The document discusses the future of fundraising and capital raising. It begins with an overview of traditional relationship-based banking (Finance 1.0). It then describes the rise of large banks and financial innovation (Finance 2.0), noting increased complexity, opacity, and imbalance. The document suggests we are moving toward Finance 3.0, characterized by simplification through technologies, peer-to-peer lending, and the fragmentation of funds. It addresses challenges in seed and growth capital investing and potential solutions like crowdfunding and syndication platforms. Finally, it introduces the company Dealroom as aiming to facilitate investment by curating company information for investors.

1. 1
• Thank
you
for
that
introduc0on!
• Today,
let’s
talk
about
a
topic
close
to
your
heart,
for
the
people
in
this
room
at
least:
the
future
of
fundraising,
or
capital
raising.
I
never
liked
the
word
“fundraising”
as
it
sounds
too
much
like
charity,
so
let’s
call
it
capital
and
capital
raising.
We
are
looking
for
a
return
on
invested
capital.
• I
am
going
to
talk
about
the
latest
developments
in
crowd-­‐funding,
micro
VCs,
the
introduc0on
of
soFware
into
VC,
AngelList,
syndica0on,
and
all
the
latest
here.
• But
before
doing
so,
let’s
look
at
the
bigger
picture
of
the
problem
we
are
trying
to
solve
here:
alloca0on
of
capital
to
its
best
and
most
profitable
use

2. • Okay, let’s start with Corporate Finance version 1.0
• This is a picture of the famous banker John Pierpont Morgan, founder of JP
Morgan. He was one of the world’s most powerful bankers in the late 1800s
and very early 1900s
2

3. • He was the typical super banker of his time. Poweful and connected in both
the business and policitical world
• He made his first fortune by selling weapons in the American Civil War
• Once he became a power broker in finance, he helped governments finance
wars, incl UK finance WW I. After WW I ended, France even donated a former
Napoleon palace to JP Morgan to thank them for their service in the war
• Mr Morgan himself avoided serving in the US Civil War by paying a substitute
$300 to take his place. I guess some things never change J…. I don’t know
what happened to his substitute who had to fight in the war by the way.
• One last fun fact on JP Morgan: he invested in the Titanic
3

4. • JP Morgan has some famous quotes attributed to him
• On this slide there is one which I particularly like a lot…
• Universally applicable, but also in finance
• For example in the answer to the question: “what is the reason you selling
your company?”
4

5. • This type of Good old fashioned relationship based banking lasted until
about the 1980s
• Then, in the early 1980s, a new type of corporate finance emerged, finance
2.0, at least partly due to financial De-regulation which allowed mega banks
to be created, and also led to the first bailouts in the savings & loan crisis of
the 1980s. Mega banks also enabled mega buy-outs (example KKR 60 billion
leveraged buyout of RJR Nabisco)
• Another big catalyst was financial innovation (option theory, computerized
trading, and the Hedge Fund industry started with LTCM which blew up the
stock market in 1987).
5

6. • In Finance 2.0, competing for business was not done anymore through
personal relationships but by using balance sheets and by large number
of trading floor employees producing data analysis and crunching
numbers, making calculated bets
• Banks no longer were partnerships with say 100 people, but publicly traded
huge firms, employing armies of tens of thousands, and became entrenched in
all aspects of the global economy
• In theory, markets had become hyper-efficient, less friciton, lower costs,
innovation, making the world a better place, doing god’s work etc
• But in reality, Financial institutions found new ways to take margins
through the back-door under the disguise of “taking risks”, and effecively off-loading
that risk to unsuspecting others (tax payers, central banks, and less
sophisticated market participants) and thus skimming from the top making big
profits. Characterised by complexity, in-transparency, under the disguise of
hyper-efficiency and innovation
6

7. • Complexity also led to excesses and sometimes super high payouts which
from hindsight were not all merit based
• We tried so hard to inventivize the financial sector (including investment
funds) to work hard in our interest and reward them well for it, but we turned
out to have been paying for very mediocre or even bad performance
• Overall from hindsight the financial industry became deeply imbalanced and
sick.
7

8. • Still today, finance 2.0 and banking 2.0 are very much alive and kicking, and in
fact still a growing industry!
• But… we are now visibly on the verge of moving to a new era… of finance
3.0
• What is finance 3.0, what trends do we see emerging already?
8

9. • Technology
to
build
simple
products
replacing
complicated
and
archaic
infrastructure
• Products
are
built
to
be
user-­‐friendly
products
• Replicate
financial
ins0tu0ons
• Products
are
built
by
frustrated
users
instead
of
by
financial
ins0tu0ons
• End-­‐user
at
the
center
(rather
than
the
financial
sector
itself)
Simplification
• Peer to peer lending: Peer-to-peer companies have stripped out unncessary
costs by using technology and eliminating branches et cetera thus creating a
sustainable competitive advantage
• Peer to peer FX trading
• Lower costs: TransferWise, simple and effective
All this is very much analogous to the airline revolution where low cost
operations have structurally revolutionised the way we travel by stripping
out unncessary remnants from an oligopolistic industry. In this case, it is
more technology driven though.
Fragmentation
• Emergence of smaller funds, micro funds, super angel investors, and
entrepreneurs instead of intitutional funds. De-institutionalisation is another
9

10. But before we get carried away simply echoing trends that we read about in tech
blogs, and ideas that are promoted by a relatively small group of influential angel
investors, let’s first take a step back and see what problem we are trying to solve.
Here is another nice JP Morgan quote:
“No
problem
can
be
solved
un2l
it
is
reduced
to
some
simple
form.”
10

11. • We want to make the best investment decision based on the information
available.
• And we want to be protected and warned from crooks trying to rip us off and
making us look like fools
11

12. There are a few hurdles are making this job extremely difficult…
1. Information asymmetry (used-car sales)
2. Adverse selection (the worst opportunities end up being offered to you, the
best opportunities do not come to you, you have to find them yourself)
3. Winner’s curse (you won competitive process of investing in a company?
Congratulations! You probably don’t know something, that everyone else who
offered less, knows)
12

13. • So we need a system that helps us overcome these hurdles
• Are we not just re-creating the same system again which we started from?
13

14. Let’s focus on tech investing at the seed stage and at the growth stage (series
A and up)
14

15. In seed stage investing you have all seen many new developments in
crowdfunding but also seed stage investing via AngelList or similar platforms.
15

16. • However these still play a relatively minor role
• By far the most important source of funding for seed stagings is personal
savings. The founder himself is the only person mad enough to invest in his/
her own startup. Sometimes family and friends contribute out of sympathy ;-)
But these are not financial ROI driven decisions.
• And new avanues of funding like crodfunding still have a long long wait to go.
Investing in seed capital is a strange category. Historically you needed to be a
bit crazy to invest in startups, with very low success ratios
16

17. Will crowd-funding and angel-syndication become bigger? That depends: is will
they be able to offer good returns for the average unsophisticated joe
17

18. • And those good returns are dependent on really solving information
asymetry and adverse selection problems.
• It is absolutely critical that in the coming years we see that the average Joe is
able to make decent returns on crowd funding and Angellist.
• “If a startup is so promoising, why does it need to use crowdfunding or
angellist?” - Is the often heard question.
• We need a few more years to see the results, but:
• the question is whether crowd-funding platforms are able to solve
information asymmetry and adverse selection problems sufficiently
18

19. • However, crowdfunding does improve the financial returns in another way:
increasing the ease of diversification
• Investing in a startup is like an out-of-the money call option: a smalll chance
for a big upside, downside limited to your initial investment, so you need to be
able to spread you bets and crowdfunding enables exaclty that
• Think about this: if you had made 10,000 small investments which all failed
except one innvestment in a company called Google at a $1M valuation then,
you would still make well over a 30x return on your investment, an envieable
return beating the market
• And in the digital age, upside is becoming higher and initial investment lower,
so it finally starts to make sense to invest early in lean startups and make a
high number bets. (See 500Startups and Kima Ventures following this
strategy). But we have to wait and see if the average joe actualy can makea
decent return on these investment paltforms.
19

20. JP Morgan said: “A
man
I
do
not
trust
could
not
get
money
from
me
on
all
the
bonds
in
Christendom.”
Whatever system we come up with, trust and some level of personal relationship
will remain important too.
20

21. Now let’s switch to gowth capital, by which I mean, funding of established
companies in series-A and beyond
21

22. • The old system made sense. Investing in well-performing companies is very
competitive and doing due diligence is complicated. LPs want to invest in tech
but they need an expert. The LPs have to find GPs with the right expertise and
impressive track-record. The GPs demand lockups in their fund so they can be
credible in the market (the founder needs to know that the GP actually has
money to invest). And the GP needs a proper incentive to really do a good job,
so they ask for a carry. And so we arrive at the current system.
• The problem is that this system is ery expensive and it has done a very poor
job at punishing bad performance. Upside for the GPs yes, but not enough
downside. This is a problem with the entire asset management industry
22

23. • So what could a new system look like:
• Less lock-up. LPs have more flexibliity to follow the best performers in real-time
• Dealroom aims to be a facilitator of such system by allowing share information
on company performance and investor performance and sharing access to
investment opportunities between professional investors
23

24. Finally, let’s talks about dealroom.co for a moment
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28. We deliberately cover all growth stages, so that VCs can make sure they get in
early. And founders have long enough lead times to educate the right investor
group
28

29. • Dealroom is neither a marketplace nor a data provider. We provide information
but based on a crowd-sourced model.
• We add a layer of curated information through in-depth research. VCs are
primarily looking for growth/traction.
• And those who have growth to demonstrate, have an incentive to display it.
• For these high-potential companies, Dealroom acts as a fiduciary making sure
the information gets seen by the right parties only.
• In order to filter out noise, our research team pre-qualifies companies based
on basic size and growth metrics, using a mix of publicly available data
sources and the proprietary information we receive directly from the
companies.
29

30. • I am going to end this presentation with one last quote from our old friend JP
Morgan….. This time a younger picture
• “Go
as
far
as
you
can
see.
When
you
get
there,
you'll
be
able
to
see
farther.”
• And that’s exactly what we plan to to do at dealroom.co
• And that’s that. I want to thank you all for listening and if you have any
questions about us please feel free to walk up to me at this event. Thank
you !!!
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