As incumbent banks were hit by falling equity valuations in the first quarter of 2016, newly-founded fintech firms were debating how best to absorb the vast amounts of equity allocated to them by venture capitalists, how to manage these investors’ exuberant growth expectations and the best tactics for dealing with high private-equity valuations on the fintech sector. SyndicateRoom is one of the great success stories.
When Euromoney interviewed founder and chief executive Gonçalo de Vasconcelos last year, the firm had raised £16 million for 27 start-ups in its first 18 months of operation and was still marketing its business model. This consists of having big-name angel investors curate start-ups seeking capital and of ensuring that retail investors coming through the platform receive exactly the same class of shares and the same valuation terms as expert and professional early-stage investors.
Gonçalo de Vasconcelos
One year on, SyndicateRoom has helped start-up companies to raise £50 million and been granted intermediary approval status from the FCA to give its members access to the £200 million IPO of HealthCare Royalty Trust on the premium listing segment of the London Stock Exchange.
“The same business logic we laid out to you for this business last year still stands,” de Vasconcelos tells Euromoney, “but we have put it on steroids.”
He says: “We are now the only equity crowdfunding platform in the world that allows members access to the whole range of early stage investments, from initial funding through each subsequent institutional round to listings on AIM or IPOs on the main board of the stock exchange.”
This took months of work with the FCA and the London Stock Exchange: a big expense for a small company, but an investment that could take it to a new level.
De Vasconcelos says: “We can now provide incremental distribution for companies looking to IPO. I’m not saying we can bring £100 million of demand at one go, but give us another 12 months and we won’t be far away. Today, we can bring additional and sophisticated retail demand that has done its research and will likely stick with a company for the long-term – rather like private investors in pre-IPO rounds – and not behave like those institutional buyers that flip for a quick profit or day-traders.”
Yet for all his obvious delight at his own firm’s progress, de Vasconcelos sounds a slightly cautious note on the fintech sector as a whole.
“We have seen an awful lot of companies spring up. The regulators in the UK may well be pro innovation but, quite rightly, their priority is investor protection. They are keeping a very close eye on crowdfunding, and some companies may have issues.”
While SyndicateRoom’s marketing materials paint it as one of the disrupters, de Vasconcelos has learned, like many of his peers, that it may often be better to work with industry incumbents rather than against them. “In supporting retail distribution for IPOs we are not competing against any of the existing brokers, rather we are working with them to bring complementary demand,” he says.
He tells Euromoney: “Those founders of crowdfunding and P2P platforms who think they can replace the existing financial system are going to be disappointed. I think the next stage of the process of maturity for fintech companies will be one of consolidation in the sector, or at least collaboration across it.”
De Vasconcelos says: “A lot of the companies that raise equity through SyndicateRoom are already revenue generating and may be looking to raise debt elsewhere. Now, as long as they meet RateSetter’s underwriting standards, they can seek credit facilities there rather than their high-street bank.” He says: “It was an obvious deal. RateSetter do debt very well. We do equity very well. When I met Rhydian Lewis [chief executive of RateSetter] it quickly became obvious we shared a similar vision and we were able to come to an agreement in a matter of weeks.”