Pre-IPO Platforms Are Constrained by Low Fees and a Limited Market Size

Investment platform Rounds is shutting down after five years of operation, despite facilitating more than 30 transactions worth a total of RUB 2.5 billion. According to Inc. Russia, pre-IPO investment platforms struggle to generate sufficient revenue from relatively small fees while the market remains limited, and primary access to investors is concentrated among brokers and asset management companies.

According to Pavel Okhonin, Partner at KAMA FLOW, the issue is rooted in the economics of such businesses. These platforms typically earn a placement fee that rarely exceeds 2% of the transaction volume:

> “A platform that merely organizes a transaction usually does not have direct access to a comparable investor base. As a result, its revenue is limited to a relatively small fee based on the size of the placement. This is particularly challenging in Russia, where the private equity and pre-IPO segment remains relatively small in terms of capital volume. Under these conditions, transaction arrangement fees are often insufficient to cover the platform’s operating expenses.”

In his view, the market needs a broader model involving professional venture capital funds and state-backed investment funds, as well as proprietary investor networks with high lifetime value (LTV).

Read the full article here: https://incrussia.ru/news/investplatformy-uperlis-v-potolok-pochemu-sdelok-stalo-bolshe-a-pribyli-net-kommentiruet-rynok/