers, funding specialists, securities lawyers, and both retail and accredited investors. Peer to peer lending is now proven and helping hundreds of companies’ access growth-orientated loans but needs its own set of proportionate regulation to level up further. I look forward to next year to full harmonization which the CSA staff mentions will be out next year (ideally with the changes NCFA has been advocated for on behalf of industry for years).
Open Banking is a juggernaut of an opportunity for data-driven #Fintechs and consumers looking for choice, lower fees and innovative products
How has NCFA’s collaboration with provincial regulators helped to move things along?
Craig Asano: We’ve developed a mutually beneficial relationship with regulators from the start which has been informative for both parties. NCFA bridges the gap between stakeholder wants and needs and helps regulators better understand emerging innovations that are essential for Canada to remain competitive and current with the times. The association polls its wide network of industry practitioners and aggregates feedback to regulators through comment letters, committee participation and bespoke submissions and calls.
We work with other agencies and encourage regulators to recognize a competitive perspective in their difficult role of regulating fair and efficient capital markets while protecting investors. NCFA also gathers a significant amount of global market intel and research on how other jurisdictions are performing and shares with market participants and regulators alike in effort to bridge gaps and help stakeholders understand varied perspectives. Regulators are regularly invited to NCFAs annual conferences where they participate to provide updates on emerging regulatory initiatives, challenges and concerns while providing education and resources for industry, companies and investors.
NCFA is appreciative of the challenge facing regulators and positions itself as an educational resource and network for the various provincial commissions to rely on at anytime. While we advocate for specific asks on behalf of industry, we do so in ‘Canadian style’ which is a collaborative effort.
NCFA bridges the gap between stakeholder wants and needs and helps regulators better understand emerging innovations that are essential for Canada to remain competitive and current with the times #Fintech
What are your expectations for 2020?
Craig Asano: I expect to see more growth and investor appetite while regulators continue to reduce the burden which is overly burdensome now. This means small wins for the industry but doubtful for large scale national initiatives like Open Banking to reach implementation by 2020.
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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
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Bitcoin company Hut 8 Mining first to trade on TSX via new listing initiative
Betakit | | Oct 4, 2019
This week, Hut 8 Mining Corp., a cryptocurrency mining and blockchain infrastructure company headquartered in Toronto, announced it would begin trading on the Toronto Stock Exchange (TSX) on October 8.
In addition to expediting new listings and transactions, the Sandbox could also become a channel for new securities policy development.
The company is the first blockchain or cryptocurrency company to be listed on the TSX, and is also the first to be listed via the TSX Sandbox. The program aims to accept more listing applications and transactions, and grant access to newer companies that don’t meet all the traditional requirements to be listed, such as market capitalization, a long-form prospectus, management team’s experience level, incorporation in Canada, or corporate governance practices.
“Our move to the TSX, the senior public market of the TMX Group, is another significant step in our evolution to provide improved liquidity and enhanced public disclosure to investors,” Andrew Kiguel, CEO of Hut 8, said when the company first announced it would list last month.
“We are grateful to the TSX for conditionally approving Hut 8 to be the first company through the TSX Sandbox.”
The TSX said Sandbox will be a laboratory of sorts for new policies that would normally require longer consideration periods before being executed. A blog post from law firm Bennett Jones suggested the TSX Sandbox could also become a channel for securities policy development, as well as an expeditor of new listings and changes in capital structure, for issuers.
See: Hut 8 Mining Corp. Announces Electricity Supply Agreement with City of Medicine Hat
While in the TSX Sandbox program, Hut 8’s common shares will trade in the same way as other TSX-listed companies. Under the terms of the agreement, Hut 8 said it will exit the TSX Sandbox program upon the receipt of a prospectus, and no significant compliance issues for a 12-month period. If there are any significant compliance issues, the 12-month period will reset, Hut 8 said.
The TSX Sandbox does not have a designated list of eligibility factors or conditions in order to list, as the conditions are modified to fit each individual applicant. Sandbox is, however, only open to companies already listed on the TSX, and Hut 8 had previously been trading on the TSX Venture Exchange, an exchange for smaller companies, that is still owned by TSX.
Companies interested in Sandbox can request a pre-filing meeting before applying to the TSX Sandbox. Applications must consist of the same documents as those of a regular application, but should also add a submission requesting the application be reviewed by the TSX Sandbox. Applicants from all sectors and stages are eligible to apply to the TSX Sandbox.
Hut 8 has raised $140 million through private placements and debt, which do not require a public prospectus. Kiguel told BetaKit Sandbox allowed the company to “bypass” the requirement of a prospectus, which he said can be expensive and runs the risk of being declined by a provincial securities regulator like the Ontario Securities Commission (OSC).
The TSX Sandbox does not have prescribed eligibility requirements to list, as they are modified to each applicant.
“This would have resulted in substantial cash wasted,” Kiguel said. “While I’m not a lawyer, private placements require that investors meet certain accredited investors’ criteria before investing for investor safety. Thus, Hut 8’s private placements were only open to sophisticated investors and institutions. If we had filed and cleared a prospectus, anyone would be able to buy. That is more risky in my opinion for a startup.”
See: Crypto Startup Sues Exchange Group for $500 Million Over Soured Deal
A spokesperson from the TSX told BetaKit the OSC is aware of and regulates the business of the exchange, but has no day-to-day involvement in the operations of Sandbox.
Kiguel said a private placement is quicker, less expensive, and targeted at sophisticated investors, which is a better mechanism for earlier-stage companies. He said shares offered through a prospectus are better for larger, more established companies seeking to raise large amounts of capital because they are available for purchase by anyone.
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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
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ASC adopts Start-up Crowdfunding Blanket Order
ASC | Denise Weeres | Oct 2, 2019
CALGARY – October 2, 2019 – To eliminate unnecessary barriers to financing, and better facilitate access to capital for start-ups and other small businesses, the Alberta Securities Commission (ASC) has adopted Blanket Order 45-521 Start-up Crowdfunding Registration and Prospectus Exemptions (the Blanket Order).
This Blanket Order provides an exemption from prospectus and registration requirements to facilitate start-up crowdfunding. Both issuers and registered funding portals can use the Blanket Order. It is also available to unregistered funding portals as soon as they comply with the terms of the registration exemption, which includes receiving confirmation that ASC staff have received all required documents.
“The ASC continues to participate with its colleagues in the Canadian Securities Administrators in implementing a national instrument to address start-up crowdfunding,” said Stan Magidson, Chair and Chief Executive Officer of the ASC. “The Blanket Order is intended as an interim measure before a national instrument is implemented. It will increase harmonization and facilitate Alberta businesses raising money in multi-jurisdictional start-up crowdfunding offerings in participating jurisdictions and allow Alberta investors to participate, while still providing appropriate investor protection.”
A copy of the Blanket Order can be found on our website at albertasecurities.com.
The ASC is the regulatory agency responsible for administering the province's securities laws. It is entrusted with fostering a fair and efficient capital market in Alberta and with protecting investors. As a member of the Canadian Securities Administrators, the ASC works to improve, coordinate and harmonize the regulation of Canada's capital markets.
Source: ASC News Release
See: Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market
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
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Exclusive: Fintech firm Revolut to hire 3500 staff in global push with Visa
Reuters | Lawrence White | Sep 30, 2019
LONDON (Reuters) - British-based digital banking app Revolut is set to hire around 3500 staff as it expands into 24 new markets thanks to a new global deal with payments giant Visa Inc, the two companies said on Monday.
Revolut, one of a breed of new digital-only account providers taking aim at traditional high street banks, has grown at breakneck pace since its launch in July 2015 and now boasts more than 8 million customers.
The deal with Visa expands an existing agreement between the two firms and will see Revolut expand from its current markets of Europe and Australia to open in the United States and Singapore by the end of this year, with Canada and Japan to follow, Revolut said.
Revolut will then launch in other Latin American and Asian markets but does not have a fixed timeline, its chief executive and founder Nikolay Storonsky told Reuters.
“We are around 1500 people now and by summer next year we plan to be around 5000,” he said.
The expansion into new markets will be subject to Revolut getting the necessary regulatory approvals.
The deal is not exclusive but will see at least 75% of all Revolut cards carry Visa branding rather than that of rivals such as Mastercard Inc.
The global push could see Revolut double or triple its customers in the next year, Storonsky said.
See:
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The lending revolution: How digital credit is changing banks from the inside
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Visa Makes Its Second Investment Into a Crypto Startup
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The future of Asia: Asian flows and networks are defining the next phase of globalization
He told Reuters that Revolut’s average customer holds around 1000 euros in their account, giving a total deposit balance of around 8 billion euros ($8.74 billion) currently, a minnow compared to global banking giants like HSBC and JPMorgan with trillion-dollar-plus deposit totals.
But, along with its peers, Revolut has shocked incumbent banks into upping their digital game, as customers flock to Fintechs with their slicker apps, money management tools and attractive offers on foreign exchange.
Revolut’s rapid growth in recent years has not been without hiccups. It faced media reports about a cutthroat work culture and questions from Britain’s financial watchdog earlier this year about its sanctions-checking systems.
Revolut said at the time it has never failed to meet its legal or regulatory sanctions requirements.
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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
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Silicon Valley VCs Are Planning to Get Bankers Out of the IPO Business
Fortune | Sonali Basak and Bloomberg | Oct 1, 2019
Powerful figures are gathering 2,500 miles from Wall Street to redesign one of its oldest and most lucrative businesses -- but few from the industry will have a seat at the table.
Venture capitalists and executives from hundreds of private companies will meet in Silicon Valley on Tuesday to discuss whether the financial industry’s system for initial public offerings is still working after a year in which many of the biggest deals flopped. Attendees plan to discuss alternative strategies including direct listings, which replace financial underwriters with cutting-edge computer code.
“I’m not anti-banker, I’m pro-algorithm,” Bill Gurley, a general partner at venture capital titan Benchmark who is one of the meeting’s organizers, said in a phone interview. He said investment bankers are largely uninvited.
For months, he and others including Sequoia Capital’s Mike Moritz have been pitching the benefits of direct listings, in which computers shift privately held shares to public markets without banks buying giant blocks of stock and parceling them out to clients at a single price the night beforehand. Humans, Gurley said, have been systematically “mispricing” IPOs for decades. Fewer banks are typically involved in a direct listing, advising startups and helping to drum up investor interest.
See: The Solution To The Fintech IPO Shortage
Gurley points to research by Jay Ritter, a professor at the University of Florida who studies how stocks perform after market debuts to judge whether top banks such as Goldman Sachs Group Inc. and Morgan Stanley are optimally pricing shares on behalf of budding ventures. His calculations show startups are often significantly underpriced.
To be sure, investors expect IPOs to feature first-day “pops” in price that reward the risk they take supporting a market debut. Yet while companies going public sometimes appreciate the positive press and the demand that such rallies create for future offerings, some entrepreneurs have lamented the money left on the table that could’ve gone into operations instead of speculators’ pockets.
While the biggest IPO advisers won’t be making their pitch, the Silicon Valley summit doesn’t totally exclude finance.
Doug Baird, a longtime banker at Citigroup Inc., and William Blair & Co.’s Carl Chiou are speaking on a panel titled “A Voice of Reason,” according to an agenda seen by Bloomberg. It’s sandwiched between presentations by Gurley and Ritter that are critical of the current IPO model.
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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
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