It’s time for private investment to enter the digital age

The way that we work, study, shop and bank has changed irrevocably over the last 20 years. Institutional investment has evolved beyond recognition. In some ways though, private investment has continued to rely on the traditional approach. There are modern embellishments, sure, but it wouldn’t take long for an investor from 1991 to get up to speed with the way things work today. Maybe it’s a question of if it ain’t broke you don’t need to fix it, but bringing good ideas together with potential investors is still more difficult than it should be. The current way of working often holds back innovation and therefore business.

There are exceptions of course, but, in the main, innovation doesn’t come from large companies. It tends to come from the ground up. Micro companies that are led by small, nimble leadership teams that pledge their careers and sometime their reputations on taking an idea, finessing it and working with it until they deliver fully fledged companies that are ready to grow, provide employment and generate for the economy.

The problem is that often careers and reputations are not enough. Ideas, even good ones, burn through cash very quickly in their early stages. There’s a point where big ideas have grown into credible small companies but to make the next step, to truly deliver on their potential, they need investment.

Able to stand on it’s own two feet

Pure capitalism, red in tooth and claw, would suggest that the companies that are going to be successful will find a way to attract investment when they need it. That reading of economic theory relies on perfect information being available in the right place, at the right time, to the right people. Often it simply isn’t.

It’s true that not every idea can thrive, and companies should be able to stand on their merits from day one because that’s the best way to ensure that things work. But the best ideas can be found in the strangest places and sometimes even the best ideas struggle because their leadership teams fail to attract or develop all of the different skills that are needed to turn a start-up into a successful, fledgling company.

If you can make it work, why change it?

Delivering something truly different can mean taking what already exists apart and looking at it from a completely different perspective. If you are an expert in the existing system and you know how it works, the chances are you will accept its quirks and find an efficient way around them. You might be able to deliver a way of working that’s 10% more efficient, but you are unlikely to be truly innovative and disruptive.

Equally, if you are taking a disruptive approach that could gain you a significant chunk of market share at the expense of the incumbent, you are less likely to get their support. And that is because the last thing most industry-leading company leadership teams want to be told is that that shiny new system that they put in place last year with great fanfare could be replaced with something that does twice the work, three times more quickly and costs half as much. That’s the sort of admission that investors frown on. As a result, small, innovative, companies often need to look beyond the industry they are disrupting if they are going to attract investment.

The problem is that it can be difficult for investors that might be willing to support innovation to actually find companies to support unless they are popping up within the traditional investment system. On the institutional side, there are plenty of expert reports prepared about opportunities within specific sectors and geographies, but often specialists in specific industries and as such have a bias towards what already works.

Welcome the middleman?

Brokers have always offered a way for investors to find projects that they can understand and support, but they bring with them high broking fees. In the past, brokers’ privileged knowledge and access meant that these fees were an accepted part of many processes. The digital age has made investing in many sectors of the financial markets cheaper by increasing the efficiency of bureaucracy and increasing project transparency. This hasn’t been particularly true of the private alternative investment sector.

In short, there is an opportunity, and arguably a significant need, to find a way to get smaller investors involved.

Lockdown? Thinking time

The global economy is full of innovative projects that could greatly enhance many industries if they got the right support at the right time. The digital age, the third industrial revolution, whatever you would like to call it, has delivered so many changes to so many industries, it seems surprising that investing in small innovative companies remains so complicated.

A year of lockdowns has given plenty of people plenty of time to think. This could be a superb opportunity for the private investment sector to come up with a new approach to helping innovative ideas and small businesses. Disruption, after all, can bring significant reward.

About Marco Quacken

Marco has a passion for business development that helps projects succeed and businesses flourish. With a global network of contacts, he brings teams together, matching expertise to requirements and implementing strategies that help good ideas grow into sustainable businesses. He has experience across a range of sectors including finance, technology, advertisement, automotive, consumer goods, energy, retail, sports and telecommunications.