In this IRMatters guest blog post, Antony Tolfts, CEO of Blu Horseshoe, sheds light on digital capital raising platforms and how they link companies with investors.
Secondary offerings are the most popular form of capital raising on the Australian Securities Exchange, with investors pouring more than A$60 billion into the secondary market in 2021 alone. The reason for this is clear; IPOs require a full prospectus and disclosure statements to be created and reviewed by the ASX and Australian regulators (ASIC), a costly and time-consuming exercise.
However, once listed, issuers can use secondary market capital raising initiatives such as Placements to raise additional funds with much less administrative overhead. But this too comes at a cost. Due to various regulatory barriers – such as the requirement for investors to be deemed ‘sophisticated’ and the rule which restricts participation by existing shareholders - secondary raises are generally only accessed by a very small proportion of those able to invest leaving many publicly traded issuers unable to access the total pool of capital that might otherwise be available to them.
Enter the new kid on the block – the Digital Capital Raising Platform (DCRP)
DCRP’s are one of the newest fintech tools to hit the capital raising space. They act to connect sophisticated investors with companies and/or brokers looking to raise funds from wider sources of capital, particularly in the secondary market. When looking to use a DCRP we believe there are several key features people should look for:
Digital capital raising platforms connect companies with investors.
Market knowledge and Intelligence
A key feature to any DCRP should be that it is purpose built by a team with deep industry knowledge and experience. Knowledge and experience supports the development of a platform that is relevant and practical; both for investors and issuers. Experience and knowledge also plays an important role when challenges arise; there’s nothing quite like being left high and dry, speaking to customer service staff with no real understanding of what they’re dealing with when the going gets tough.
Intelligence supports investment success and so a key feature of any premium DCRP is getting information to investors with speed and accuracy; most commonly this happens via deal alerts and notifications direct from the platform to your phone and/or email. This becomes particularly important given the average life of the opportunity on the platform is, on average, 8 hours.
Ease of administration is essential to support the execution of investments via a DCRP. Premium DCRP’s will focus on the following key features to make the life of an investor easier and give the highest possible chance to raise the desired capital to an issuer:
- Account opening and maintenance – DCRP’s act as a consolidator, bringing together investors with deal flow or investment opportunity. For this very reason, DCRP’s provide a great opportunity to investors to reduce the amount of administration they normally need to undertake both in terms of account opening/ongoing account management with individual brokers as well as regulatory requirements under Know Your Client (KYC). With regard to the latter, regulations dictate that KYC is carried for all investors on the establishment of their account and for each capital raise they take part in. For many investors that means they are going through the process on a continuous basis. However, some DCRP’s provide cloud native storage for their registered users, allowing them to draw on information at the click of a button rather than requiring them to resubmit at the time of each investment. This means the same information can be used across a number of deals saving a great deal of time and effort.
- Investment management and tracking: Premium DCRP’s allow you to link personal details such as Registered Account Designation, HIN and PID at the account level allowing your investments to be easily tracked and managed by all parties without the hassle of having to provide them for every investment you make.
- Streamlined execution capabilities: From account set up through to settlement your DCRP of choice should be clear, easy and straightforward. We suggest looking for DCRP’s that have information on all steps readily available via their websites and a friendly, available customer support team to talk you through any challenges if they arise.
DCRPs link investors with companies looking to raise capital.
The whole premise of DCRP’s is to link investors with issuers looking to raise capital. So, one of the key features we look for in premium DCRP’s is new deal flow. To get the most out of registering with a platform we suggest taking a look at the rate of new deals onto the platform; the more choice you have as an investor, the better!
For companies looking to expand their capital raising reach, we suggest looking at the number of registered active users a DCRP has on their platform. The greater the number of investors active on the platform, the greater the chance of filling the capital raise to the higher end of the range due to a greater transparency in demand.
We believe strongly believe in the importance of fairness when it comes to the allocation of bids and we believe the best way to ensure fairness for all investors is through pro rata allocation; where all investors receive the same allocation, regardless of their size or relationship with the issuer.
Whilst Digital Capital Raising is still a relatively new concept in the Australian investment landscape, the benefits of its inclusion for investors and capital raising issuers are clear. With the above considerations in mind, we believe we will see continued growth in the sector and significant increased participation by investors looking to increase the scope of their universe of investment opportunities.
Find out more and register to become a Blu Horseshoe investor at bluhorseshoe.com.