Fintech startups see opportunity in retail investing boom - Business Insider

Fintech startups and investors have spotted an opportunity in the COVID-19 retail investing renaissance

10/30/2020 12:49:00 PM

Fintech startups and investors have spotted an opportunity in the COVID-19 retail investing renaissance

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An emerging crop of fintech startups want to address this."We're seeing a retail renaissance," Vinoth Jayakumar, partner at Draper Esprit, told Business Insider. "Technology enables access and minimizes risk. Retail is getting to a place that it wasn't before, we are now at a key inflection point."

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Accessibility is a current buzzword when it comes to capital markets. It's not necessarily that companies don't want to include retail investors in share issuances, but simply don't have the tools or time to include potentially thousands of individuals in book building processes, where banks record investor interest.

One option to improve that is to bundle lots of little retail orders into a single sizeable offer, the pitch offered by London fintech PrimaryBid, whichrecently received funding from both OMERS and Draper."Retail investors want to connect fully to public markets but never had an efficient way to do so," said Anand Sambasivan, PrimaryBid CEO. "Markets themselves are incredibly fair, but access to them is unfair and this is the issue we are fixing." 

Sambasivan compares the current situation to billionaires being allowed to purchase goods at Harrods at a discount while others wait in line outside, only to purchase the same items at a higher price. "There would be an uprising if this were the case in real life," he adds. "This is the inequality we are fixing." 

Acceleration aheadCOVID-19 has accelerated the process, according to Reeves."It's fundamentally unfair that retail investors don't have access to advance book builds," she said. "With more and more companies coming to market, the question to companies has to be: 'Why aren't you including retail?'" 

Retail investing has seen major increases in recent years with the success of Robinhood in the US during the pandemic demonstrating that the access gap to public markets is shrinking.That success ultimately saw the startup halt its UK launch plansbut companies like Stash, Freetrade, and Revolut have brought trading options to the UK alongside existing platforms like eToro. 

The trend is likely to continue. MiFID II, a piece of EU legislation from 2018, will increase transparency around capital raising with intermediaries needing to produce justification for share allocations.Similarly, legislation around pre-emption rights, the ability of existing shareholders to purchase new shares before they are offered to new shareholders, is changing in the UK to allow companies to conduct new share issuances of up to 20% of existing capital without having to seek shareholder approval. 

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"These changes are putting trust back into the hands of the retail investors," Jayakumar said. "The pandemic has accelerated the awareness that retail investors have of their power in markets and we are now at a tipping point."Newsletter

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