Category Marketplaces

Any platform that brings capital providers together with those who need it, whether debt (loan platforms) or equity. Includes both P2P models, as well as traditional institutional channels.

Overview of P2P Automation and Analytics Sites

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I wrote earlier this week about some of the institutional analytic and connectivity tools that are emerging as the crowdfunding and P2P markets mature. There is a nice summary of similar tools aimed at individuals and small funds investing in P2P lending platforms: \Overview of P2P Automation and Analytics Sites.

“…Analytics and data has been a large part of p2p lending from the start and investors are always looking for an advantage to potentially maximize returns. Investment automation allows for a much better investment experience versus selecting notes on the platform by hand”…

The Next Big Thing in Crowdfunding

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Next Big Think In CrowdfundingThe rapid growth in crowdfunding platforms is remarkable. As the market matures, some key trends are emerging which I think have important implications for future areas of growth.

Fragmentation.  With over 600 platforms (Crowdsourcing.org) today, the market has become highly fragmented. Pick any segment — equity, loans, real estate — and you’ll find multiple platforms.

Institutionalization.  Crowdfunding and P2P platforms are increasingly turning to institutional capital sources to provide liquidity and scale. This includes investor groups, “institutional” investors that have raised funds, and banks (recent articles here and here).

Electronification. As participants have become more sophisticated, so too have the platforms. Electronic access through APIs, both for data analysis and investment, have become prevalent.

When you combine Fragmentation, Institutionalization and Electronification the future looks quite interesting.

  • Investment analysis becomes much more complex. Relying on the tools of one platform are not longer sufficient. Institutional investors need to bridge marketplaces. They want an aggregated view of where the “market” is for a particular security, loan or asset. They want to dissect relative value across platforms. They want to consume and analyze large sets of data using standardized or proprietary analytics.
  • Connecting to multiple platforms, to either consume data or submit investment requests, becomes a pain point. Connections are costly to setup and maintain. By themselves they provide little competitive advantage (for now at least). Participants would much prefer to deal with a single connection point.
  • Electronic trading becomes a capability for potential differentiation. Given the small investment amounts and desire to redeploy capital, institutional investors need tools to enable them to invest in an efficient, rule-based approach that leverages APIs that are now available. As these electronic capabilities mature, I would expect more advanced algorithmic trading to increase. While some participants may prefer to build these capabilities from scratch, I expect others will prefer to license a platform and invest in developing trading strategies on top of it.

Helping accelerate these developments is the desire for crowdfunding sites to grow their marketplaces as quickly as possible. In general, they appear to have adopted an approach which is open to the broader ecosystem, and does not discriminate based on type of investor or trading style.

As a result, I see a tremendous opportunity for “second order” crowdfunding players that are focused on providing data, analytics, connectivity services and electronic trading platforms. There are already some notably companies addressing these needs (e.g. Crowdnetic, LendingRobot). I expect we’ll see many more in the future.

M&A marketplaces: what it takes to be successful

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DealmakingI’ve recently been looking at companies that are building marketplaces to help match buyers and sellers of private companies (e.g. IntraLinks DealNexus, Axial Market, ExitRound, Mergerdeals, Dealgate, BizBuySell). I’ve spent most of my professional career doing M&A, and I find it fascinating to consider what will separate the winners from the losers and how they could change the deal process for practitioners.

There is no doubt the M&A market is inefficient. There is a large number of private companies (5 million in the US alone with fewer than 1,000 employees according to the Census Bureau). There is no easy way for business owners to identify which companies might be looking to acquire (or more importantly, looking for someone like them). And it is extremely difficult for strategic buyers and private equity firms to actively monitor more than a few hundred firms effectively.

So why shouldn’t there be a Match.com that makes it easier to transact?

There should. But there are important differences between private company M&A transactions and other types of transactions that have moved online.

Heterogeneous market. Unlike other financial transactions involving standardized products, there is a massive range in the characteristics of targets – industry focus, size, business model, geography. So there is not really “one” market, but multiple markets. And the opportunity for an online marketplace will vary – markets with large numbers of targets, “discovery” challenges (e.g. targets with limited online presence) or diverse buyer profiles, should be more attractive.

Implications for success 

Trying to be a marketplace for everyone would be challenging – significant acquisition cost to bring on members, long time to scale to the point of seeing transactions.

As a result, success (or at least early success) becomes a problem of where to build first. BizBuySell has succeeded by focusing on the really small end of the market – sole proprietorships, franchises. ExitRound is focused more on the technology sector. So I believe it will be possible for multiple “micro” platforms to coexit and not overlap, at least in the medium term.

Role of intermediaries. In contrast to many “broker” relationships, the role of the advisor in M&A is quite complex. Making buyer introductions may be “high value”, but that is a small part of the job. Ask any analyst, associate or junior VP what they do, and you’ll probably here about tasks such as preparing and distributing marketing materials, handling buyer NDAs, managing the exchange of due diligence information, maintaining process logs or preparing client updates.

Implications for success:

There appear to be three ways for online marketplaces to “play” with advisors:

  • Replace them by providing with technology what they do themselves.
  • Open the marketplace up to them, treating them much like business owners who can create listings on behalf of clients.
  • Build additional workflow tools for them as a platform within the platform (with additional subscription revenue).

These are by no means mutually exclusive. A marketplace could both disrupt the advisor model, replacing part of their role, while enabling them to focus on other aspects on a deal. This is already the way many marketplaces work today – they are a compliment rather than a replacement for an advisor.

And I do believe it will be challenging to disintermediate advisors entirely without significant investment in workflow tools, or integrating existing workflow tools into the platform. Otherwise, when a business owner faces a decision whether to “self-serve” on a platform or hire an advisor route, the platform will not deliver a sufficient solution.

Building workflow may be challenging. IntraLinks is perhaps the best positioned to combine workflow with a marketplace, since they already have the largest online dataroom product and also acquired DealNexus. However, they appear focused on selling their Via product to corporates (staying ahead of Box.com et al), as opposed to building an M&A desktop application. Many workflow components (e.g. CRM, diligence logging, client reporting) will require expertise and resources to build, and time to adopt. While some components already exist, such as CRM tools, adapting them to the M&A use case is tricky (have a look at Navatar).

Noise. My inbox is overloaded. I’m sure yours is too. Having worked in corp dev, I can tell you what M&A practitioners don’t need are more poorly targeted opportunities being lobbed at them. Very few deals are actually consummated, and one of the biggest determinants is in the initial filter of what companies to look at. This is important for two reasons – first, I believe many marketplace business models will depend upon a success fee (at least in part) so you need transactions to take place to earn revenue; second, I think practitioners will be slow to adopt (or quick to dismiss) a marketplace that does not deliver relevant recommendations. Continue reading “M&A marketplaces: what it takes to be successful” →