Democratising Investment through FinTech
By James Codling, Venture Founders
As Franklin D. Roosevelt famously said, “Democracy cannot succeed unless those who express their choice are prepared to choose wisely. The real safeguard of democracy, therefore, is education.”
In the past, it has been impossible to apply the above to individuals interested in investing in growth businesses. The extremely opaque nature of the investment market made it inaccessible for those wanting to build a portfolio that included investments in early-stage businesses. Hundreds of thousands were needed to invest in these businesses and there was no way for individuals to obtain the information needed to make an informed decision on whether it was worth risking their funds on an investment opportunity.
Individuals may have had a bit of exposure to such businesses through their pensions or other schemes, but they weren’t investing directly and certainly weren’t energised by the market. Investing directly in the opportunities that, while highly risky, could return some of the greatest profits was only available to institutional investors, which was most definitely not democratic.
Thankfully the explosion of the FinTech market has started to change that. Emerging technology and business models have given those who have the financial ability to invest, and understand the risks associated with such investments, direct channels through which to access these opportunities. Individual investors are now empowered to invest in businesses that excite them, in the way they prefer, thus allowing them to take control over their portfolio.
But it’s not just a case of ‘us versus them’ when it comes to traditional and alternative investments. Rather, we are seeing a much more collaborative approach between new models, such as alternative finance platforms, and the more traditional, institutional firms. 87 per cent of the opportunities presented on our equity investment platform, VentureFounders, have one or more VCs backing them. We recognise that VCs are doing a great job – the returns they see is proof enough – so if it’s not broken, why fix it?
By co-investing alongside such institutions, we are able to capitalise on the due diligence they have undertaken in order to efficiently run our own internal review of the opportunities we believe will deliver the best chances of success. This benefits investors overall. Not only do they have the peace of mind that the business has access to the funds and network of a VC, but it also means we are able to provide them with the relevant documents from our own suitability assessment, for them to review for themselves. They no longer have to just “take an expert’s word for it” and, to Roosevelt’s point, can educate themselves sufficiently to make their choices wisely.
This collaborative and transparent approach to investing would simply not be possible without the UK’s FinTech revolution. London is both a leader in FinTech and an internationally recognised centre for global investments. The two combined means we are in a fantastic position to drive forward further democratisation and transparency to the traditionally very closed financial market, from financing business, through to payments and currency exchange. Working alongside established institutions, the investment market is definitely seeing a change for the better; one that is set to benefit both investors and the businesses seeking funding, alike.