By AltFi on Thursday 30 October 2014
Liquidity, or a lack thereof, is one of the main challenges faced by the equity crowdfunding space.
If an equity crowdfunding investor is both shrewd enough and lucky enough to acquire a stake in a flourishing business – that investor is nonetheless faced with seriously limited means of extracting his or her funds. In other words, seriously limited means of realizing any profit – or indeed of recovering principal. Investors can push for a public event of some kind, or hope for a trade sale, but that’s about it. This issue of illiquidity is not of course confined to the world of equity crowdfunding. There are a multitude of private companies out there with shareholders that essentially have no choice but to sit on their investments.
Enter Asset Match. This innovative online exchange allows private companies to auction off shareholdings to a network of private investors. AltFi caught up with co-CEO’s Stuart Lucas and Iain Baillie to learn more.
Asset Match is an online hub that brings buyers and sellers of shares in private companies together. The service provides a transparent and fair mechanism to determine the price of shares through regular online auctions. It delivers an efficient way for shareholders to exit and realise the value of their assets and gives sophisticated investors opportunities to invest in growth or more established unquoted companies. Companies are able to use the service to provide liquidity in their shares while remaining private entities and also as a means to raise further funds.
Asset Match was founded by co-CEO’s Stuart Lucas and Iain Baillie in 2012.
Stuart has worked in the City for 35 years. He started working on the trading floor of the London Stock Exchange and has held roles at: Bear Stearns Intl (head of International Fixed Income responsible for trading, sales and research as well as Senior Management Director); IBJ (head of dept responsible for trading, sales and research) and Nomura (Head of Credit Trading). In 2000 he established Bracken Partners, an investment banking boutique, private equity investor and fund manager.
Iain in began his career at Strauss Turnbull and Co and has been involved in UK and European Capital Markets for over 35 years as a trader of both equities and corporate bonds, culminating in heading European credit trading as a Managing Director of Salomon Brothers. He has been a founding director of LBDP, a successful agency broker in European credit; CEO of MarketAxess Europe, the leading platform for electronic execution in the credit market; and Head of Fixed Income at Christopher Street Capital.
The idea for Asset Match was the result of an investment Stuart made into a private company in 2000. The company continued to do well, but with no equity events, such as an IPO or trade sale, there was no way for him to realise his investment and take his cash out. Stuart recognised that this was a common problem for many investors in private companies.
As more private companies raise capital via the alternative finance options available, such as Angel funding, EIS investment, crowdfunding and debt finance, finding an exit is going to be the next big challenge for British firms. Companies raising money often say to their investors that they will be able to take their cash out at some point in the future, often within three years. But they have no idea how they are going to make this happen. At the point that a company wants to bring in new investors, we see ourselves being named as the service that will be used to provide liquidity. This gives shareholders comfort knowing that they will have an opportunity to realise their investment within a pre-defined time.
We estimate there is over £300bn of locked in wealth in private companies. Some of these are relatively new companies that have raised finance in alternative ways, while others are long established companies and large businesses.
Our belief is that if you have investors in your business you need to provide them with a way of getting their cash out - it doesn’t really matter what your size is.
For the management of these companies they sometimes find themselves under pressure from their investors to create a liquidity event. The attraction of Asset Match is that we can work with management to do this in a way that they are comfortable with. For example if you are a family business that has lots of related shareholders we can create ‘closed’ auctions where shares are only available to buy or sell to other family members. Also if new investors want to come in, management can approve which new investors they feel they can work with.
Interestingly we have a lot of success with local craft breweries, where investors have bought into the brand and the idea that they like to support a local business.
Our current average trade size is £9,000 – this has been rising steadily over the last two years. As larger companies come on board we expect to see the average trade size rise.
We have over 1,000 investors registered on our platform already. Ultimately this is a people business and many investors have come to our platform because we take the time to meet with them and their agents - such as IFAs and wealth managers.
Our investors tend to be high net worth individuals and institutions that follow smaller companies. They see us as providing access to an untapped asset class and opportunities they can’t get elsewhere. Often they feel they get better value out of unquoted companies than publicly traded shares. Generally they are more interested in established businesses that have a good track record.
There are other ways of doing it, but none of these, as far as we know, do it in a transparent way. You can buy and sell shares in private companies, but this is usually done by mutual agreement and at a price that both buyer and seller are willing to exchange at. As there is no market force involved in determining the price, buyers and sellers can’t be sure that they are getting a fair deal.