Do you know how to invest in the private capital market? Not many people do. It is complicated, requires a lot of paperwork, has low transaction volume, comes with risk and volatility, and not very liquid.
Could distributed ledger technology (DLT) be used to reduce back-office fees and expand the market for this asset class?
I interviewed Oscar Jofre, CEO and co-founder of KoreConX, who believes his platform and infrastructure can help.
KoreConX is a company working to change how businesses raise capital. Mr. Jofre is an advocate for using DLT to bring transparency to a fractured process. Mr. Jofre mentioned, “There are over 90,000 companies in our platform from around the globe who have raised more than $6.6 billion. Companies who use the KoreConX platform raised capital working with broker-dealers or direct offerings on their own. We are purely providing the technology to make sure they are fully compliant and to manage the entire process.”
What is the private capital market? What are the problems?
The private capital market represents companies not publicly traded on stock exchanges. Private funds, venture capital investors, and some mutual funds are typically the main buyers. Investments can be in new start-up enterprises, mature business, or sometimes struggling firms. This type of asset is considered to be highly risky.
One critical problem, the team at KoreConX explained, was the lack of market access for small firms. Dr. Kiran Garimella, KoreConX’s CSO and CTO, said, “The majority of participants in private capital markets are smaller entities who are closely connected with local companies and investors. They cannot afford huge expenses for integrated systems.” KoreConX specializes in connecting all sizes of firms rather than limiting their scope to more mature enterprises. Interestingly CEO Oscar Jofre’s background is crowdfunding, which is a driving influence in his business.
Jason Futko, CFO and co-founder, said, “It is often difficult for companies in the private capital markets to identify investors to present their opportunity. The fragmentation in this market can make it difficult to find investors or other professionals to help you grow your business.”
On June 26th, 2019, Broadridge bought from Northern Trust a similar blockchain platform. There is competition in this space from many players. Mr. Jofre said, “There are companies like Carta, Capshares, ComputerShare, AST, and Link Group that offer some of the features KoreConX provides in our all-in-one platform. We have a much different view of the market. To truly transform it, we need to make sure all participants have all the tools they need. If they don’t, then we will never see any great change in the private capital markets.”
KoreConX launched on October 11th, 2019, their new blockchain ecosystem for fully compliant digital securities worldwide. Their mission is to ensure compliance with securities regulation and corporate law. The KoreConX platform includes securitized token issuance, trading, clearing, settlement, management, reporting, and corporate actions.
As explained to me by the management team, the lack of data integrity and regional knowledge of jurisdictional compliance can restrict investment opportunities offered to the public. Mr. Futko continued, “Obviously part of the solution under KoreConX has to be around connecting document fragmentation, providing access to professionals and creating trust through our blockchain, which ensures both business and regulatory logic.”
Why can blockchain technology help now?
The KoreConX team stated that the private capital markets serve over 450 million private companies worldwide today. They have a lack of document transparency and high fees. Compare this to public capital markets, which have established listing standards and rules. Furthermore, open markets are used every day and can handle many transactions. Dr. Garimella said, “Blockchain offers technology that provides solid mechanisms for trust through immutability and consensus among parties.”
I asked Mr. Jofre to explain why his work was different from larger companies, like Broadridge? He responded, “KoreConX is entering a market with many providers who have a single feature or application. For private capital markets to be as efficient, as public listed markets, it needs an infrastructure layer and an application layer. KoreConX brings both. We do not exclude anyone because of size or geography.”