Entrepreneurs, by their very nature, are able to leverage opportunity in both the good times and bad, however, the good times in particular create fertile ground for growth. There are many businesses in our country with high-growth potential, yet access to the capital needed to fulfil that potential is limited at best, and insufficient at worst.
Traditional capital markets are notoriously slow, costly, bureaucratic, and full of roadblocks that are too daunting for many businesses to overcome. This is not to fire a broadside at our public markets in South Africa. It is the way the capital markets work all over the world. The barriers to enter and operate in these ecosystems are high – there are steep listing fees, time consuming processes as well as complex regulations to comply with, which invariably are a hurdle too far for an entire economic sector of good quality, medium to large sized businesses stuck in the 'missing middle' – no longer a 'startup' but too small to list and too risky for a loan.
This has a material impact on listings – globally. According to a report by Peregrine Wealth less than a year ago, a comparative analysis by industry experts across the world indicates that Luxumbourg and Frankfurt have experienced a 52% and 35% decrease in listings respectively. The same report says that while the New York Stock Exchange and the London Stock Exchange have not been impacted as severely, they still experienced a 15% and 19% respective decrease.
On the other hand, the Private Credit sector is crucial for the growth of many attractive businesses, but it is largely illiquid, which reduces the attraction for broad segments of investors.
It is clear there is a need for alternative private capital markets that are open to all. I do need to make an important distinction here. We believe there is a need for more accessible alternative and private capital investment channels – in addition to the current markets, not in place of them. The idea is not to disrupt what is working well in the listed capital and private equity sector but to add to, or digitise, the options available for scale-up or high growth companies that are looking to raise capital as well as for investors that want good quality, high potential businesses to invest in.
The Regulator in South Africa deserves credit for looking to the future and supporting the sector’s move towards a Finance 3.0 world. When the FSCA awarded Mesh.trade Africa’s first Crypto Asset Service Provider (CASP) licence for tokenised financial assets, this was a vote of confidence in the maturity of blockchain as a legitimate technology enabling the financial services sector globally. Previously, eyes would glaze over when the word 'crypto' was used, so let’s unpack this phrase more carefully.
Mesh was licensed as an alternative investment platform, a Smart Asset Marketplace, that makes it possible for businesses to issue tokenised financial assets, trade them directly with investors and then fully manage the corporate actions of these assets throughout their full lifecycle, such as maintaining an up-to-date asset register and doing regular dividend or coupon payments.
The principle of protecting investors, that underpins everything the Regulator stands for, remains steadfast. Understand this – it is clear that we are in a new era. In acknowledging the need for alternative capital markets that are open to all, we also acknowledge that we need a new solution.
Let’s start with business owners who up until now, have faced hurdle after hurdle in their efforts to raise capital to fund their growth. Tokenised equities, debt and other classes of smart assets offer an alternative funding source where entrepreneurs can raise capital more efficiently.
Tokenising assets increases their liquidity because of the ease with which investors can buy and sell them on the secondary market. Listing fees, regulatory overheads and other expenses associated with traditional markets are radically reduced, while the agility of blockchain technology means timeframes are also substantially shorter – almost real time. The direct interaction between issuers and investors through secure market infrastructure, without the need for third-party mediators, promotes trust and transparency. Reputable platforms, such as Mesh, go a step further by underpinning the technology with deep financial markets expertise. The point is that every obstacle that has hindered companies looking to raise capital is addressed as we move deeper into the era of Finance 3.0.
What does open to all mean? It means that more entrepreneurs can access growth capital, while tokenised debt instruments, equities and other smart assets offer investors access to a broader range of investment opportunities. Tokenisation, by its nature, allows for fractional ownership which, besides addressing affordability, allows investors to diversify their portfolios with smaller investments than they would have access to in the public markets sector. The real-time nature of a platform such as Mesh is proving highly attractive to both traditional and a new generation of investors.
By introducing alternative markets that are open to all, leveraging the power of tokenisation, South Africa really can make hay while the sun shines, which when done at scale becomes a self-fulfilling prophecy.
There is no one-size-fits-all panacea. No one has stars in their eyes. What those of us who have been advocating for the move towards a Finance 3.0 world do understand, is that we simply must increase the options available to both business owners and investors. It is the best shot we have of unlocking the capital required to see real entrepreneurial impact while delivering returns to discerning investors hungry for opportunity. It’s time for markets to be open to all.
