‘A return to our values of 1694’ was one reason behind last Friday’s visit to Cambridge by Bank of England COO Charlotte Hogg and CIO John Finch.
The duo were in Cambridge to gain insights ahead of the Bank’s Open Forum event on Wednesday, November 11 addressing ‘Building real markets for the good of the people’.
Accompanied by Tim Pike, Bank of England agent for the South East and East Anglia, and Michael Sheren, senior adviser to the Bank, Hogg and Finch met representatives from across the Cambridge finance and technology sectors, absorbing a range of perspectives on current and future issues.
“The Bank was originally set up to promote the public good through financial and monetary stability,” explained Hogg, “but recent events have damaged the reputation of financial markets and their ‘social licence’ to operate.
“We are here in Cambridge to listen and learn how businesses think we can build fair and effective markets, and also how financial innovation and technology can support the economy.”
The Bank of England invited Business Weekly to have exclusive coverage of the Cambridge venture. Here’s a flavour of what was discussed throughout the day:
The academics – Cambridge Judge Business School Hanadi Jabado, Director of Accelerate Cambridge Kishore Sengupta, Reader in Operations Management Professor Raghavendra Rau, Director of the Cambridge Centre for Alternative Finance (CCAF) Robert Wardrop, Executive Director at the Cambridge Centre for Alternative Finance (CCAF) Bryan Zheng Zhang, Director of Operations and Policy at the Cambridge Centre for Alternative Finance (CCAF)
Sociological insights informed a discussion where the success – and positivity – of innovations such as crowdfunding were cited as a potential rejection of finance systems tainted by the ‘rise of the 1%’ and banker bailouts, and where (suggested Robert Wardrop) perhaps an algorithm is considered inherently fairer and more trustworthy. Banks (according to Professor Sengupta) are hampered by a ‘troika’ of issues: established mindsets, big legacy systems (although admittedly stable) where huge fixed costs prevent innovation, and a lack of customer understanding, especially among senior managers.
Banks are still considered risk-averse investors, especially for early stage ventures (despite efforts at education) with perhaps the ‘wrong people’ making the decisions, comfortable only with what they know and unable to judge the real value of future technologies they may never use. In contrast, Brian Zhang noted that 45 per cent of those involved in newer lending platforms are aged 45-65, challenging the demographic assumption that innovation is only understood by the young.
Within the wide-ranging debate, it was suggested that banks ‘go back to the drawing board’, leverage technology to make better use of the data they already have, innovate to generate value for their customers and improve stakeholder interactions by emulating the transparent, fast and efficient approaches demonstrated by current market disruptors.
The ‘hyper growth company’ – Darktrace Poppy Gustafsson, CFO Jack Stockdale, CTO Vanessa Colomar, Darktrace board director, and Communications and Investor Relations, Invoke Capital
Discussions explored the impacts and issues linked to Darktrace’s dramatic two-year growth trajectory within a sector in which (it was suggested) the proliferation of startups and acquisitions could result in overly diverse technologies.
The complexity of pitching for business through the G-cloud was explored, and Darktrace also drew on its world-leading cyber security expertise to provide valuable insights into security technology uptake, noting that the finance sector had been one of the most advanced in this area, ahead of energy and defence, although this landscape is now changing.
Speaking on behalf of Darktrace investor Invoke Capital, Vanessa Colomar reported no issue with dealflow in Cambridge but instead with scale-up and exit, especially for hyper-growth companies such as Darktrace which could find it challenging to expand a skilled workforce, and even find the right physical space.
Life will improve as clusters of similar companies emerge, also making it ‘less scary’ to invest in fundamental technologies; CFO Poppy Gustafsson added that (for Darktrace) equity funding was still preferred to debt finance as it provided the flexibility and cash injections needed to match ambitious growth strategies.
Banks were ‘getting better’ in this respect, but their understanding of technology investment was seen as rhetorical rather than evidence of real change. It was suggested that perhaps a better understanding of the value of intellectual capital – and new ways to measure this – could be important for future growth and support.
The crowdfunder – SyndicateRoom Goncalo de Vasconcelos, Co-founder and CEO Tim Bellis, director and Fellow in Management Practice, Judge Business School
The Syndicate Room’s vision of ‘fair gain and open opportunity’ prompted significant interest from the Bank of England team, which was keen to learn more about a business model based on offering ‘the sophisticated retail investor’ access to the same opportunities as the professional investor, and where ‘everyone makes (or loses) the same amount’.
When Syndicate Room started, crowdfunding was virtually unheard of, but the investor (rather than company) led approach is now considered faster and more efficient, and offering full equality and transparency.
Lead investors provide credibility based on their (confidential) due diligence (and minimum 25 per cent investment) with openly shared Q&A platforms delivering ‘crowd-sourced’ insights into risk, further supported by the Syndicate Room team.
The crowdfunding sector may be tiny compared to banking, noted Goncalo, but is experiencing tremendous growth – although applicants for investment greatly outnumber opportunities which satisfy SyndicateRoom’s strict financial, legal and ethical criteria.
Recent reports quoting crowdfunding returns of up to 22 per cent were treated with caution, with Goncalo describing crowdfunding as potentially high return but also high risk.
However, in the last two years only one of the 64 SyndicateRoom-funded companies has failed while eight have paid out (at between 10-12 per cent). Crowdfunding was also described as a potential game changer if it can retain the trust and positivity which differentiates it from banks, and, importantly, it’s non-geographical bias also enables the flow of money and capital out of London and across the country.
Read more here.