Go Digital Or Die: Capital Market Players Have A Known Answer Sheet

What happens when a business is forced to try something new amid a crisis?

Usually a lot of pain and a lot of failed attempts.

But today’s capital market players may have it easy. While major Wall Street banks and asset managers are being forced to try out new ideas to cope with the pandemic, online funding portals, the latest addition to the capital market family, have already shown the incumbents which “new ideas” can actually work, making their choices much easier—-go digital or die.

To be fair, even before this pandemic, online funding portals already had tailwinds at their back.

While the number of FINRA registered broker-dealer firms has steadily declined by 33% over the past 15 years, the global crowdfunding market, mostly digital, enjoyed a compounding growth of 17% per year since 2014.

While the number of FINRA registered broker-dealer firms has steadily declined by 33% over the past 15 years, the global #crowdfunding market, mostly digital, enjoyed a compounding growth of 17% per year since 2014 Click to Tweet

Right now, the SEC is discussing proposed rules to increase the Regulation Crowdfunding (Reg CF) cap. If implemented, crowdfunding offerings will become a lot more appealing to both issuers and investors, introducing a second wave of major growth for the industry.

On the surface, it appears that the new regulation is the only reason behind the growth of this new industry when in fact, it’s far from it. If anything, this “deregulation” is a catalyst for more macro and permanent change of consumer expectations to a fully digital experience, having a profound impact on both the incumbents and new entrants.

For years, large financial service firms have been heavily investing in technology to keep up with the digital experiences required by modern consumers while improving efficiency to combat shrinking margins. However, for some reason, capital market players have been relatively slow to adopt change.

For a while, bankers and placement agents firmly believed that face-to-face meetings were crucial to close meaningful deals. Therefore, they have resisted trying anything drastically different.

It was not until the recent outbreak that forced everyone to try out new approaches to continue business. Wall Street bankers, to their pleasant surprise, realized that major deals can be won online.

Once this realization sets in, life will never be the same again for them. Bankers from UBS and Citibank have quickly found out pitching billion-dollar stock sales to global clients via Skype or Zoom allowed them to interact with investors a lot more quickly.

Morgan Stanley is planning to host a virtual conference with thousand-plus attendees. The material saving in time and expenses alone is attractive enough to set a new performance standard for the entire industry going forward.

But there’s a lot more.

In fact, virtual conferencing is only one tool in the entire repertoire.

Over the years, funding portal technology has advanced so much that the entire investor journey can be digitized while still maintaining a highly personalized experience. From investor prospecting, onboarding, deal presentation, engagement, and relationship management to portfolio management and re-engagement, all experiences can be in one place. As investors move through the journey, platform components collect, communicate and analyze data to optimize investor experience in real-time so that hypothetically thousand-plus one-on-one conversations with one banker is possible.       

With this stamp of approval from Wall Street incumbents, the new technology and approaches underlying online funding portals will be perceived as being more legitimate and widely acceptable. As a result, while the growth of new entrants might slow due to temporary uncertainties of the pandemic, the incumbent broker-dealer firms, investment banks, and asset management firms, especially the mid-size and boutique players, will be more willing to embrace the new technology in order to continue operation and survive.

However, to the traditional placement agents and bankers, the new funding portal approach is not a simple plug-and-play technology gadget. To meet today’s consumers’ expectation of full digital experience, modern funding platform technology has integrated many different functional components to enable operators to run the majority, if not 100%, of their capital raising business in one place. Therefore, to be successful, not only should the bankers and brokers become more tech-savvy to leverage the full power of the platform, but they must also rethink the entire business approach in the context of new consumer expectations (e.g. real-time, personalized care, immediate fulfillment, one-stop convenience etc).

For instance, is investor acquisition and conversion more marketing oriented, sales-oriented, relationship-oriented, or a hybrid?

Which part of the investor’s journey should be low-touch or automated, which part should be high-touch or manual?

What should be the target conversion rate of an offer?

What engagement metrics are most relevant to measure operational performance?

Many of these design questions are fundamentally different from those of running a traditional investment bank and broker-dealer firm. As platform technology enables great efficiency and reach, strategic design becomes more crucial to activate the multiplier effect.

Furthermore, many of the issues that were impossible to address before can be addressed effectively now due to technological advancement and change of consumer behaviors. For example, timing is considered critical in fundraising. Knowing when to catch the investor at just the right time used to be a pure guessing game or a test of persistence.

As today’s platforms usually come with integrated investor portals, datarooms, CRM, predictive analytics and auto-engagement engine, investors’ activities on the platform, such as what they read, for how long, what they click, when they log on and off, can be captured and analyzed in real-time.

Based on user-defined analytical triggers, engagement actions can be activated automatically such as a platform operator selecting to receive a notice and sending an appointment invite to an investor if they have spent more than five minutes looking at the private placement memorandum.    

On the other hand, unlike entrepreneurs with no capital market background, bankers and brokers bring great insight, experience, and relationships to the table. With newfound power provided by the technology, scaling a conventionally high-touch approach becomes possible.

For instance, usually, there is a time gap between the first time meeting with an investor and what the investor makes their first investment. The time gap presents two major challenges to the banker:

1.  to stay on the investor’s mind until the first investment is made, if ever;

2. to determine when the investor will be ready to invest.

It is due to these challenges, the high-touch nurturing process is time-consuming and unscalable. However, with an auto-engagement engine, staying on investors’ mind becomes easy. The banker can select to deploy a monthly personal email to the investor to touch base, schedule a lunch or a call, give updates on an offer or introduce new investment opportunities. And this readiness is measured by the subsequent actions of the investor. Until the investor’s actions indicate a certain level of interest and commitment, this automated routine can run indefinitely and the banker never feels compelled to personally engage. Therefore, the banker can use the platform to engage hundreds, if not thousands of, potential investors at any given time, and only spend time providing high-touch services to those who are truly interested and ready.

As consumers demand more digital experiences, funding portal technology will only become more advanced and intuitive Click to Tweet

As consumers demand more digital experiences, funding portal technology will only become more advanced and intuitive. As of today, platforms are already designed to interconnect and interact with each other, forming a much larger distribution network. With massive data available, AI-driven recommendation engines are rapidly being developed to optimize the matchings between offers and investors, bringing a Netflix-type experience to private investment.

While one of the biggest challenges facing financial service firms is to decide in which technology to invest, modeling after funding portals’ early success, existing capital market players have a readily available answer to start with. But, for the incumbents to become truly successful catering to their high-end and institutional clients, instead of merely replicating all online portals’ practices which are designed for a different audience, the winners will be the ones who can optimally blend their unique insight of investor needs, high-touch services with technology.


Trilliam Jeong is Chief Executive Officer founder of WealthBlock, a white label all in one private capital raising platform. Wealthblock signed up 10 new clients in March alone. Between 2012 and early 2018, Trilliam served as the Lead Quantitative Analyst building the first quant team in the Market Regulation department of the National Futures Association. Meanwhile, Trilliam managed his own hedge fund, Aura Value International LLC, based on his proprietary quantitative-value model turning $300k initial investment to $1MM. Before NFA, Trilliam obtained his master’s degree in financial mathematics from the University of Chicago and another master’s degree in applied mathematics from Queens College, CUNY.

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