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How FinTech can transform Capital Markets and Patient Capital

Flowers growing
The crowdfunding market is maturing

There has long been a growing belief in mainstream investment that bigger is better. This has resulted in some major equity gaps existing now for companies with market caps below £50mln, with some practitioners saying that the figure is £100mln.

Why does this matter? It was notable that at this year’s Labour Party Conference, Shadow Chancellor John McDonnell proposed establishing a National Investment Bank to help the UK’s economy adapt to the impact of the 4th Industrial Revolution (4th IR). In my view, the 4th IR is going to force a rethink of "bigger is better" because 4th IR technologies are enabling very able teams to develop new businesses capable of improving the efficiency of global supply chains. Such developments will result in many larger established businesses experiencing significant margin pressure, and hence be less capable of delivering investment returns in the future which match those delivered to date.

An example of a profitable AIM-listed microcap undertaking a development with the potential to both transform its business, and also have a major impact on the way in which the executive recruitment industry operates globally, is Dillistone (LON:DSG), which recently announced the launch of its GatedTalent product, redefining the relationship between executives and recruiters.

Against this background, it is noteworthy that in November 2016 the Prime Minister announced the Patient Capital Re-view. In essence, there was recognition at government level of the dearth of patient capital in the UK, and the review was set the objective of coming up with recommendations for strengthening the UK further as a place for growing innovative firms to obtain the long-term ‘patient’ finance that they need to scale up.

Recommendations made by government such as the one above can take a long time to implement. Accordingly, it is very exciting that FinTech solutions are emerging, which mean that those of us who recognise the urgent need for an increased supply of patient capital can start to take action now, rather than waiting for the recommendations of the review to be issued and then implemented. A particular development I have in mind is the emergence of crowdfunding platforms with a specific sector focus in the UK in 2017, 

Two such platforms are Britbots, which focuses on Robotics businesses, and Capital Cell, which focuses on Life Sciences businesses. For me, the attraction of sector-specific sites is that they can assemble the specialist resource required to assess businesses operating in complex areas of activity before they are presented to investors.

Capital Cell was established in 2014 in Barcelona, a thriving centre of biotechnology.

Summarising the reasons for the UK launch in 2017, Dr Laura Ferguson, UK Director of Capital Cell, said: "For Capital Cell, the UK was absolutely the obvious place to scale up to from Spain. The UK is leading Europe in not only life science innovation, but also in equity crowdfunding, which has already become established as a major source of ‘new’ capital through generalist platforms.

"The arrival of specialist platforms such as Capital Cell indicates that the crowdfunding market is maturing and entering a new phase of development. The life-science focus of Capital Cell fits very well with both the recent Life Science Industrial Strategy, and with debates on sources of funding for companies post-Brexit. We look forward to engaging a new generation of investor with UK life science innovation, to get companies to market faster."

Describing his reasons for launching a platform focused on Robotics, Dominic Keen, the founder of Britbots, said: ‘Whilst talking to investors we realised that there was a broad appetite to include some high-potential robotics businesses in their portfolio on a discretionary basis without necessarily going down the fund route.

"Hence we are delighted to have launched Britbots CROWD, a dedicated equity crowd-funding platform for robotics companies.  As robotic-led innovation starts to deliver significant productivity improvements across the global economy, we're giving investors direct access to this exciting class of investments for the first time."

With that in mind, it is clear in my view that FinTech has the potential to help deliver capitalism that works!

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