No start-up operates in a vacuum and we are no exception. In a narrow sense, the products we build help improve the efficiency of the delivery of essential services required to enable access to capital markets. There is, of course, a bigger picture.
In this article, we seek to put in context the processes 10BE5 is automating and how this is relevant to the wider economy, including on post-Covid-19 pandemic recovery and sustainability through green initiatives.
Capital markets access is unattainable for many businesses
In its recently published 2020 capital markets union action plan (the “Plan”), the EU Commission made a strong case for enhancing the role of capital markets as a source of funding for businesses.
Businesses with access to capital markets could tap funds from institutional investors with varying risk appetites (often from beyond national borders) through stock and/or bond issuances. As the Plan acknowledges, however, this access is currently prohibitively expensive for many businesses:
“Public listing is too cumbersome and costly, especially for SMEs… High administrative burden, high costs of listing and compliance with listing rules dissuade many companies from accessing public markets.”
The Plan highlights the adverse impact of this on the wider economy:
“This limits the range of available funding options for companies willing to scale up and grow. This is all the more relevant in a post-crisis context, where in particular smaller companies need to have unimpeded access to equity funding.”
The cost burden on public companies has two principal components associated with:
- IPO readiness, including the preparation of disclosure documentation for the initial listing
- Compliance with ongoing reporting requirements (notably the publication of periodic reports)
10BE5 aims at automating the drafting and verification processes involved in the above disclosure obligations. 10BE5’s first product N2N, for example, automates the drafting of financial results analysis, a key component of certain disclosure documents and periodic reports currently drafted manually by capital markets lawyers and/or in-house disclosure teams.
What could lower cost of capital markets access bring?
The Plan refers to, among other things, two key concerns of today that wider capital markets participation could help address:
- Green transition. “The European Green Deal Investment Plan aims to boost sustainable investment. But public funds will not be sufficient to meet these financing needs. An efficient single market for capital is needed to mobilise the necessary funds and to ensure that sustainability considerations are rigorously incorporated in financing decisions.”
- Post-Covid-19 pandemic recovery. “The strength of the post-COVID-19 economic recovery will crucially depend on the availability of sufficient funding for EU companies.”
Importantly, the Plan highlights the limitation of other sources of funding (public funding and bank lending): “[m]eeting these objectives requires massive investment that public money and traditional funding through bank lending alone cannot deliver.”, concluding that “[o]nly well-functioning, deep and integrated capital markets can provide the scale of support needed to recover from the crisis and power the transition.”
Reducing the cost of capital markets access is central to widening participation, especially by SMEs. The increase in financial support for business could in turn enhance their resilience, promote innovation, and promote economic growth, with potential knock-on impact on jobs creation and retention.
10BE5’s work goes beyond boosting productivity and minimising mistakes for those directly involved in carrying out the processes we target. We take pride in the fact that what we do have real implications for the wider economy and stand ready to collaborate with public and private stakeholders in maximising the impact of our products.