By SERKAN FERAH
IN RECENT years there has been rapid growth in private markets — and specifically in venture capital. Investments have increased, while founders are getting busy on a global scale.
VC funding broke new ground in 2021 with a record number of unicorns and rapidly increasing investment pace. Global venture funding reached a peak in November 2021 — and while investments are down in 2022, with late stage and technology growth impacted the most, seed funding remains robust.
Even with such growth, there are areas that could be improved: access, speed, and scalability. There is still lack of access for founders from certain demographics – in 2021 only 11 percent of venture capital investment went to founding teams that include women and only one percent to black founders. Despite all the growth in start-up and investment activity, many early-stage founders still struggle to understand what it takes to raise capital, what makes an investor tick and how to access the best capital networks to distribute their deals. Founders may lose their chance on critical business opportunities for lack of funding, and investors lose out on good deals that are badly pitched.
Founders must spend time on building the perfect pitch deck, finding the right investors and closing the deal through a process that’s full of barriers. VC or angel investors have probably not seen any real innovation that goes beyond automated legals, CapTable, or matchmaking.
There are signs that the market has started democratising, with regulators focusing on expanding retail access to private markets and some decentralised finance and web 3.0 projects. These are new ways to invest, but one issue continues to plague the regulators and keep private markets from being open: a lack of standardisation.
Unlike the public markets, the private markets lack a framework for a standardised information flow. Private capital markets are neither interoperable nor efficient. Although there is heavy investment in data mining and some automation in reporting, accessing networks and preparing deals still rely on manual processes that are inefficient and time-wasting.
No system is in place to protect investors from rug-pulls and poor investment decisions, while poor investor reporting remains a problem. To achieve standardisation, the investor relations stack should be tackled starting with deal preparations and screening.
A universal infrastructure would enable the market to share information in a standardised and automated format that is accessed via user-friendly interfaces and digested by investors and founders with different levels of experience easily.
Such standardised infrastructure would also enable transferability of information amongst investors, businesses and between investment networks, which is crucial for the future of private markets.
A reputation system on the same infrastructure could instil confidence in markets and filter out bad players. Any market participant could carry their reputation from one capital network to another, and use it to access better deals.
Investment could become more inclusive with more people able to invest in or create high-return opportunities, and get a fair share of the wealth generated globally. Private markets need help to scale, and more founders need access to funding. Capital networks and businesses ecosystems can become more interoperable, operating on a more transparent framework with greater standardisation.
Serkan Ferah is founder and CEO of PitchSpace