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Advisors, CEOs, Private Equity

The Capital Markets Are Moving Online

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Fred Wilson, one of America’s most successful venture capitalists, said it best when he reviewed the major trends of 2014:

“The capital markets have moved to the internet. We call it crowdfunding but what is really going on is raising money is a great application of a global platform that connects billions of people in real time. I don’t know the total amount of capital that was raised on the internet across all sectors (equity, debt, creative projects, charity, helping a person in need, real estate, energy, etc, etc) in 2014 but I am sure it is in the tens of billions.”

He’s right. On Axial alone over the last 90 days, over 2000 digital NDAs have been signed and over $500M of total deal volume has gone into closing. The internet has become the transaction platform that private companies and their investment bankers use to make connections, raise capital and pursue exits.

PeterLehrmanChart

The two major trends underway in the private capital markets, are the convergence of the internet as the de facto platform professionals use to find, source and pursue corporate financial transactions occurring concurrently with a tremendous over-supply of capital, in the middle market, the debt market, the venture market, and elsewhere, driven by a near-zero low-interest rate environment since the 2008 collapse.

Related Reading: Do You Need Social Media to Secure More Deal Flow? 

As the capital supply available to private companies expands more rapidly than the rate at which entrepreneurs can create new companies, competition for deals rises, creating a sellers’ market. These competitive dynamics are forcing wrenching change in the middle market private equity, private debt, and investment banking markets, where every organization is being forced to ask hard questions about specialization, industry focus, competitive differentiation and how to add value beyond financial engineering.

Ironically, these changes are forcing the middle market private equity and investment banking community to take a page from the books of their best-run portfolio companies when it comes to deal-sourcing and business development.  Sourcing deals, once considered a “black art” and all about which golf courses you played at and what proprietary deal flow you had, has transformed into an environment where firms leverage who leverage systems, information, digital marketing and repeatable processes are outcompeting their old-school brethren.

It’s an exciting time for the industry. CEOs running private companies have more information at their fingertips than ever before, and the capital markets and deal making community are taking advantage of the internet to source and execute financial transactions faster and smarter. Many consider M&A and the private capital markets one of the last offline marketplaces yet to be transformed by the internet, but with AngelList, Axial, CircleUp, OnDeck, Fundera and others gathering momentum in the various sub-sectors of the private capital market, the 21st century private capital market seems to finally be here.

Related Reading: 4 Software Tools Deal Professionals Should Use Daily

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