Can it also democratize them?

"Without technology, you couldn't educate half a million retail investors with a single button"

You might think that the global stock markets are about as digitally disrupted as possible. Thousands of billions change hands daily on some of the world's fastest networks; funds equipment to fine-tune fractions of a millisecond of processing time; black box algorithms designed by world-class mathematicians market complex derivatives. Do you want baskets of stock handled by machine to meet moral niche imperatives? There's probably an app for that.

However, London-based PrimaryBid, a start-up founded in 2016 by two hedge fund alumni, thinks there is even more disruption and discreetly bites part of a neglected niche in stocks; Armed with nothing more sophisticated than push notifications, a smart set of APIs and a compelling business case.

Computer Business Review met with co-founder Kieran DSilva to learn more about what the company is (14 weeks after major chord with the London Stock Exchange) has made its way, and why it wants to cut retail investors from the low-cost stock issues normally reserved for the big beasts of the financial world.

Cut retail investors into a comfortable club

Sitting in Mayfair's offices, D’Silva explains where PrimaryBid is located.

"Suppose you are an already listed company. You have had your initial public offering. But you want to raise new funds. You can do this by issuing new shares. Historically, these new shares are listed at a discount to the market price action… but these discounts are only available to institutional investors.

"You and I, as retail investors, we can buy through a stock broker, but we don't get this discount deal when a company has a issuance of follow-up actions.

“The banks kept this little club for themselves. There are very lucrative costs there for them; and, as they often have an impact on the allocation, they (discount shares) often only go to their best customers. "

There are other more sober regulatory reasons for this as well, he hastens to add.

For an initial public offering (IPO) or initial float on the stock markets, companies must prepare a substantial prospectus for potential investors.

“It costs around 300,000 and several months to prepare; it has all the risk warnings and so on. Legally, if you have a full prospectus, you can raise as much as you want from retail investors.

"But the reality is that most follow-up issues on the stock market are done without a prospectus and come with certain restrictions." (If there is no prospectus, you can raise a maximum of 8 million from retail investors across Europe).

There are several reasons for this.

"Price sensitive information"

Timing is one: these chords usually happen within a few hours.

As D’Silva explains: "The fact that a company is tracking is called 'price sensitive information'.

"If you have someone who's been working on a prospectus for months, it's more likely that this information will become public. So you want to keep this process very short and tight."

He adds: "I spoke of a" club "and the banks benefit from these fees.

"But historically too, without technology, you couldn't educate half a million retail investors at the touch of a button in such a short time.

"You couldn't have AML and KYC automatically." (Ed: Fight against money laundering and "Know your customer" aimed at preventing money laundering).

Thanks to constantly improving technology, this has now changed.

And with the growing demand from retail investors (sometimes, as in France, for regulatory reasons: companies are legally obliged to allocate 10% of the shares to retail investors, elsewhere, the allocation retail is dictated by environmental, social and governance requirements) PrimaryBid now provides the UK's first centralized location for businesses seeking to raise capital from retail investors.

LSE agreement

The main partners recognize the need. In November, PrimaryBid partnered with the London Stock Exchange to link the company's retail investors to potential follow-up issues, from the AIM junior sub-market to the FTSE 100 in theory; giving the company access to a much wider pool of potential companies considering further capital increases.

(This agreement was welcomed by the head of the primary LSE equity markets, Charlie Walker, because it helps both “individual investors and issuers… to benefit from the additional capital and liquidity available via the PrimaryBid platform).

Now armed with a list of a million and a half million * of potential retail investors, when PrimaryBid has agreed to support a follow-up show, it can send a notification to customers via its app, manage all online integration operations (it uses a LexisNexis platform, Tracesmart to do this: there is no shortage of alternatives on the ground) and via API integrations with securities brokers, make sure that clients get their new shares settled electronically immediately into an account from which they can trade them.

See also: Meet the woman who prepares a digital bomb under the gold market

PrimaryBid takes its cut like any investment bank: it charges the listed company a fee to help it in raising capital: a company can generally pay a bank 39; investment for the institutional part of its fundraising, and PrimaryBid for the retail side of its fundraising. To date, the company has supported 52 transactions, raising more than $ 65 million for businesses from retail investors.

It's a win-win relationship, the company believes: investment banks don't want to have to do the heavy lifting of landing and integrating investors. retail, but increasingly need to ensure that they help provide business customers with retail as well as institutional capital. Banks are satisfied, companies are happy and retail investors are getting these historically discounted stocks for these wholesale stock issues.

There are many reasons why demand is increasing: companies increasingly need to use individual investors as part of their environmental, social and governance (ESG) frameworks; retail investors also often make good “brand ambassadors”.

Do the British really buy enough stocks, however?

Unlike the United States, British investors are known to turn away from the stock market in favor of "bricks and mortar". Computer Business Review pushes the point: is there really a sufficiently deep pool of retail investors to grow the business?

D & # 39; Silva of PrimaryBid, who is also the CFO of the company, says it comfortably and points out that the company had to focus more on getting good deals on the platform: something that She institutionalized by hiring the former head of small caps. at JP Morgan, teaming up with LSE and other relationships.

He tells us: "There are around 4.5 million investors in the UK who invest in single stocks. It is far from the United States, but it is still a very significant number of people. If, in terms of allocation, there is a maximum of 8 million, you are looking for around 1,000 people to complete the transaction. This, on the demand side, has never been a problem. "

"No bank can pretend to say" I can't call 1000 customers now "because we are now sending push notifications to X one hundred thousand customers.

They can't say "I can't AML Mr. and Mrs. Smith because getting their passport and driver's license takes days."

So why follow-ups and not mainly IPOs?

D’Silva says: “IPOs are a very cyclical activity; it's very bumpy. But follow-ups take place throughout the year: it is about three times larger as a market than the IPO market and it is just constant. "

PrimaryBid itself raised € 7 million in Series A in 2019, led by venture capitalists Pentech and Outward VC. This is the start of the business, but with other trading platforms outside of LSE that are going to hit and are also considering expansion into Asia, expect to know more about l & # 39; company.

*A combination of ownersa state user base, investors brought in via advertisements on dedicated digital platforms and broker partnerships.