Capital markets play a vital role in the UK economy – nearly 90% of all companies with revenues over £200mn use capital markets to raise money or help manage risk. That’s not counting the smaller businesses that also use capital markets to drive growth and create jobs.
Globacap was built to help businesses scale with private capital market investment, using blockchain technology to manage equity and debt cap tables, employee share options, investor relations and funding rounds.
The idea came about when blockchain was beginning to boom in 2017, says CEO Myles Milston, who founded the company alongside Alexander Green from a background in technology and capital markets.
Blockchain was enabling companies to issue tokens that could be exchanged efficiently across the world. Smaller businesses were accessing funding while giving their investors liquidity quicker and more cost effectively due to the advent of new technology. “That triggered the thought process around capital markets, technology and what’s possible now,” Milston recalls. “We founded Globacap to digitise, automate and drive efficiency in the world’s private capital markets.”
Aside from the technology used, Milston says Globacap is the only platform that stays with a company as it scales for its entire life. It does so through three key products: streamlined fundraising management, automated cap table management and a secondary transferability service that allows people to sell shares in private companies and buy existing shares from others. “There’s often a lawyer in the middle of that process, stamp duty, dealing with HMRC, and more,” says Milston. “We’ve completely digitised all of it for all parties involved.”
For an innovative tech startup looking to scale at pace, anything that can remove barriers like time and cost will prove vital. “FinTechs need to raise funds, and by their nature they tend to look for investment from a global audience,” says Milston.
A key hurdle for these FinTechs with a global outlook can be navigating a variety of regulatory markets. Usually, they will need to engage a law firm to help them through the process, but Globacap has put the process onto a technology platform. “When a FinTech raises funds from investors globally, our platform automatically takes care of all the regulatory and administrative overheads – it’s just done.”
In May 2019, fresh out of the FCA’s regulatory sandbox, Globacap gained full FCA authorisation to arrange investments in deals and be an authorised custodian for cash and securities. “We can hold funds in escrow throughout a subscription period, and only release them to the company once the whole investment is complete.” This has been a key milestone as it adds an extra layer of trust, especially for international investors transferring funds to a company they are investing in.
“Regulation doesn’t change very frequently, and when it does it’s quite slow to change,” Milston adds. “So there’s really no reason a FinTech should pay lawyers repeatedly for the same work when you could actually put that on a tech platform – in the same way you have all your contact numbers stored on your phone, why can’t you have all those rules stored on a platform? That’s what we’ve done.”
While funding platforms find investors in their network, Globacap is ideal for companies who can find their own investors and want to make the process easier for all parties. “As a firm, we take on the regulatory risk and ensure they’re on the right side of regulation no matter what country they’re in,” Milston explains. Legal documents are ready to use on the Globacap platform and companies can be confident they will be compliant in each jurisdiction.
Globacap also does the necessary vetting on the investor, such as KYC. “We not only know whether they are legally compliant but also what kind of investor they are – what we can and can’t show them, and the right ways to show it to them.”
The blockchain technology Globacap is based on has been on its own journey since 2017 and is now far more advanced than the standard technology used in cryptocurrencies. “There are some significant benefits to using blockchain as we do,” says Milston. “For example, it is more secure and robust. With a traditional database it’s easy to make mistakes, and have data failures.. With blockchain, mistakes can be corrected but all changes are recorded permanently. In addition, we have built encapsulated programmable rules into the share register itself, so the security itself ensures it and its owners comply with any regulatory and legal restrictions.”
While seeing the potential of blockchain early on has stood the business in good stead, companies large and small are all now dealing with the impact of Covid-19. “From an investment perspective, at times like this there are less investors willing to allocate funds, and those that are remain risk averse,” Milston comments. “They’ll do a lot more analysis, take longer to make a decision, and make less decisions overall.
“From a FinTech’s perspective, if you don’t have enough cash to weather the storm it could be challenging because it’s going to take a lot longer to raise funds and valuations will be much lower. So, there is money, but investors are first ensuring their existing investments are capitalised enough, then allocating smaller amounts into new investments. For businesses, this means they’ll need to go out to a much wider set of investors, which in turn makes funding rounds more complex to manage.”
Navigating this kind of uncertainty, says Milston, was always going to be the biggest challenge for a founder to face. “It’s like driving a bus through a thick fog. You can only see 20 metres ahead, but to everyone on the bus you have to set a clear direction even when you can’t see the whole pathway yourself.”
Globacap is still early on its growth journey, but it is scaling and making headway. Earlier this year the business fully launches marketing and expanded its sales initiatives, and at a time where startups will need the investment process to be as simple – not to mention cost-effective as possible – Globacap’s solution will be a vital addition to the market.