CrowdX Update – May 2022

Against the evolving macro backdrop, can buyside interest in privately held businesses continue to grow?

There’s no doubting that the free money era has now come to an end, with many major central banks either having already made those first interest rate hikes, or at least told markets to brace for change in the months that lie ahead. However, it seems that listed equity valuations in many instances remain robust. Some select growth stocks may have been rattled and dividend yielding plays are going to have to work that little bit harder in order to keep pace with inflationary pressures, but against the bull market of the last decade – and a bit – valuations still look somewhat inflated.

An array of competing pressures – covering everything from the cost of capital, supply chain disruption, consumer demand and availability of raw materials – certainly have the potential to continue applying downside pressure to equity valuations, but it still seems clear that there’s still no shortage of potential from investing growth capital in pre-IPO companies. As always, the biggest challenge here is getting accurate information over the investment proposition in a manner which is cost effective for all involved, but the feedback we’re seeing from the buy side as we continue to build out the CrowdX proposition certainly underlines the fact that we’re now delivering where so many have struggled in the past.

By bringing together a raft of professional services onto a single platform, we are able to achieve economies of scale which have previously been unattainable. What’s more, CrowdX members are now able to offer their existing investors invaluable valuation abilities and exit routes, whilst also opening up a growing number of investment propositions to sophisticated market participants. Our unique approach means that we are facilitating both primary and secondary market opportunities.

Our first two member issuers will shortly be live on the platform and have all been successful through our onboarding and preparation phase. We expect to add a further two issuers before the summer, have a strong pipeline and what’s more, the list of banks and brokers who are seeking to connect to these investment opportunities using our platform and API connections continues to grow, too. So in addition to the macroeconomic fundamentals continuing to suggest that traditional investments will struggle to maintain the pace which has been achieved in recent years, we’re taking the booming buy-side interest in the CrowdX platform as providing a clear signal that they too see the genuine potential which lies in this sub asset class.

And as borrowing costs continue to rise, it seems inevitable that our ability to help founders finance their businesses by using equity will also be of significant benefit to all involved. Higher interest rates may make the idea of investing in debt-based vehicles from the buyside that bit more appealing, but spiralling coupon repayments are unlikely to garner much interest on the sell-side.

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