Except for public offerings by mature companies, existing channels for financing and investment are bound to “bilateral” deal flow: repetitive deal attempts take place with each new potential partner. The higher the degree of repetition, the costlier it is to scale up in deal search — it essentially precludes optimal fundraiser–investor matching. Likewise, the lack of a market mechanism for price discovery has led to an abundance of over-valued and under-valued deals.
The marginal cost in scaling up deal search leads companies to accept “ok” deals rather than getting the best ones. Imbalances in these costs across geographies and industries magnify imbalances in access. Beyond access, many valuable aspects of a firm’s operations have been absent in financing. Flexibility in financing and investment is regrettably low.
Well-structured, strong governance systems that align the interests among fundraisers and investors hardly extend beyond the stock market. Similarly, the structuring and fulfillment of the terms of investment are usually impromptu. There lacks a parameterized system that averts misunderstandings, mishandlings, and misfortunes. Fundraisers and investors frequently walk into deals that they do not fully understand and whose outcomes they cannot fully predict.