According to Tomasi di Lampedusa’s paradox, everything must change so that everything can be the same. In his renowned novel, The Leopard, the Italian writer and the last Prince of Lampedusa, referred to the fact that Sicilians swapped the Spanish Bourbon dynasty for the Italian House of Savoy. Over the years, they extended their domains at the expense of their less agile neighbours.
More to the point of this piece, this finds resonance in the current debate on whether or not equity crowdfunding has been reinventing itself a decade after the 2008 global recession.
With more than 20 years under his belt in all sort of fundraising activities spanning from Merrill Lynch to Invesdor, “the largest equity crowdfunding platform in the Nordic region, in terms of volume and turnover,” which he founded and currently leads as CEO, Lasse Mäkelä argues in this exclusive interview with Oliver* that
To me, the question is whether equity crowdfunding platforms will become bigger than investment banks or not.
Based in Helsinki, and currently operating in all Nordic countries (i.e. Finland, Sweden, Norway and Denmark), the firm also operates in the UK as they have a branch and an office in London.
Oliver*: Hi Lasse and thank you for joining us. One step at a time: where did the idea for Invesdor come out?
Lasse: Raising funds is always complex. The idea behind Invesdor was let’s make that simple, automatic and digital on the internet. I started my career in investment banking in Merrill Lynch in London doing equity offering, IPOs, and all kinds of corporate restructurings and continued to raise funding and financing throughout all my career. This is to say that we are not doing anything new: we are still doing capital raising using modern techniques.
O*: I presume a massive impact on the cost of capital.
L: It’s much cheaper. You do not need bankers and lawyers at all. So it is much more efficient. However, compared to the traditional world, there is a cost which is the one linked to the development of the platform. So, it is like investing into the infrastructure and when you have that in place you can utilize that efficiently.
O*: Can we quantify this cost?
L: Probably, the platform itself is 20 percent of the total cost. The remaining 80 percent is for building processes and the network and to comply to the regulatory structure like for instance applying for licence to operate in the market, recruiting lawyers, getting legal opinions from different countries in which you can operate and so forth and so on. But, when you have the processes ready then it is quite straightforward.
O*: Focusing on both local markets and current affairs, how Brexit is likely to have an impact on your business?
L: That’s the tough question as we do not know what is going to happen in the future.
It seems to be hard exit.
For us, this means there likely will be an impact on passporting. This means that in the future we will need to apply for the local licence to operate. But we are confident, considering the fact that the UK has been regulatory friendly in many ways, about the fact that they will make easier for the kind of companies like ours to apply for the licence as we have already operated from the UK over the last years. My feeling is that we will not start from scratch as there will be some sort of transformation period in a way or the other.
O*: Looking at how Brexit could potentially impact SMEs, which represent your core target, what’s your feelings?
L: Almost 80 percent of our market is in the UK while the remaining 20 percent in Europe. This is due to the fact that the UK regulatory framework, as well as tax schemes like EIS or SEIS, strongly supported the development of a truly entrepreneurial scene. I guess that despite the split from Europe those schemes will remain in place. So, I do not see any big impact in this respect to British SME sector.
O*: Is it true from your point of view that the industry is going through a transformation period characterized by a much more intense focus on scaling-up businesses?
L: Yes, I agree with this idea. What we are seeing, for instance, is that a growing number of listed companies are looking for raising funds for their subsidiaries through our platform. Five years ago, when we started in 2012, nobody knew what we were doing but nowadays we start to be considered as a digital fundraising platform for business angels and some more modern VC funds.
O*: So, how the future will look like, say, in five-year time?
L: There is nothing really new, nothing really radical. We are still doing fundraising using different techniques. What we see is that few bigger banks are starting to copy what basically we have being doing for the last five years. For example, Nordea, the largest banking group in the Nordics, they have launched their own equity crowdfunding platform and, without taking into consideration how that is performing, it represents a big move for the industry as a larger number of companies are getting into this scheme. What I am trying to say is that we are talking about digital fundraising processes and I guess a growing number of big companies will join the game. This is the reason why
I prefer to talk about digital fundraising
instead of equity crowdfunding. The real question, to me, is whether or not equity crowdfunding platforms will become bigger than investment banks. But it is too early to try to find a reasonable answer.
O*: Any plan for the future?
We would like to expand across Europe. In this respect, we are looking for possible partners with whom we could leverage our offering to new countries.