The Investment Banking Disruption - Blockchain, AI, and Big Data

The Dawn of A New Era

The investment banking industry is set to undergo significant disruption in the next decade, as emerging technologies such as blockchain, AI, and big data analytics transform the way investment banks operate and deliver value to clients, through innovations such as digital securities, Robo-advisors, chatbots, alternative data sources, and more.

As experts in the financial technology space, We at VCengine have observed the disruptive technologies that have been emerging and their impact on the investment banking industry. Over the next 10 years, We predict that these technologies will almost entirely transform the investment banking space that traditionally has seen little movement in terms of innovation.

And we aim to be one of the harbingers of that change!

But who are we?

VCengine?is a California-based Investment Banking SaaS platform that simplifies capital raising for startups, non-tech businesses, and institutional investors (Venture Capital, Private Equity, Family Offices, and many others)

While?VCengine's human layer is more than qualified, it still cannot fill the gap when it comes to finding the right investors. Conducting research on all available investors and reaching out to them individually is an inefficient and tedious process that would waste a lot of time and manpower.

Here is where our AI-powered investor database comes to the rescue?in addition to?our?extensive network of over 32,000 angels, venture capitalists, limited partners, private equity funds, and family offices?spread across the globe.

And such databases are just the start! Other technologies will help the transformational space as well.

Blockchain

Blockchain is a decentralized ledger technology that allows for secure, transparent, and tamper-proof transactions. The technology can be used for a range of applications, from facilitating cross-border payments to managing supply chains. In the investment banking industry, blockchain has the potential to revolutionize securities trading, reducing the time and costs associated with clearing and settlement processes.

Digital securities

These are securities that are issued and traded on a blockchain platform, allowing for secure and transparent transactions. In 2020, the investment bank JP Morgan announced the launch of its own digital coin, JPM Coin, which is designed to facilitate instantaneous settlement of securities transactions.

The two most prevalent forms of digital securities are tokenized equity and tokenized debt.

• Equity Tokens - They represent ownership in a company's assets and profits. When an investor purchases equity tokens, they are essentially buying a share of the company and becoming a partial owner. The rights and benefits that equity token holders are entitled to can vary depending on the specific terms of the token offering. For example, some equity tokens may entitle the holder to voting rights in the company's decision-making processes, while others may not. Equity tokens may also have different levels of priority when it comes to receiving dividends or distributions of assets.

• Debt Tokens - Also known as bond tokens or loan tokens. They are digital representations of debt instruments such as bonds or loans. When an investor purchases debt tokens, they are essentially buying a portion of the debt that the issuing entity owes to investors. In exchange for purchasing debt tokens, investors receive regular interest payments and the promise of a return of principal at the maturity date of the debt instrument.

Artificial Intelligence

AI has the potential to automate many of the processes that are currently performed by humans, from risk analysis to portfolio management. This could significantly reduce costs for investment banks, as well as improve the accuracy and efficiency of these processes.

Robo-advisors

These are digital platforms that use algorithms to manage portfolios and provide investment advice to clients. By using AI to analyze market data and client preferences, Robo-advisors can offer customized investment strategies at a fraction of the cost of traditional wealth management services.

How do robo-advisors operate?

There are hundreds of different robo-advisor services available. Most of them follow the same basic work structure:

1. Questionnaire - New robo-advisor clients complete a brief questionnaire on their demographics, cognitive preferences, and investment goals. This information is used to determine asset allocation and predict risk tolerance.
2. Portfolio creation - Using complex algorithms and software, robo-advisors create diversified portfolios of exchange-traded or index funds based on the questionnaire responses. Investment options are typically chosen by a financial or investment professional.
3. Balancing - After investing the funds, the robo-advisor's software automatically rebalances the portfolio to maintain a target allocation.
4. Live consultation (optional) - Certain robo-advisors provide the option of live consultations or access to a licensed human financial planner who can assist with prioritizing objectives and offer suggestions to achieve them.

Chatbots

These are virtual assistants that can help clients with a range of tasks, from checking account balances to placing trades. By using natural language processing and machine learning, chatbots can provide a personalized and responsive service to clients, while freeing up human resources for more complex tasks.

These chatbots can answer common questions, provide updates on account activity, offer guidance on investment options, and help with account management tasks. This can save time and improve customer satisfaction by offering 24/7 support without the need for human interaction.

Big Data Analytics

This tech refers to the process of analyzing large and complex datasets to identify patterns and trends. In the investment banking industry, big data analytics can be used to inform investment decisions, manage risk, and identify new opportunities.

Alternative Data Sources

Here we are talking about non-traditional datasets used to gain insights into investment opportunities and market trends. Check out some examples below:

• Social media activity - mentions, likes, and shares, can provide insights into consumer sentiment and behavior.
• Satellite images - used to track real-time changes in shipping, agriculture, and energy production.
• Web traffic data - providing insights into consumer demand and behavior.
• Credit card transaction data - used to track consumer spending habits and identify trends.
• Mobile device data - using location information, can provide insights into consumer behavior and traffic patterns.
• Weather data - used to track the impact of natural disasters on industries such as agriculture and insurance.
• Sensor data from Internet of Things (IoT) devices - providing insights into industrial production and logistics.
• Alternative payment data - gathering data from fields like payment processing services, can provide insights into consumer spending patterns.
• Patent and intellectual property data - used to identify emerging technologies and potential investment opportunities.
• Public records and regulatory filings can provide insights into industry trends and potential risks.

By using big data analytics to analyze these alternative data sources, investment banks can gain a competitive advantage in identifying new investment opportunities.

Use case of alternative data sources - Transporation company

1. Investment opportunity - An investment banker is considering investing in a transportation company and wants to gain insights into their logistics operations.
2. Satellite images - By analyzing this data, they can identify patterns in shipping activity and gain insights into the company's logistics operations.
3. Sensor data from Internet of Things (IoT) devices - By tracking data from sensors in trucks, ships, and warehouses, they can monitor the movement of goods and identify potential bottlenecks or inefficiencies.
4. Weather data - By monitoring weather patterns, they can identify potential risks to transportation operations, such as hurricanes, snowstorms, or flooding. This can help the investment banker assess the company's preparedness.

It's important to note that the use of alternative data sources also comes with its own set of challenges, such as data quality and privacy concerns. As such, investment banks must carefully evaluate and manage the risks associated with these datasets before incorporating them into their strategies.

Conclusion

The next 10 years are set to bring significant disruption to the investment banking industry through the adoption of new technologies. Blockchain, AI, and big data analytics are just some of the many examples set to transform the space, offering new opportunities for innovation, efficiency, and cost savings. Investment banks that are able to successfully integrate these technologies into their operations will be well-positioned to thrive in the rapidly evolving financial landscape.

If you are looking for affordable and cost-efficient investment banking/capital-raising services, we, at VCengine are here to help.

Why work with us? Here are some points:

- Proven Success -?Over 900+ successful fund raises, 25,000 investment firms, 6,000+ angels, and $3B+ in transaction history

- Personalized Support -?Work with a team of experts to tailor your business plan to your specific needs and present your business in the best possible light

- Access to Investors -?Connect with a wide range of investors through our established relationships, with over 5000+ meetings per month

- Investor Engagement -?Track and maintain reports of investor activity, see which investors have viewed and responded to your deal, and aim for 50 to 600 investor engagements per deal

- Fast Response Time -?Receive support with a commitment to a fast response time of 12 hours or less

Let us help you turn your fundraising goals into reality!

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Or reach us out at:

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Post by?Corey Singleton, COO at?VCengine, and?Lachezar Zanev?(Luke), Ambassador at?TiE SoCal Angels?&?VCengine

Join Lachezar (Luke) Zanev's Founders & Funders Discord server called Venture Network below:

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