Last year, over $1 trillion of US private capital was raised — each dollar of which helps to drive private investments, entrepreneurship, and innovation. It’s the cornerstone for economic growth, but the process to complete these private offerings remains complicated and opaque.
The process of raising capital in the private equity market has remained the same for almost 90 years, yet no industry standard — and thus, no true transparency — exists. Each firm, each deal, and each offering uses its own approach, agreements, and structures to raise funds.
Lack of industry standards inspires Industry FinTech
“The private equity market is complex, to say the least,” observes Sandy Fliderman, Co-Founder and President of Industry FinTech (IFT). “How are typical investors expected to trust a process that lacks transparency and clear industry standards? People go where they feel safest. It’s no wonder the top 10% of funds and firms attract most of the available private capital.”
In a marketplace full of confusion, sometimes the most significant opportunities are the easiest to trust. Unfortunately, headlines involving Enron, Madoff, Worldcom, and FTX have taught investors that “big” does not always equate to “trustworthy.” In light of this, IFT has set out with the goal to modernize the world of private equity.
“We believe promoting transparency, understanding, and standards is the best way to help people feel secure within the industry,” Fliderman says. “Private equity doesn’t need sexier deals to grow — trust attracts deals and investors. We are creating a level playing field where all participants can see and understand a standardized process.”
This level playing field is available to everyone thanks to IFT’s advanced technology, audited standard operating processes, and trusted third-party platform. The result is a solution for any size fund, firm, or deal. It reduces transaction and operating costs, ensures compliance with regulatory requirements, and provides the understanding and transparency that attracts investors.
How IFT helps with compliance
The IFT platform ensures that funds, firms, and deals follow regulatory requirements and clearly understand operating requirements. It eliminates large-scale fraud as well as mistakes often made by small and inexperienced managers who lack the infrastructure and expertise to operate efficiently and compliantly.
“We don’t simply provide guidance or advice,” remarks Fliderman. “IFT integrates clients into its platform and ensures they operate using a set of industry and regulatory standards. We are an outside party with certification that puts investors at ease.”
Why is compliance critical in the private equity market?
The challenges for private equity firms are extensive, and the central issue is fraud. This occurs when an executive or employee breaks the rules and causes financial loss for the company’s investors. To prevent this, the IFT platform is built around extensive control systems.
“Take, for example, the recent FTX scandal,” says Fliderman. “Almost all of that company’s problems could have been avoided had it met the compliance requirements that it told its investors were in place. Since firms like FTX build their own internal compliance protocols and manage them with their own employees, it’s difficult for anyone on the outside to trust that they are following their own protocols. Our platform implements multi-level, double-blind corporate governance requirements to eliminate the risk from any lone wolf bad actor.”
Private equity firms also fall prey to cybersecurity threats. Over the past several years, firms have become increasingly common victims of cyber scammers tricking employees into sending wire transfers and vendor payments. IFT has developed a control system to help eliminate these hoaxes and catch the scammers before they can cause financial harm.
As the private equity industry grows larger, regulations become more complicated, and bad actors become more sophisticated.
“The only way to overcome these challenges is better compliance,” Fliderman says. “Compliance is the foundation for attracting more capital and completing more deals. Our platform provides transparency, builds trust, and ensures that every activity and transaction follows a compliance approach. Most importantly, IFT acts as a third-party administrator guaranteeing that every client operates according to our standards and requirements.”