Why a standardized market levels the playing field for investments

In the last two years, more people than ever have become interested in investing. Both public and private markets have felt the effects of this new flow of capital and interest.

Private markets, particularly venture capital and private equity, have outperformed public markets since 2000. The amount of venture capital investment achieved $643 billion last year alonewhile more and more people focus on becoming entrepreneurs.

This new level of investment interest — much of it focused on Web 3.0 innovation — is extremely exciting. However, if we are serious about expanding the world of private investment and thereby bringing real opportunity to more people, a fundamental problem must first be solved.

Private markets do not have the infrastructure to absorb new capital flows

Given that public markets are not open to all on equal terms, it is not surprising that private investment markets also fail to provide people with broader representation and equal access to opportunities.

One reason for this is the strict regulations designed to ensure that individuals don’t fall for bad or high-risk investments. Another reason is the archaic investment process, which has remained largely the same for decades.

Solving this problem starts with bringing standardization to private markets, unifying investment networks on common standards and databases of information, and helping people scale their investments and value creation.

What are the advantages of a market with standardization?

  • Information flows freely between plant networks in a standardized format
  • The information available in global networks would reduce investment costs and timeframe
  • Investors and founders could access a distributed deal network from a central point
  • A universal reputation system would help the market hold players accountable

Ultimately, democratized access to information and the ability to participate in the marketplace on a level playing field would help tackle income inequality everywhere and distribute generated wealth more evenly among global communities.

Markets need standardization to solve their biggest problems and create more value

Markets operate across fragmented networks that are not interoperable. Because of this, many good deals remain invisible to thousands of professional investors while founders struggle to allocate their deals efficiently.

92% of the UK and 90% American Due to regulations, the population is denied access to this powerful asset class. While regulators strive to give more people access to investment opportunities, they struggle to find a standardized and transparent flow of information to protect market participants.

Only 11% of global venture capital investments went to founding teams with women in 2021 while black founders only get about 1%. Many early-stage founders struggle to understand what it takes to raise capital, what makes an investor tick, and how to access the best networks to spread their deals. Not only do they lose their chance to raise money, but many investors often do as well lose on good deals that are badly placed.

Enable transparency and accountability in private markets

Unlike public markets, there is little communication between companies and their investors in private markets.

Once the capital is raised, many startup teams put their heads into work to grow the company, completely forgetting about shareholders until they need capital again. It’s difficult for investors to understand how their investments are being used or if the company is still consistent with their investment ethos.

In the absence of transparent and user-friendly access to critical information and experience in evaluating it, inexperienced investors are forced to make decisions based on hype. Blockchain claimed to solve these problems, however In 2021, $7.7 billion was lost to crypto fraud only.

A universal infrastructure would allow the market to exchange information in a standardized and automated format that can be accessed through user-friendly interfaces and easily processed by investors and founders with different levels of experience.

A reputation system could be built on top of the same infrastructure to instill trust in the markets and automatically filter out bad players from networks.

Automate and standardize manual and repetitive workflows at scale

It’s baffling that this massive market still operates with many manual and repetitive processes that haven’t seen any innovation since PowerPoint was shared. It takes a team more than eight weeks to bring a deal to the venture capital market and up to six months to close the financing deal. This can increase to ten months for M&A teams.

Investment teams perform KYC, AML and DD processes multiple times for the same investors participating in different deals due to lack of information flow and disconnected networks.

PitchSpace is an automated pitch deck building tool that defines a standard investment deck format for the industry. This can get deals to market weeks earlier — but that’s only part of the process. There are many other overlooked workflows waiting to be automated and standardized.

Standardization ultimately brings liquidity to private assets

Making private markets accessible, transparent, and efficient through the use of standardization and automation technologies will help open the market to more capital.

Distributed ledger technologies and asset digitization can be one of the many ways to create liquidity on this universal infrastructure.

Furthermore, defining investment and value creation standards to build an ecosystem of interoperable networks will not only democratize markets but also help scale investments.

I think investment opportunities should be more diversified. This would mean both more people being able to invest in high-yield assets and more founders having access to capital and therefore a fair share of the wealth generated around the world.

Serkan Ferah is the founder of PitchSpace.

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