Demand for access to shares in private companies has never been more prevalent. Since the rapid emergence of Crowdfunding, buoyed by EIS/SEIS, economic events and associated technology developments for financing these entities, investor and company demand for liquidity points is increasing. Furthermore, there has been increasing levels of dissatisfaction from firms who were planning to or have gone through the traditional IPO process and are now looking for better, more flexible and cost-effective options.
Private company finance is not new, but we need to recognise the shifts in capital formation practices, demand for ease of access to the private capital markets and the tax treatment of investors at the very early stage in a company’s lifecycle. Throughout a company’s lifecycle there will be evolutionary changes in its capital structure, for example, the need to refresh the cap table, allow early-stage investors an exit and usher in longer term investors once the model has been proven. As a firm grows and evolves its capital structure, there is a greater need for working with investors while managing increased valuation scrutiny and validation. At the same time firms need to be looking at accepting new forms of capital including debt and creating staff incentives, such as EMI schemes and utilising Registrar services.
At the core of CrowdX, we are creating a liquid secondary market for companies and investors beyond seed, to raise new capital and trade existing capital in proven growth companies. We aim to attract investor groups further along the finance curve from family offices to funds while preparing our clients for larger and more complex capital formations and restructuring.
CrowdX has built and thoroughly tested our in-house platform and we work with numerous third parties from legal and accounting firms to crowdfunding platforms, intermediaries, brokers and private equity funds to create the liquidity pool for our clients and their investment/divestment needs. Through working with all our clients throughout their entire lifecycle, our ambition is to be judged on the quality of our bespoke service offering and investment opportunities.
Retail entities and hedge fund/asset managers looking for exposure to high growth assets, or to exit positions already held, can directly access our platform via our API to place buy/sell orders and launch secondary offers.
Our B2B2C model creates a market for qualified professionals and firms to act for their funds or their retail clients in a transparent and regulated manner using a familiar interface and price discovery technology. Furthermore, ambitious client issuers engaging our services early on in their growth story benefit from our support in readying them for further financing rounds via funds and institutional investors in our network.
Having been at the forefront of finance and economic thinking for centuries and now a globally respected base for emerging Fintech with an exceptionally talented workforce, Scotland is proving to be the perfect base for us to build out our disruptive business model and we look forward to working with local partners and suppliers in realising our goals.
With inquisitive minds and coming from a financial markets background, we started out by looking at taking a few positions in some crowdfunded businesses – What could be better? – A tax break for supporting these firms, early-stage access to some innovative, exciting businesses and a way to support growing businesses! Like any investments, there were some less than ideal opportunities, but there were also many, well run, growing and exciting firms looking for financial support.
Each time we wanted to take a position, something was bothering us – it turned out that as exciting as it was to support these firms, the chances of ever being able to see the money again and move from a paper-based valuation to real profit was limited by the lack of exit options.
Upon further investigation, the lack of liquidity options also tied up the firms who had previously had support from early-stage investors – the firms had complex and unwieldy cap tables, with no options to consolidate thus hampering their growth and limiting their options for next stage funding.
Having a background in the financial markets, and a passion for investments, this seemed like a perfect problem to solve. It was at this point that the CrowdX team formed and a solution to this problem was designed. Derek, with years of experience in developing technology for the financial markets. Alex with specialist skills in designing trade flows to maximise liquidity and efficiency in a market. Mike, with a career in building businesses in the capital markets space joined to lead the operation.
Having bootstrapped the building of the technology using previous experience of building scalable technology solutions, the next hurdle to overcome was to get the regulation covered. This proved to be a tough, expensive and time-consuming exercise. Once the right partner was found, we were able to progress in ensuring we could achieve the trading model we needed, while providing a regulated service and taking an innovative approach to what we were trying to provide. A number of iterations of the technology to ensure we were in line with the required regulations, and we were then in a position to do a beta launch.
Why was our engine built in AWS? Well as a headline, three main reasons:
- Costs – we can scale up and scale down capacity, almost infinitely, to ensure we scale with the market as we grow and only incur the cost of the capacity required. This was our saving grace during the Pandemic.
- Speed – We can create new environments at the press of a button, ensuring that we can deploy to new markets, assets classes and geographies with ease.
- Security – We can rely on the native security inherent to AWS.
We partnered with a new Broker to the market called Dabbl Invest. After a quick certification to our market standard API’s we were able to run a Beta launch with friends and family. This resulted in trading over 3 days, with the full end to end cash and equity settlement process being proven, in production. This was a major milestone for us and put us well on the path for a full launch. As a team, we had proven that we had the right technology and the right model for the market.
Covid then hit… It’s times like the pandemic that can make or break a business. We were fortunate for a number of reasons:
- We have kept our costs low – Until December 2020, Management has not drawn a salary throughout the evolution of the business.
- Our technology is built in AWS, this means that we have been able to scale up and scale down the technology as required and so as to minimise costs. During the Pandemic, we were able to bring down the matching engine, and incur £0 fee for the duration of the down time. We are now able to deploy our technology at a cost of under £20 per month, and scale it up as required to meet demand – a perfect technical solution to ensure our costs remain low and our service quality remains high, as we become cash flow positive.
- We managed to continue to keep our relationships with key partners, issuers, and brokers by being completely transparent on our position. Our reluctance to take on fixed subscription fees ensured that all our costs were fixed and easy to switch off when we needed to.
We have now started planning for our launch with an exciting new issuer and some more in the pipeline. We have a strong, motivated team, and operate in an exciting space. We’ve learnt some valuable lessons along the road and will continue to be cautious in our approach, but aggressively look for growth and innovation opportunities for our business, our customers and chosen partners.
Andrew Foster – Founder
Andrew started his career as a developer but quickly moved on to product management, client management and team leadership. Andrew has a strong background in single stock futures, CFDs, equity trading and portfolio management. Andrew has overseen the implementation of numerous trading and portfolio management systems for some major firms and holds an MBA from WITS University, which is combined with 12 years of Investment and Fintech experience.
Mike McCudden – CEO
Mike has 20 years of capital markets leadership experience from market making to product development and corporate finance. With his in-depth knowledge of the full investor cycle and passion for embracing disruptive technology and experience of delivering strategic growth in a highly competitive environment, Mike brings all of this to the helm of CrowdX. Mike will lead CrowdX to achieve its mission of being the leading secondary market platform for private companies in the UK
Alexander Simon – Strategic Advisor
Alexander has 20 years’ experience in investment banking, most recently as Managing Director for a broker at the Stuttgart exchange and before as Global Head for Citi’s retail exchange traded product business. He possesses deep knowledge in management and optimisation of trading and distribution platforms at highscale volumes. Alexander has a consistent track record of business growth and profitable performance. Alex is ensuring that CrowdX is an active, fair, liquid market which benefits all participants.
Derek Crous – Technology Director
Derek co-founded Peresys, the leading South African financial market technology provider that was later acquired by IRESS. At Peresys, he ultimately transitioned to a CTO role overseeing all software development, operational responsibility for the FIX Hub and design and deployment of algorithmic trading capabilities. Derek leads the development of the CrowdX matching engine, price feed and connectivity infrastructure.