Will Capital Markets be Disrupted by Changing Technology? It’s Already Happening

There’s no doubt that the rise of fintech is changing the financial services industry dramatically but some areas have been slower to change than others.

Capital markets have been one of the slowest to move online, in fact, there’s still some question as to whether they even will.

It’s a question with billions of dollars at stake, says Teri Kirk, the CEO of the Funding Portal, an online platform that helps companies find sources of funding.

“Will capital markets yield to the web?” she says. “My own view is that that is inevitable and we are undergoing that change now.”

Kirk says, like with many things on the internet, it’s starting small and moving up.

“It’s quite vibrant already in small-cap markets,” she says, defining that market as consisting of investment rounds between $10,000 and $1 million.

It’s a marketplace that includes things like microfinance, small loans generally given to people in less developed countries; small business lending platforms like OnDeck; and crowdfunding, all of which are facilitated by technology.

Until recently, she says, this was almost entirely a donor market. While equity crowdfunding is starting to grow in Canada, the provinces where it is allowed have set caps on how much companies can raise.

“Crowdfunding is overwhelmingly supporting small projects,” she says.

Still, it’s had “an absolutely stimulative effect,” she says, opening up access to capital that just wouldn’t have been available before.

But there’s now a push to take things to the next level – to use technology to help enable mid-cap investment rounds, between $5 and $50 million, and eliminate some the inefficiencies in that market, Kirk says.

“We think that is the market that is now beginning to yield to the web,” Kirk says.

The Funding Portal hears from “CFOs and entrepreneurs who are yearning to do their capital markets and financing activities in the way that they do everything else today, the way they use Expedia and Facebook and LinkedIn,” she says. “It’s that yearning for a simpler, easier, more mobile relationship, that companies feel a little more in control of.”

This change will be good for investors and entrepreneurs, she says.

One of the biggest challenges in the mid-cap market right now is that many people who have capital, particularly those outside major centres, don’t know how to find candidates for investment among Canada’s “best and brightest companies,” Kirk says.

Entrepreneurs, on the other hand, don’t know how to find those people, who have the means to invest but who aren’t involved in things like organized angel groups.

Giving exempt market dealers, the people who sell shares in privately-held companies, the type of technology that allows crowdfunding sites to connect backers with projects, could change all that, opening-up new sources financing for entrepreneurs, Kirk says, particularly for things like research and development.

Still there are some limits to the disruptive power of the web.

Kirk says she doesn’t expect large private-equity deals, those in the billion dollar range, “yielding to the web any time soon or perhaps ever. Those kinds of raises demand all of the tools and infrastructure associated with the analog world.”

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