In a digital world, why does investment lag behind?
It’s time fundraising became more dynamic
Society is ‘always on’. Need the answer to a question? Google it. Forgot an item from your shopping? Tap to buy it. Lost on the way to meet a friend? Bring up a map. In most urban locations at least, it’s possible to see anything, do anything and learn anything instantly. But while we as consumers are used to immediate access, this experience isn’t always mirrored in our business lives. Many companies still rely on longstanding technology and processes that are complex to operate, forcing us to wait longer than we’d like to achieve vital results. And investment is no exception.
Raising capital is a barrier to growth
Finding the right financial resources is an eternal challenge for businesses; a 2018 Ernst & Young study of UK entrepreneurs found that more than half (51%) felt access to funds was their biggest barrier to growth. Yet raising money is easier said than done.
The survey revealed that 75% of growing businesses are looking towards Venture Capitalists as their primary route to raising capital, but this is no quick process. A lot of time and energy needs to go into the fundraising workflow, creating a pitch deck that is compelling enough to attract investors. And even then, it can be a drawn-out process pitching to multiple parties, agreeing terms and carrying out due diligence.
The story is much the same for larger organisations as well. While their needs have surpassed the budget of most VCs, they are still looking at a lengthy and complex IPO or private fundraising offer to generate new resources. Pitches still need to be prepared in the form of prospectuses, and the number of people involved in the actual transaction process is much greater at this level – causing yet further inefficiencies.
Ultimately, these traditional methods for raising capital involve a huge number of third parties and red tape, which mean they take months to complete from the point at which investment is secured. And it could take weeks or months even to get to that stage in the first place. All the while, companies’ need for this money intensifies.
Cutting out the complexities
The interesting thing about the current attitude to investment is that many companies are just willing to accept that this is the way things work. However, some forward thinkers are realising that they don’t have to accept the status quo – and are looking for new means of speeding up the fundraising process.
This is where digital assets marketplaces are coming into their own. By using technology to convert the value of their business into digitised assets – either equity, funds or debt – businesses can move the entire capital raising process online. This cuts down on paperwork and increases the speed of communication, to make the whole workflow much quicker.
Not only that, but the right digital asset platform is structured in a way to support slicker, cleaner transactions. Savvy organisations are looking for solutions that are built on the blockchain, as this removes the need for certain third parties like CSDs, which means fewer middlemen to slow down the chain of command.
Digital asset platforms have been built for the always-on world, running a lean operation with instant settlement to enable immediate liquidity. The entire offer building process can take place in weeks rather than months, and businesses can then access funds on the spot once investors have come on board.
Delivering value beyond issuance
The ‘digital lag’ between the world in which we live and our experiences of securing investment isn’t just limited to the fundraising process, either. Traditional systems like VCs and IPOs aren’t necessarily structured to help companies manage requirements easily post-offer.
For example, compliance requirements are only growing more stringent – as demonstrated by the impact of GDPR on the UK. The onus is on businesses to ensure that investor data is accurate at all times, but this is difficult to do if it is hosted and/or managed by third parties.
Even if the data is stored in-house, it’s amazing how many companies still work off spreadsheets and word documents, which can easily be edited incorrectly or saved as multiple versions on the system. Getting a single, consistent view of the truth is not as easy as first thought.
Digital asset technology solves this challenge by storing information to the blockchain, where it cannot be erased or tampered with. All updates are made to a single location, so that share registers are accurate at all times.
Not only that, but firms then have a means of collecting and storing up-to-date details for purposes beyond admin. For example, asking investors to provide email addresses creates the opportunity to establish digital communications – or they can even cut out the email provider and message them directly through the investment portal, if their platform possesses this level of functionality.
Change is overdue
Digitisation has shaken up the way we live our daily lives, and the time has come for it to do the same to financial services. Technology exists – including our very own Digital Marketplace – that can enable quicker access to much-needed capital, without huge complexities and long-winded paperwork. It’s much easier for companies to reach their fundraising targets quickly.
Just as importantly, the right digital asset platform will support organisations beyond issuance, by helping them to keep up with legislative requirements and manage communications more effectively. This way the entire company/investor can be brought online, conducted using the methods we are used to conversing through in everyday life.