Few sectors arouse as much strong opinion as small business funding. Stuart Lucas and Iain Baillie, founders of Asset Match, believe they have a disruptive solution to the very real problem of lack of liquidity in the private-company sector.
The idea came from a 12-year-old investment that Lucas had made in a very successful business that had never enjoyed a liquidity event (ie, a float, external investment, trade sale etc). It prompted the founders to ask: how many other such companies are there out there that don’t want to join a public exchange, but might one day to release liquidity?
The answer is: lots.
There are 10,000 private companies in the UK with revenues above £20m. Of these, roughly 25 per cent have fragmented shareholder bases. Lucas: “we estimate that the shareholder value embedded in these companies is in the region of £300bn. Unlocking ten per cent of that figure is the equivalent of a small Quantitative Easing.”
Baillie continues: “We are disruptive to two communities. Firstly public markets are hopelessly out of date and not fit for purpose for small and medium-sized companies. Some 37 per cent of AIM stocks trade less than once per day; 31 per cent have a market capitalisation of less than £10m. Their revenue model is broken.”
Asset Match is different in three ways, he says: “We charge the buyers and sellers, not the companies. We encourage periodic auctions that concentrate liquidity and diminish volatility. And we engage directly with investors by encouraging them to register on our platform, and 'follow' companies and sectors in which they are interested. We can then keep them up to date with relevant information.”
Secondly (he’s warming to his theme now), “the VC and PE community have run an effective cartel for years. There is no fee pressure. They operate an outdated model that generally involves nailing the entrepreneurs’ head to the floor until they get an exit [told you he was warming up]. We facilitate partial exits which allows those who wish to exit to leave, and those who wish to remain the chance to stay with the company.”
There’s little doubt that the real-time, digital distribution of information is transforming financial services. The banks are already seeing a multiplicity of disruptive rivals. Now, entrepreneurs such as the Asset Match founders have their eyes on the whole system of public markets itself.
Last word to Lucas: “The potential for Asset Match is massive. In five years we could have 500 companies on the platform, trading volume of £200m per year and annual revenues approaching £15m.”