Oct 30, 2020
Why we invested in PrimaryBid
COVID & the Catalysis of Product-Market Fit
PrimaryBid’s Series B comes at a tempestuous time for equity capital markets. The COVID-19 crisis has cut a swathe through every business plan for 2020; a select few have benefited from a digital acceleration, while many more companies are now operating at revenue levels never imagined. The result has been a deluge of emergency equity issuances as companies rush to raise capital to counterbalance high levels of debt accumulating during the crisis. However, as Anne Richards, Fidelity International’s CEO, wrote in the Financial Times: ‘The [asset management] industry is not going to be enough to solve this solvency problem.’ There is now a profound need to unlock alternative pools of capital.
Retail investors in the UK are routinely denied access to capital raises and initial public offerings (‘IPOs’), as the logistical and cost barriers have traditionally been too high. Consequently, in the case of follow-on issuances, shareholders in these companies are generally forced to accept dilution and are unable to take up pre-emptive rights. Secondly, retail shareholders cannot take advantage of the significant discounts at which these emergency raises are executed. In the case of IPOs, allocations are often so limited that most retail investors are unable to purchase shares until they are traded on the secondary markets: denying them the opportunity to take advantage of the price increase that often follows successful IPOs.
The backdrop to this is that retail investors directly hold 15% of the UK Main market and 25% of AIM. In the US, retail ownership rises to c.40% and this proportion is increasing across Western markets.
Ultimately, modern equity capital markets remain tilted in favour of large institutions and do not treat the growing retail investor market fairly.
Democratising Access
PrimaryBid allows everyday investors to purchase new shares issued by public companies.
Their platform sits between issuers & investors and automates the process of collating orders and then allocating investments. Investors can buy shares directly through the PrimaryBid app and receive the shares directly into their brokerage account.
Anand and the team have built a uniquely positioned piece of technological infrastructure that is set to redefine the way issuers access capital markets. Issuers can now include a retail offer even when they are raising funds in an expedited fashion: allowing them to tap into alternative pools of capital and to respect the rights of retail shareholders.
PrimaryBid will soon become embedded within the functionality of the major UK retail brokerages, including Fidelity. This enables them to provide broader retail access to equity issuances without the associated cost of direct customer acquisition — elegantly overcoming the ‘chicken and egg’ problem incurred by many 2-sided marketplaces.
Over the course of 2020, PrimaryBid have comprehensively proved the validity of their model: executing retail offers for Compass Group, Ocado, William Hill, Taylor Wimpey, The Hut Group, and many others. In a profoundly challenging and disruptive period — Anand and the team have established PrimaryBid as the dominant force in their market. All while their team has been working from home.
At FISV, we have rarely encountered a team with such a strong founder-market fit: each of the four co-founders has deep — but different — domain expertise within equity capital markets and have extensive connectivity within the ecosystem. It is perhaps no surprise that they have built such a talented team around them, who are capable of executing on their ambitious vision to create fairer and more efficient capital markets with greater retail inclusion.
The Evolution of Capital Markets
Looking to the future, we believe recent events are causing a paradigm shift in equity capital markets. Historically, intermediation between investors and issuers looking to raise capital has been a manual, costly, and opaque process — tightly controlled (and jealously guarded) by a small cabal of banks.
Direct listings, such as that pioneered by Spotify, represent a powerful example of how issuers are increasingly taking control of their access to capital markets and minimizing the role of investment banks. Notably, Bill Gurley at Benchmark railed against the inefficiency of investment banks and the under-pricing of IPOs earlier this year; estimating that Silicon Valley companies alone have given up $170 billion as the result of under-pricing.
Direct listings are ultimately a symptom of a broader change in capital markets; technology is being used to manage complexity and is facilitating an increasing shift in control away from service-oriented intermediaries and towards the principals in a transaction. PrimaryBid is well positioned to take advantage of this trend.
In Conclusion
Fostering the inclusion of retail investors in equity capital markets is both a financial and a moral imperative. We are excited to partner with Anand, James, Kieran, Eric, & the PrimaryBid team and look forward to working together to drive this democratisation of capital markets and forge a more inclusive & efficient financial system.
Credits: Joshua Lloyd-Lyons
