ClearingBid, Inc. is a Silicon Valley-based fintech company that has a goal of providing every investor with the opportunity to buy stock in IPOs. Through its proprietary Securities as a Service™ platform, ClearingBid expects to take market democratization to a whole new level. Having its roots in the capital markets, ClearingBid wants to provide every investor and their brokers with access to IPOs, just like the big institutions.
We sat down with Matt Venturi, CEO and Founder of ClearingBid, to discuss the challenges encountered by other companies attempting to achieve broad market adoption and to find out what is different about ClearingBid, its approach, and its relevance in today’s environment.
An industry veteran of Wall Street, Matt has always felt that retail investors and the brokers who serve them have never been taken seriously. But now, given the convergence of technology and investor sentiment toward fairness, the market is ripe for disruption and the door is open for ClearingBid’s Equal Opportunity Investing®.
What is ClearingBid’s mission?
Our mission is to open the markets to millions of new investors and financial professionals with fairness and transparency while allowing companies to raise more money at more accurate valuations.
What is the key problem that ClearingBid is trying to solve?
Wall Street doesn’t want to admit there’s a problem, but many believe the system is rigged in favor of the big institutions and the large investment banks who serve them. It’s one reason why we’re seeing an onset of public offering alternatives, including direct listings and the reintroduction of blank-check preferred companies, or SPACs, attempting to create more access for investors.
The lack of access to new securities offerings has been due to an opaque and antiquated underwriting process, including limited pricing transparency. Wall Street wants investors and issuers to believe there’s inherent risk in the underwriting of securities, but deals are rarely priced by the investment banks until they are substantially overcommitted.
I believe the real risks come from the mispricings, limited disclosures, and inability to achieve broad distribution from the outset of a new IPO offering. ClearingBid will address these problems, in combination with our public portal and mobile app, by providing the market with real-time pricing updates and relevant marketing tools accessible to everyone.
Can you explain how this impacts investors and why should they care? Don’t investors just want to have access to IPOs?
Yes, but while many investors would like to have access to IPOs, only a small percentage of public offerings are available to non-institutional investors, including equity IPOs and even debt offerings such as municipal securities and corporate bonds. This is because the big investment banks don’t want to give up control over whom they choose to allocate the securities to or to give up the underwriting commissions associated with these sales.
Consequently, except for the top institutional accounts, most investors are relegated to buying new issues in the secondary market once an IPO becomes publicly traded. The aftermarket “pop” in price with many IPOs results from excluding most investors who would like to have the opportunity to buy and own a company’s shares or bonds from the start.
Didn’t Robinhood try to give more access to IPOs?
Yes, Robinhood proposed to set aside up to 35% of its own IPO for customers to purchase. But the lack of transparency leading up to the pricing, coupled with divergent valuation expectations and questions over the company’s business model, resulted in investor confusion with the stock closing below its original offering price and turning over almost 200% of its offering size on the first day.
This kind of turnover suggests that many of the original investors may have sold their shares and were not long-term holders or investors in the company. This is not a retail investor phenomenon, but rather a pricing and distribution question.
The challenge is not only how to provide more investors access to IPOs, but also assuring the issuer, along with investors, that they are all getting treated fairly. Most of these companies will want to go back to the market at some point, so pricing their offerings correctly is paramount to a good deal.
How can ClearingBid provide these assurances to the companies looking to go public at a fair valuation, while providing investors with an attractively priced offering? Aren’t these objectives conflicting?
Quite the contrary. Issuing companies can look at their IPO, or any public offering, as not only a financing opportunity, but also a branding event. Warren Buffett was quoted saying, “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
So why not allow investors who are most interested in a company and its products or services to have access to these companies at a fair price from the outset, while also providing the issuing companies the opportunity to market to them? These investors may also be loyal customers, whether retail or institutional, who would welcome the chance to participate from the beginning. No one has been able to solve these challenges, until now.
So, what is ClearingBid’s solution?
Simple. ClearingBid allows all qualified investors to put orders in for an IPO through their brokers of choice. The brokers are responsible for determining investor suitability, with the opportunity to earn commissions. Investing customers, on the other hand, pay zero commissions while following steps similar to submitting orders for publicly traded companies with their brokers.
Can you explain ClearingBid’s solution further?
Traditionally, the big investment banks only offered IPOs to their largest and best customers. This has led to inefficient pricing and limited distribution with most offerings. ClearingBid’s Securities as a Service™ plugs into the existing order management systems that brokers currently use with public company orders. As orders are submitted and the order book builds, the real-time pricing information, along with all requisite marketing materials (e.g., prospectus, virtual roadshow, research), are displayed publicly for all to see and access on ClearingBid’s mobile app and website.
Customer orders are reflected immediately in real time for the public to see. ClearingBid’s SaaS platform prioritizes these orders based on their price and time of entry, similar to a Dutch auction, but distinctly different from direct listings, which have generally been overpriced offerings.
With ClearingBid, every customer order is seen and recognized, with the brokers authenticating each one, providing all investors with a level playing field. In the end, ClearingBid’s proprietary algorithms can help determine not only the optimal pricing of an offering, but also the allocations that investors are entitled to receive based upon both the price and time of their orders.
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Why hasn’t something like ClearingBid been offered before?
Until now, no one has been able to connect the brokers with the issuers and the investors in a way that accommodates seamless order entry and public information flow.
The internet has become the great equalizer. Look at a company like Amazon, which has taken advantage of supply chain inefficiencies, while connecting consumers with vendors and leveraging Amazon Web Services (AWS) for scale, security, and reliability. Why not do the same in the securities industry?
The exchange technology architecture and settlement procedures already exist to do this. ClearingBid ties the disparate ends together through our proprietary platform and technology. Investors use the Web to identify and track new issues, directing their order requests through their brokers of choice, and the brokers fulfill and settle the orders with their customers, all while leveraging ClearingBid’s real-time price discovery and demand authentication procedures.
Our technology can not only be used for IPOs with companies that want to go public, but also funding for infrastructure development, affordable and accessible housing, and other types of public/private partnerships, allowing investors who want to support their local communities with the opportunity to do so, both financially and socially.
What will determine ClearingBid’s success?
As more investors become aware that they can have unrestricted access to IPOs, we believe that this demand-pull effect among customers will drive more revenues and assets under management for the brokers who serve them. Companies looking to reach these investors can do so using their IPO as the financing opportunity. With the introduction of additional functionality, such as chat and public forum features, breaking news, bond ratings, and company analytics, ClearingBid expects to become ubiquitous.
Are there any regulatory hurdles to ClearingBid’s model?
By targeting fully registered public offerings, we are not limited to marketing to only accredited investors, but rather can market to all investors. In fact, in our case the regulators have expressed their support for the oversight responsibility that brokers and financial advisors bring to the party with ClearingBid.
This sentiment is consistent with SEC Chairman Gary Gensler’s expressed concerns over addressing investor protection. Additionally, ClearingBid expects to also help mitigate some of the aftermarket volatility with its transparency and interconnectivity—goals the regulators also embrace.
What are your next steps?
ClearingBid’s backend and frontend components are completely built out. We are now conducting beta tests, along with focus groups, with a select number of partners and third parties. The company has a world-class team of professionals who provide a combination of broad transactional expertise and unmatched global exchange technology experience. We are in the process of identifying our initial issuer mandates and expect to go live shortly
This article was originally published on AllBusiness.com.
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