London Stock Exchange-Elite: Using AI to Consolidate the Gap Between Public and Private Markets

London Stock Exchange-Elite: Using AI to Consolidate the Gap Between Public and Private Markets

From Left to Right: Moshit Yaffe, Co-Founder & CEO, Zirra; Luca Peyrano, CEO, ELITE; Aner Ravon, Co-Founder & CPO, Zirra

 

London Stock Exchange has some 2,500 companies listed, but what is less known is how it helps the companies in the private sphere.This help is otherwise known as ELITE, London Stock Exchange’s training and acceleration program dedicated to enhancing private company’s capability to scale, providing them training, growth practice, polishing business models, and helping them reaching investors alongside managing the fundraising process.

You would expect the only private company accelerator operated by a stock exchange to bind its graduates to go public in London. Instead, a company’s final destination is up to the company’s motivation.

Since launching five year ago, ELITE can claim involvement from 600 growth private companies (an equivalent of more than one-fourth of the total number of its public companies) from 26 countries in Europe including U.K, France, Italy, Spain, Portugal, Belgium, Denmark, Finland, Israel, Russia, Poland, Georgia, and Turkey.

It had a significant role in a few of the greatest success stories in Europe, such as Golden Goose, the Italian high-end shoe company, who grew its revenue from €30 million when they joined the program to about €150 million today. Last March, the company was acquired by Carlyle Group and a pool of investors led by Ergon Capital.

Other successful alumni include British snack retailer Graze, that delivers natural food, flapjacks, and popcorn to residential home or workplaces daily via post. Its business enjoys annual sales of more than £70 after expanding from the UK to the US; Naked Wines, the UK-based wine retailer financed by crowdfunding, that already employs around 150 people and its revenue increased in the recent year by 26.3% to £142 million; and Frescobaldi, one of the oldest wine producers in Italy, that didn’t join ELITE to raise money, but to improve management skills of the company and manage the transition of control from one family member to another.

So far, ELITE companies have almost €50 billion in aggregated revenue, and they employ 215,000 people in 34 sectors. In the five years since incepted, 160 ELITE companies raised €4 billion in total, and more than 200 companies went through M&A transactions or created a joint venture.

After years of matching companies with potential investors, last year, ELITE decided to upgrade its financial services, launching ELITE Club Deal, a private placement platform allowing private companies to raise funds from institutional investors and private equity firms such as BlackRock, Fidelity and Carlyle, Equinox and RiverRock. The new platform facilitates investment opportunities by streamlining the capital raising process for the program’s companies in a simpler and standardized process.

Now, with the new private placement platform, Luca Peyrano, ELITE’s CEO, predicts significant growth in the numbers of the companies in the program. “The goal of ELITE, is to help grow startups and businesses to access premium investors more quickly.” said Peyrano. “Top institutional investors, family offices and private equity firms have already joined the program, looking to buy minority stakes in some of the 600 companies ELITE has to offer. ELITE hopes to speed up the process of capital raising from one year or more to six months.”

 

 

Luca Peyrano, CEO, ELITE

 

Peyrano and the London Stock Exchange visited Tel Aviv last week to attend the Annual Capital Markets Conference, in which he presented the new private placement. Peyrano also met with some of the ELITE’s companies in the country such as eToro, Innotel, and Geekapps and also gave an interview to Moshit Yaffe, CEO of Zirra, a startup that has developed A.I and big data technologies to analyse companies. Peyrano and Yaffe talked about bridging the gap between public and private market with technology, the need for new methodologies of deal making and the effect of Brexit on the financial landscape in the long term future.  

Moshit Yaffe: So if you were to simplify ELITE what is it?

The ambition of ELITE is to change the way financing engages with business. Companies today are used to raising funds in a complicated process that requires a lot of effort and a high number of duplications regarding activities. This involves a multitude of opinion letters and due diligence procedures. However, we believe that the process can be simplified, and at the same time remain adequately respectful of the regulation.

We feel companies need a lot more support before raising capital and that raising money is the end goal, not the beginning one. A large institution like us needs to take care of the downstream activity of raising funds and ensure that these companies are ready for the process.

Yaffe: How did you attract institutional investors and private equity funds such as Fidelity, Blackrock, and Carlyle into ELITE’s placement platform, and what do they gain from it that they can’t find elseLondon-based

they like about ELITE is the concept of preparing companies for an improved, enhanced dialogue with them. As global investors, their job is to commit themselves and taking risks in investing in any company. They would like to consider the business, the business plan, the management.

They don’t want to consider problems such as a lack of transparency, lack of control of internal systems, or inability to communicate. These things should be already be taken care of when contacting investors, because the competition for raising capital is so significant, that those that will be selected will be those who behave the right way. Investors can now spend less time and spare the unnecessary triple checks on attractive businesses with a platform such as ELITE.

The platform had already adopted the technology services of The Hub, a London-based Fintech in which ELITE invested early this year, allowing investors to screen deals and manage their portfolio.

Yaffe: At the conference, you mentioned that the ELITE program has seen the most success with Israeli companies – could you give us a bit more insight into this success?

The middle eastern country has a vibrant startup industry and is already strongly involved in the British public trading arena. This can be seen by its public bond offering and 29 of its public tech companies such as XLMedia, Crossrider, and Telit Communication traded in London’s public markets.

ELITE has gained tremendous momentum in Israel and currently hosts nine Israeli companies in the program. Among the nine are: eToro, a social trading and investment marketplace that allows users to trade currencies, commodities and stocks; Geekapps, a native app creation platform that has just launched a website creation platform that competes with Wix.com; Showbox, a cloud-based video creation platform for brands and enterprises; and Innitel, a VoIP service provider, offering small and big enterprises affordable integrated phone and call center solutions;

 Yaffe: How is technology changing the way business is done from your perspective?

Peyrano: We believe things can be done in a simpler way than they are currently being carried out. For many years, practices were built in an environment empty of technology. From the other side, regulations prevented things from changing too quickly.

One of our goals is to simplify the process of raising funds with the adoption of new technologies so that the whole process will be quicker. Let’s take, for example, the documentation necessary to raise funds. We have almost 600 companies in our basket. We can ask everyone to call their lawyers and build up their terms of conditions, re-inventing the wheel, and ask them to create their business plan for two, five or ten years. Then we can let our investors experience a nightmare digesting every single presentation.

However, if you use technology in the right way – the whole process can be simpler.

When carrying out due diligence, technology can help us get information quicker and in a more efficient way. We believe that using A.I technology helps us to better understand, detect problems at a faster rate and prevent problems from arising in later stages of the deal-making process. We also explore new technologies to help us present investors with a standardized model that will ease absorbing information. It is not only the way we give information but the way we capture it.

Yaffe: Will startup companies feel flexible enough to choose going public in New York at the end of the ELITE program, Instead of LSE?

Peyrano: ELITE is agnostic on a company’s final destination. Of course, we as London Stock Exchange compete globally and remain open to attract businesses from everywhere leveraging our undisputed technology and reputation. Nevertheless, you can not tell a successful company where to go. What you can do – if you are in this position in LSE – is to focus on delivering value to your clients and keep opening up options for them and their future growth. After that, it’s the company’s decision where to go.

What’s in it for us? First, ELITE is a business that generates revenue and grows, but we firmly believe that the more we work for supporting companies, capturing opportunities, independently from the IPO in London, the more we’ll see positive dynamics coming back to us and LSE as well.

Yaffe: Do you think the Brexit will have positive or negative impacts on your plans and targets?

Peyrano: It is challenging to say right now because these are macro factors that will have an effect only in the very long term. Let me just say that you’re not going to build or dismantle a global financial hub in just a few months, not even in just a few years.

The UK is all about creating a network of players who are skilled in leveraging international networks and creating a friendly legislative environment and having an appetite in dealing with diversity. And when I say diversity, I also mean companies outside of the UK, in regions such as Europe, Americas, Asia or Africa. The international, cultural element, the ability to digest global capital from every point on the globe is something that is embedded deep in the UK financial market, as much as the entrepreneurial elements are rooted deep in the Israeli industry, and that will never change.  

ELITE is already deeply embedded in the Israeli industry, partnering with Bank Hapoalim, Barak Capital, and many others. Speaking about the Israeli startups’ ecosystem, Peyrano admits that the Israeli segment among ELITE companies is one of its fastest growing. Peyrano is also convinced that Israeli companies can gain from the extensive network of ELITE and LSE companies. “The digital platform brings together thousands of companies, institutional investors, and financial intermediaries to enable easier interactions on a global scale,” said Peyrano. “Those who will be quicker than others in taking the advantages of such a growing grid network will benefit more than those who will wait five years until they realize that.  

 

 

From Left to Right: Moshit Yaffe, Co-Founder & CEO, Zirra; Luca Peyrano, CEO, ELITE; Aner Ravon, Co-Founder & CPO, Zirra

Moshit Yaffe is the CEO and Co-Founder at Zirra, a technology company that has developed A.I and machine learning capabilities to effectively analyse public and private companies. This kind of technology might answer ELITE’s needs of supplying investors with valuable, insightful analysis of private companies before engaging with them, thus helping to standardize due diligence process and in general, increasing transparency in the investment process, maximizing the match between an investor and a portfolio company.

The Zirra analysis process involves both Intrinsic and Relative valuation algorithms. The intrinsic data includes revenue and expense estimations, traffic trajectories, investment history, IP history, and velocity, based on aggregated sources. In the relative analysis, data is compared and benchmarked with a database of thousands of companies with correlation to stage, space, size, and trajectory. It then produces a map of competitors based on the data set, rated in accordance with the degree of direct competition, its size, threat, and proximity of the shared customer and partner base.

The final result is a detailed research report on each company, focusing on success and risk points, estimated metrics, competitive landscape, market forecast, exit indicators, business and marketing strategy and HR & leadership analysis.

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