Startup valuations slashed, crypto projects failed and billions lost: The private markets are crying out for a universal infrastructure

By Serkan Ferah, Founder and CEO of PitchSpace

Since 2020, we have been witnessing a paradigm shift in the relationship amongst startups, capital and investors – both on a professional and retail level.

First, we saw an increased appetite amongst retail investors for investing. A new generation of capital was awoken and money started to flow first into public and then private markets thanks to fintech products that provide a frictionless investing experience.

Then, in 2021, the venture capital and M&E markets saw a rapid increase in both the pace and volume of investments while crypto and Web3.0 were the buzzwords not just amongst professionals but also retail investors.

Come 2022, recession is on the horizon, the new generation of capital is mostly hibernating, a record number of unicorns which were born in 2021 have seen their valuations dramatically slashed and the crypto world has seen massive losses with teams behind either disappearing or having to reveal their identities due to legal actions taken.

Both the potential and problems of private markets laid bare

This rollercoaster actually shows the true potential of private markets by revealing the issues that are to be overcome to scale and open the investing world up to more investors and startups:

• Lack of speed and scalability: The current private investment processes are not designed for speed and scalability. Investors either do light due-diligence and close the deal fast or carry out a proper one but lose out to competition. On the other hand, founders still spend a lot of time and money to perfect their pitch deck and find the right deal distribution channels, unless they are already well connected which only makes the whole thing even more undemocratic.
• Lack of accountability and transparency: Private markets are inherently opaque and they lack the infrastructure to enable accountability amongst participants. Web 3.0 promised it to some extent, but the increasing number of failed projects and fallen manipulative tokens showed us that neither is the newly developed blockchain infrastructure ready to facilitate a fully anonymous relationship in investing, nor are the new generation of investors experienced enough to make decisions by correctly balancing the risk.
• Lack of interoperability: The global startups and investment world is comprised of many smaller networks which form ecosystems that are mostly disconnected. Between these networks, there is neither a real-time information flow nor a technologic infrastructure to enable it. Besides, each investment platform and marketplace operates on their own database but actually share the same pool of investors and founders. The processes are mostly manual, repetitive and therefore inefficient. As a result many founders struggle to access enough capital when they need it, while investors either lose out on good deals or get pitch-fatigued.

The infrastructure for standardisation and scalability in investing

The solution to all these problems is an infrastructure that universally standardises how information is structured and flows in private markets via user-friendly interfaces.

A universal infrastructure would enable transferability of information amongst investors, startups and marketplaces transparently and in real time, while making investment networks interoperable and connected which is crucial for the future of private markets.

Such infrastructure would also enable the creation of a universal reputation system to instil confidence in markets, filter out bad players from networks automatically and protect both investors and start-up teams.

The investment world has seen innovations in different shapes and sizes from match-making algorithms to legal-tech and data sourcing. However, the investing process still mostly relies on manual and repetitive workflows which have been neglected so far.

Besides, I believe private markets should become more inclusive with more people able to participate either by investing in or building high-potential businesses.

That is only possible if global investor and venture networks operate on a shared infrastructure that follows a universally recognised framework.

In a world where billions cannot even access the best performing investment assets, and millions of potential Angel investors are left outside, we have a huge opportunity to finally enable more people to find equal representation and access to opportunities in a scalable capital market.