Andy Field: [00:00:00] Well, welcome everybody to the first ever ‘Global Crowdfund Chronicles’ podcast from the team here at GECA. My name’s Andy Field. I’m the executive lead of the GECA Steering Committee, and I’m going to be your host today. I’m delighted to welcome Ian Lowe to the Chronicles. Ian’s going to talk about identifying the challenges of cross border equity crowdfunding, and he’s joining us for what is essentially going to be a double header to kick off this podcast series.

So Ian is a member of the GECA Steering Committee, but his day job is he’s actually CEO of Dacxi Chain. And Dacxi Chain are a fintech company who are transforming equity crowdfunding by connecting platforms from different jurisdictions around the world into a single network. So welcome Ian, and thanks for joining us.

Ian Lowe: Thanks, Andy.

Andy Field: Great. So I thought today, look, given this session is all about identifying the challenges that are faced by businesses who are looking to operate their crowdfunding platform in more than just the country that they are located in. Can you briefly explain what cross border equity crowdfunding actually is?

Ian Lowe: I can and look, hopefully to some degree, the name ~ ~[00:01:00] is intuitive. So this is really the idea of saying, okay, crowdfunding, equity crowdfunding exists in many markets around the world today, but almost exclusively it operates in that market in isolation of others, and there are some exceptions to that, but generally, that’s the case.

So you’ve got an equity crowdfunding community and a series of platforms that are offering deals in Germany, and you’ve got them in the UK, and you’ve got them in Singapore, and you’ve got them in Australia, and you’ve got them in all sorts of countries around the world, but what they don’t do is essentially work together to facilitate investors in one country getting exposure to an investment opportunity or an investment deal in another country.

And then enabling that cross border process to become a seamless experience for the investor and ultimately also for the issuer. So this [00:02:00] idea of working across borders is something that the industry hasn’t been able to achieve with any significance or scale to date and for various reasons. We think that’s a huge opportunity that will unlock equity crowdfunding on a really reimagined scale to what it operates today.

Andy Field: Okay, so let’s fast forward to a time where cross border equity crowdfunding is actually a reality. What would be the effects of that? How’s that going to affect things?

Ian Lowe: Well, really, it’s around scale. So again, if we take sort of two or three big steps back, equity crowdfunding today represents less than one percent of all of the capital that’s invested into high growth and even earlier stage businesses.

Andy Field: Yeah.

Ian Lowe: So it’s less than 1%. Despite that we have this absolutely massive pool of investment capital sitting, you know, with everyday investors all around the world, [00:03:00] that is almost entirely untapped.

And, and in sort of Shakespearean terms, the tragic irony of this is that these are investors who are very, very interested in finding businesses that resonate with them, where they feel they have some affinity or understanding with or of that business. And they would like to participate in the value creation opportunity.

So you’ve got this huge pool of demand. You’ve got innovation that is unfunded all around the world that’s looking for, for funding. And equity crowdfunding, the promise was always that these two huge communities could come together through purpose built platforms where investors could explore and discover companies of interest and those companies that were looking for growth capital could really extend their reach to an enormous, potentially enormous, investment opportunity.

So really the [00:04:00] by-product or the outcome of cross border crowdfunding is bringing these two—this enormous volume of demand and this enormous volume of supply—together into a cohesive marketplace that operates seamlessly across borders. And by that we really mean across legal jurisdictions or, in other words, across countries, different countries all around the world.

So the by-product of this is predominantly scale. And then if we think about what scale means, it simply means that more innovation is being funded, more investors have the opportunity to participate in the value creation associated with that, and the platforms that bring those two communities together obviously thrive in the process.

So this is about equity crowdfunding having a much more significant seat at the table as it relates to the funding of the enterprise economy.

Andy Field: [00:05:00] Yeah, and that actually, that all sounds great. And I think anything that is supporting innovation on a global level is fantastic. And in a utopian world, this obviously makes perfect sense.

But we’ve mentioned before, there’s some challenges that have got to be overcome before we get there. So I’d like now to talk about some of the main challenges that platforms can face when they are going to or they’re thinking about expanding internationally. So if we start by talking about why doesn’t this happen already?

What’s stopping this happening now?

Ian Lowe: Yeah, it’s a great question, Andy. So look, there’s a couple of sort of headline answers to that question. The first is that ~ ~If we look at the structure of the global equity crowdfunding industry today, the reason why it’s essentially a series of localized propositions is because there are local rules that dictate the way that equity crowdfunding must be undertaken.

And those rules apply to the issuers who are raising the capital, may apply to the [00:06:00] platforms that facilitate the process. So you’ve got slightly different rules in every jurisdiction. Now, what’s interesting, we’ve done an enormous amount of work on this, is that those rules or regulations are essentially all looking to achieve almost precisely the same thing in each jurisdiction, which is around saying, okay, let’s make sure that the issuer that’s offering equity in return for investment is actually a legitimate business with a legitimate run rate, a legitimate future.

Okay. So that’s the first thing. The second thing is about saying, let’s also provide as much protection as we possibly can to the everyday investor. We accept that not every investor is going to be sophisticated. This might be the first time they’ve participated in something like this.

Let’s provide some protections to them. Okay. And then the final one is really just rules and regulations, which are almost [00:07:00] universal around making sure that this doesn’t become an ecosystem where money laundering and all these other nefarious things are going on. Okay, so essentially all the rules are geared to these types of protections.

And what’s interesting about that is that the way that each of these jurisdictions go about looking to achieve that is slightly different. In some cases, it’s very similar. In other examples, it’s quite different. And so what that presents, I think, for crowdfunding platforms—who are ultimately the ones that are looking to expand their own reach and their own business opportunity by growing into new geographies—what that presents for them is highly problematic. In order to be set up in a new market they need to be licensed in that market. That in itself is a significant undertaking. And then they need to be compliant with the regulations in that market, many of which will be slightly different to the regulations they already comply with in their own market, [00:08:00] all of which has to be serviced by one platform operating across different markets.

They then have to go and fund the process of actually setting up a business in that new market. So you’ve got to go out and build your crowd. This is not a trivial exercise. It requires time, and it requires investment. You’ve got to set up operations in those markets. Many of the regulations require local teams who are—certainly in the case of directors and executives for those platforms—they need to be local people.

There’s a number of things that really make this a complicated and expensive proposition for the platforms who are the enablers in this ecosystem for the platforms to expand into new markets. Now, the nuance here is that platforms can accept, in almost all jurisdictions, they can accept investment from investors who [00:09:00] are not based in their home market.

But of course, the challenge is how are those investors ever going to discover the deals that they have to offer if they can’t set up an operation, build a local crowd there and promote their catalogue of investment opportunities in those new markets. So that’s where the disconnect and the complexity lies for those platforms.

Andy Field: Yeah, that makes sense. And actually that’s a really good example of the regulatory conflicts that sort of we talked about earlier. And I think we know that in some areas there have been steps already taken to help with some of these conflicts. So have you got anything you can share on what efforts are being made to harmonize regulations across different countries at the moment?

Ian Lowe: Yeah. So from a regulatory perspective, there’s a really good example that we see in the EU where you’ve got 27 member states, many of which had their own local regulations around crowdfunding.

And of course, as a single sort of [00:10:00] operating region, it’s very natural that any European platforms are going to want to expand into other countries within that same region. So, you know, you’ve got platforms in different parts of Europe that want to extend into other parts of Europe, but frankly, from a regulatory perspective, previously, they might as well have been wanting to expand into Africa or Argentina, because there was a whole different set of rules.

So I think what the EU recognized is that funding innovation is really good for the economy. It’s good for employment. It’s good for economic growth. It has all sorts of direct and indirect benefits. And also this concept of distributing the access to these earlier-stage, privately held companies that are undertaking equity crowdfunding is also seen as desirable. You know, participation.

This is often referred to in the industry as the democratization of investing.

Andy Field: [00:11:00] Yeah.

Ian Lowe: And so I think that’s probably well established. The EU had been looking at this for some period of time, and they consulted closely with the industry late last year after putting a regulatory model forward for feedback and to get the industry into position—because transitioning from one set of regulations to another is not a trivial proposition either.

So after giving the industry some time to get into position, late last year they essentially flicked the switch and went from no singular framework for the whole of Europe to one framework for the whole of Europe. That’s a really significant development and a really positive development for that region specifically because there’s enormous growth potential and diversity in that region.

And it all now sits under one regulatory umbrella. So we think that really is sort of the gold [00:12:00] standard for the sorts of things that regulators should be looking to do. Having said that, that’s also an achievable proposition in a territory like the EU in a way that it’s probably not for most of the rest of the world.

Okay, there are probably some exceptions, but generally speaking, that’s not going to present itself logically to other parts of the world. So that kind of work has been done. We’ve now got the benefit of that. I think Europe will absolutely benefit in terms of equity crowdfunding’s growth—its growth trajectory over the next few years as a result of that—and that’s enormously positive. Beyond that, the work that’s really going on in the industry is being done by the people that work in the industry themselves. This is about like-minded, progressive crowdfunding platforms collaborating closely, understanding exactly what they can be doing and still [00:13:00] remain compliant with the local regulations, understanding what they can be doing to be working collaboratively with platforms in other jurisdictions, sharing deals, for example. And you know, how does that work? What does that look like? What are the commercials around that? What are the technical challenges? How do we make sure that the due diligence on one deal in one jurisdiction satisfies the requirements of due diligence in another jurisdiction? There’s all of these sort of practical and jurisdictional considerations.

So the industry is really starting to come together, not just because it sees the opportunity of cross border crowdfunding—that’s always been evident—but because it now sees this as very important. The idea that we can grow equity crowdfunding to be much more significant than less than 1 percent of the enterprise economy, or certainly the funding of innovation, [00:14:00] less than 1 percent, without extending our reach and allowing participation across borders much more seamlessly—you know, I think the industry understands that this really is the last great impediment to getting the kind of scale that transforms the game for everybody, and in particular for the issuers. Right now, their path to growth capital, the options are really limited.

And for those that find equity crowdfunding attractive, their options are even more limited. Okay, in terms of having to work with a local platform—there might be one, there might be four. Getting into position for that is a large amount of work and with an uncertain outcome. And in many cases, I think the scale that cross border crowdfunding brings is this idea that, you know, in some ways the dirty little secret of equity crowdfunding is it only works for companies that bring their own crowd.

So the significant majority of the [00:15:00] investment comes from the community that’s already been built by the issuer. Whereas the whole concept of equity crowdfunding is saying, well, let’s just offer this to everybody. And if the “everybody” is a large enough number, we don’t have to rely entirely on our own communities to raise that capital.

And that’s the future that we need to get to—where the demand side, the crowd side of the equation, is significantly large enough that we no longer rely on our own communities as the issuer in order to reach our funding targets. And so that is really, I think, the proposition that is motivating the industry to work more closely together and to start breaking down some of these walls.

And, you know, we’re seeing some meaningful progress. This is not just a talk fest—platforms are actually getting into position. They’re doing the work. They’re making refinements to [00:16:00] their technology. And they are doing it. So we’re in the very, very early stages. It’s really in the pioneering stage, but I see this really gathering momentum in the near future.

Andy Field: I mean, that makes perfect sense. Having spoken to a fair few of the CEOs of our supporters of GECA, I’m sure that sentiment is echoed—they’re telling us the same thing. So their aspirations are definitely there. I suppose now, coming on to how technology firms like Dacxi Chain can help. I mean, obviously, you’re an active member of GECA, which is great in itself. The collaboration side of things is obviously a very important part. And, you know, making sure that we learn from each other, we talk together, and we sort of share experiences is really key.

But what role can technology play in addressing cross border equity crowdfunding challenges? Just give us a couple of minutes on what your thoughts are there.

Ian Lowe: Oh, look, Andy, as a CEO of a technology business, you would expect me to say this, but technology is absolutely central. Without [00:17:00] the technology, it just simply doesn’t work.

In other words, you know, we need a purpose-built infrastructure that allows deals to be shared across jurisdictions by platforms. That infrastructure needs to have baked into it a whole bunch of tools and controls to make sure that this is being done in a way that satisfies the regulatory standards in each of the markets in which it’s being done.

And therefore, it needs to take into account some of the nuance of the regulations in the markets that are participating, but without the technology, it just simply doesn’t work. So that’s one way of looking at it. Another way of looking at it—this is certainly our perspective—is that this is a problem that technology exists to solve. This is the purpose of technology: to solve a problem like this, and done right, technology is incredibly effective [00:18:00] at solving problems like this. So.

The way we think about this at Dacxi Chain is this idea of building a network of participating platforms that want to be able to tap into global communities of investors for the deals that they’re already securing locally with local issuers.

And then the quid pro quo on this obviously is that they need to be able to share deals that come from other platforms in the network into their own catalog and expose that to their own investors. The merit of that is that the enriching of their own catalog really correlates to their ability to grow their own investment community.

Okay. It’s that classic sort of “where there’s smoke, there’s fire” dynamic. If I’ve got a really rich catalog of investment opportunities, I have a stronger proposition to build my local investor community. But then equally, if I’m participating in a network using [00:19:00] technology like Dacxi Chain technology, it means that I can tap into a much larger global investment opportunity, which really means more capital and faster capital. And we think all of those outcomes are really valuable, not just obviously for the platforms, but in particular for the issuer.

Andy Field: Yeah, that makes sense. Do you have any sort of technological solutions that have been particularly effective in streamlining cross border transactions? Is there anything you can share from Dacxi Chain as to how you’re realizing some of those solutions right now?

Ian Lowe: Well, look, what I’d say is there’s no silver bullet. There’s no one single way of doing this across all jurisdictions. It really is a case of refining the core infrastructure to manage deal sharing across specific jurisdictions, taking into account what those jurisdictions require.

One of the things that we landed on very early on was this network of participating [00:20:00] platforms really needs to be a decentralized network. This is not a walled garden, where Dacxi Chain is gatekeeper. This is about giving the tools to all of the participating platforms to collaborate directly with each other.

So whilst we provide the infrastructure, we don’t get involved in any of the deal flow. We don’t get involved in assessing deals. We don’t get involved in understanding what deals are compliant and what are not. All of the platforms already have the mechanisms in place to make those decisions.

Our role is just to simply provide a decentralized network infrastructure that allows those platforms to collaborate in the way I’ve described. So, you know, our role is really to work very, very closely with those participating platforms to understand what they need. And of course, in its initial stages, we paired it right back to, you know, the minimum requirement, but we’ve [00:21:00] got a long roadmap of enhancements and refinements that we know will continue to improve the experience.

But really, right now, it’s about saying, let’s get this first wave of shared deals through the technology, proving that it works. And I think thereafter, we can reasonably expect that there’ll be a huge amount of support from across the industry and around the world, because this just makes so much sense for them.

You know, we’ve never yet spoken to an—Andy, in your position with GECA, you would have had the same sorts of conversations—we’ve never spoken to a platform that says, “Look, I’m really just not interested in this. I really just want to be a local platform forever. And that’s all I’m interested in.”

Okay, the market opportunity is just so much more vast. The technology that we’re building at Dacxi Chain allows them to tap into that opportunity and allows them to collaborate with like-minded progressive platforms around the world.

Andy Field: Yeah, I think, I mean, yeah, I’d echo that.

The desire [00:22:00] is certainly universal. So it’s great to hear that the technology is pushing on ahead and making great strides. That’s fantastic. Listen Ian, that’s pretty much all we’ve got time for this first podcast. We’ve split it into two just so that it doesn’t go on too long.

The next one will be coming soon. Thanks so much for joining us today. And thanks everyone for listening. Please look out for part two that will be coming to you very soon. And don’t forget to spread the word about GECA—GECA’s vision, its resources. It’s all on the website. It’s at theGECA.Org.

Check it out and look out for the next podcast and we’ll catch up with you again soon. Thanks Ian.

Ian Lowe: Right. Thanks Andy.