Creating efficiency in Capital Markets. Article with Srinivas Suravarapu from ScribeStar.
Srinivas Suravarapu is the CEO at ScribeStar. As part of our series of interviews with leaders in financial technology, we interviewed Sri about ScribeStar’s approach to Capital Markets.
Behind every transaction in capital markets, such as an IPO, debt issue and dual listing, there is a highly complex, often regulated set of processes and documents which are negotiated and produced by the numerous market participants in the deal.
ScribeStar brings together issuers, lawyers, advisers, sponsors, listing teams and regulators into a secure digital environment where they can work more efficiently, in less time, and at a lower cost.
Can you give us more detail about ScribeStar and what you’re doing to reform inefficiencies in capital market transactions?
We are fundamentally about documents. I don’t just mean documents that are simply pieces of text, but those which differentiate the information and data they contain for highly complex financial transactions.
For example, a typical prospectus for an IPO takes anything from three to nine months, depending on the size of the raise and the business. What we focus on is reducing the time it takes to create those legal documents and their compliance with market regulations.
This used to be a very manual process with emails exchanged between those involved in the due diligence process. They have always taken the information from multiple documents and materials, pulled it into spreadsheets, analysed it, and sent it back and forth between different teams. Then in no time at all, three months have passed and at least 20 different people have added comments, and created a hundred different versions of these documents and data everywhere in very different formats. What we do is create a way for people to look at them in the same place and bring some order to the process by connecting all the unstructured and structured data. This is naturally quicker and more efficient.
We have extended the service, not just to lawyers, but also to corporates and advisors. After companies are listed, they need tools to be able to fulfil the obligations of being listed in public markets, so having the tools before and after the raise is very effective from a legal and compliance perspective.
Can you give an example of how you help corporates raise money?
With an increase in retail investors in public markets, corporates want to appeal to everyone. You can’t keep spending so much time and money on the process of raising money for mundane administrative tasks, and at the end of the day the less spent on raising capital, the more of it you have to run your business.
For example, if you’re aiming to raise £20 million but have to spend 10% of this sum to achieve your target, it begins to look cumbersome because of how long it takes. The business may then think it is easier to do this in a private raise. You have to be absolutely prepared and be able to go through the process as fast as you can, so you can then choose the right time to initiate the raise based on market factors. As a business it is important that you’re operating in a way that minimises costs and maximises the availability of capital. We need to rethink how we currently do this, and reduce the cost with purpose-built tools. Taking advantage of technology is absolutely the way forward.
Another example is that after an IPO, a company has certain legal and compliance obligations to meet when listed in the public markets. There is a cost which is almost unspoken of, the cost of being listed. The obligations of being listed are a lot more onerous and can be simplified using technology, but it does not need to be expensive and time consuming.
How are you looking to influence the rest of the industry?
We are currently speaking to some exchanges about a more uniform way of managing the regulatory reviews and compliance to listing rules. You would typically expect to get your prospectus proofread, and checked to see that it complies with listing rules about ten times with the FCA. This is to manage the amendments, have it reviewed by different stakeholders and have questions answered, before you actually publish it to investors. This is a very much an offline process, that is laborious and carried out by numerous people in isolation. We have built tools tailored for these types of real world problems. Most importantly, by connecting all the data we bring different market participants into the same ecosystem. Essentially, when you connect the data, you connect the people. Collaboration and better overall efficiency will be a by-product of this approach.
How do you see Scribestar operating differently from other fintechs trying to simplify the process?
The process is very linear, involving many parties, and the work can occur in isolation. There are lots of suppliers for different parts of the process. For example, it starts with the data for due diligence, and someone may be a specialist in collecting, verifying and advising on the diligence material. This may be a Q&A approach and is generally like a two-party collaboration. Then someone prepares this prospectus in their own little silo.
Then you have another silo with the regulator, and so on and so on. This change is continuous, involving many parties and many emails.
Then there is the financial printing, and the typesetting is its own little silo involving lots of ‘to-ing and fro-ing’, which can cost a lot of money.
We have brought all these worlds together into a single ecosystem. We have put tools in place for the lawyers, the regulatory views and the advisors, so we’ve essentially ended up connecting all the silos together.
Five years ago you could not do this with technology as there wasn’t any which looked across the market, and took a singular view of the whole process and all the parties involved. Now that this exists, it is the right time for market participants to think about the process and not their own individual tasks. If you want to change the way that public markets work, it cannot happen in silos.
It sounds as if it’s not just being the technology provider, but your industry knowledge that enables you to make such significant change. Is that true?
Yes, that’s true. We have had to contend with the misconception that we are only a legal-tech business. And I say, are we just that? That is because the minute you get into the legal technology space you see documents and everything revolves around these. Most solutions tend to focus on the task or the document, but we focus on the people creating those documents and the data they create. It is very common hear people talk about artificial intelligence, machine learning and contract lifecycle management. They’re all separate pieces almost in the problem space we operate in, and none of them work with each other. If they do, they are not really accurate without a large set of data. Most of the AI businesses I’ve seen have actually struggled to grow after the initial spike, the problem they are finding being that old data is not machine-readable. No one’s really doing anything about making sure the data for the future is machine-readable either. The work around is to employ more people and machines to tag the data after it is created. Is that the way forward?
We focus on how the data is created. For example, a lawyer might just tick a box and say this is regulation 4.1 A of annex one with FCA listing rule. What they don’t realise is we’re giving someone, who’s trying to gather intelligence from that regulatory perspective, a chance to see how people actually comply with the regulation and also recording how they interpret compliance to the rule.
It could almost become a training tool in the future for someone working on regulatory compliance of listing rules in public markets. There is an abundance of data we create and record as a result of the collaboration. The same data can be mined to review regulations and improve them, so the critical factor is to make sure we create data correctly. And then the benefits will just follow, in terms of efficiency workflows, added insight and intelligence. If you want to manage knowledge and analyse data you need data, it is as simple as that. Sometimes it is best to walk before you can run.
And in relation to raising money, what do you think are some of the challenges organisations will face and what are you doing to solve them?
I think there are two kinds of exchanges evolving. Firstly, the traditional, established operations such as the LSE, JSE and the ones everyone knows about. The second group are much newer and trying to muscle their way into the industry. These newer exchanges tend to focus on secondary listings, tokenising the securities, secondary raises, or private capital. They are ‘greenfield’, and ScribeStar is very well suited as it takes processes proven in the public space and allows people to use them in a more controlled manner. They are likely to be digital first and the rate at which they will evolve is going to be a lot faster than we can imagine.
We fit straight in basically, because from day one we’re giving them a very digital way of going through the process. You’re not trying to re-engineer a new process, and the thing for these exchanges is that it doesn’t make sense to do the same as their bigger rivals. Their whole offering is based on time, speed and cost. Using technology is a natural starting point for these newer exchanges or markets.
We want to put something into the market which offers consistency irrespective of where and when you raise money, and that’s probably how we become an enabler in this process.
In some respects, you’re at the forefront of trying to create standardisation in the industry. Is that true?
We are in the very early days. The early adopters are here now and there is an increasing interest in the value proposition on various fronts. We might have very radical ideas, but with the reality of the speed at which the industry is moving, it is heading in the right direction, but not enough to change things quickly. When we start working more closely with exchanges and regulatory authorities, it will be more obvious because of the value of the data that is generated and we can make that big step forward for them and also for ourselves. We are really working with data creators and processors. Consumers have not yet seen what we do, but that is now changing.
Strategically, exchanges are no longer just places to list and raise capital, but also sources of data in the digital era. Data is becoming a highly valued commodity and we can help exchanges unlock the potential of machine-readable and granular data. How you can inspect and use the data has been cracked, but how you achieve it is still significantly manual and costly.
To find out more about ScribeStar, check out their website here.
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