Are you building or buying your online deal platform?

Just prior to Chicken Soup Entertainment going public last week, I met with the company’s management and bankers at a restaurant a few miles from my office on Long Island.  I’d been hearing about the company (and their use of Reg A to go public) on WCBS 880 drive-time radio so it seemed like a good opportunity to find out how they got that kind of coverage and to learn what other tactics they were using to pitch their deal.

I found the meeting worthwhile but not because I learned that unlike prior Reg A deals there was institutional support, but because the company seemed to be having issues getting retail investors subscribed to the offering.  These retail investors (a/k/a Chicken Soup’s own social media followers) weren’t lacking interest.  On the contrary. Based on what I heard, there was plenty of retail interest but also plenty of frustration getting investments completed online.

Problems relating to small-dollar retail investments is something I’ve been hearing about across the spectrum of online equity investing – Reg CF, Reg D or Reg A.  Let’s face it, the process of subscribing to an online offering is a pain in the ass and unfortunately, lots of platform designers lack basic sensibilities like asking someone for their social security number on the first investment screen. [Note: Don’t do that.]

After the dinner, I jumped in my car and called my main tech guru Tarun Gupta who runs an offshore programming group in India that I’ve used for development work for over 10 years. Together we’ve done lots of projects together – including custom development of online investment platforms.

Our conversation moved quickly from my SME lending project to the platforms broker-dealers (like those involved with Chicken Soup) use to sell Reg A and other online transactions.  Most bankers are coming around to the idea that selling deals online is moving from a “nice-to-have” to a “must-have.”  If for no other reason than because competition is heating up and it’s expected that techniques like Reg A are only gaining in popularity.

Mostly, what Tarun and I talked about was the classic “build vs. buy” decision. That is, for broker-dealers serious about online capital formation, should they license an off-the-shelf solution or build their own solution that’s custom to their needs?

If you talk with experienced programmers like Tarun, they all have the same attitude towards building things.  “Yeah, we can do that…no problem,” is a popular theme in every conversation.  So, it’s a bit perplexing that more broker-dealers don’t have their own platforms – platforms that do exactly what they want them to do. (Such as obvious stuff like tying online investment interest to a live broker or gathering investment preferences from website visitors.)

Just for kicks, the day after we talked, I went through an old copy of The PIPEs Report and looked at the league tables featuring the most active PIPE agents. Then I toggled between that list and the websites of those agents.  I only saw a couple of banks who are using custom platforms.

This realization got me back on the phone with Tarun where he and I put together something of a checklist which we thought might be useful to bankers looking to make their own “build vs. buy” decision in this area.

In my experience, build vs. buy decisions always boil down to one question: How custom are your requirements?

Ask yourself: Do you want to do things like connect your platform to live brokers, integrate your platform with compliance, or consolidate processes like administration and deal-marketing? If you’re answering “yes” to these questions, then you probably need a custom platform. Keep in mind, custom doesn’t necessarily mean building everything from scratch (as you’ll see in our checklist).

Buying technology off-the-shelf and white-labelling it might seem like a cheap and fast approach but if you have custom requirements (especially those that change over time), there’s a good possibility that the all-in licensing and customization costs will exceed the cost of building (and owning!) the technology outright.

However, if you have clearly-defined requirements and don’t need much customization, white-labelling may just be the right approach for you.

Below, I’ve outlined the key components of an online deal platform so you can give some thought to issues surrounding customization, along with things you should be thinking about as you consider your own build vs. buy decision.

Deal Creation/Ingestion

Deal creation, or what us geeks call “deal ingestion,” is the way in which you collect all the issuer information which will be displayed on a landing page within your platform. Typical information includes things like a company overview, term sheet, team background, and risk disclosures.

Generally, there are two ways to run a deal creation/ingestion process: You can let issuers upload information themselves, or you can have your back-office upload the information for them. There are pros and cons to each approach and generally this decision comes down to how many deals are being marketed on the platform and how much automation is required.

Deal Discovery

Once you’ve got the issuer information uploaded to your platform, investors need a way to “discover” those deals through a search function.  Depending on the number of deals, you can either display them all on the same web page (if you only have a few) or you can organize them based on transaction type, sector, or some other parameters and provide a search tool. Consideration should be given to whether you expect that over time you’ll add a significant number of deals, what regulations those deals will be marketed under, and whether you will need more sophisticated search functionality.

Depending on which regulations your deals are being marketed under, you may need a login system to aid in deal discovery. This allows for different access depending on if an investor is accredited. Once you move from marketing publicly-viewable deals like Rule 506(c) or Reg A (which the public can legally see) to “traditional” private placements conducted under Rule 506(b), you’ll need to address complexity associated with different types of access according to whether your investors have been verified as accredited.

The Investment Process

This is, by far, the most important and therefore the most complex part of an online deal platform. The investment process can be further divided into a list of sub-processes:

  1. Capturing user/investor information
  2. Accreditation criteria
  3. Suitability checks
  4. Payment (investment) modes
  5. Document signing

Wherever possible, you should use third-party vendors offering APIs (application programming interfaces) to pull together your investment process. Think of an API as the glue between different programs, allowing for things like “copy/paste” from your email program into another program like Microsoft Word.

The key thing to keep in mind here is you shouldn’t reinvent the wheel when there are vendors offering these components at a reasonable price (which they are). For example, you can use APIs like Docusign or Hellosign for electronic signatures.

There are some off-the-shelf products which come pre-loaded with these integrations but you might get stuck with high customization costs if you require changes later. For “payments” (i.e. investments), there are APIs that can handle ACH. You can – and should – rely on a third-party service provider to handle the backend for payments.

Service providers are also available to assist with things like accreditation verification. If you take the time to research these areas, you’ll be surprised to see how many open source libraries are available in various programming languages which can be used to automate these sub-processes.

Back Office & Compliance

If keeping a lid on development expense is a concern, the same approach to developing your investment process can be used to build your back office and compliance functions. There are a handful of third-party service providers who can make your life much easier in this regard.

Here’s a list of functions related to back office ops which you can outsource and integrate with your own platform:

  1. Setting up escrow accounts
  2. Organizing subscription agreements
  3. Processes related to “KYC” (Know your customer)
  4. Processes related to “AML” (Anti-money laundering)
  5. Payment (investment) processing
  6. Accreditation verification
  7. Bad actor checks
  8. Suitability checks

Before you choose a vendor to assist you with back office and compliance functions, make sure to conduct due diligence. One of the main things you’ll want to know is if the vendor offers an API and how you’ll integrate with that API.

Whether you’re implementing APIs associated with the investment process or back office ops and compliance, there are multiple ways to connect with APIs. Sometimes it’s as simple as providing deal data to your vendor and copying/pasting programming code on your website. The ubiquitous “Invest Now” button is a good example of this approach.  But, even though this simplifies workflow, you’ll need to keep in mind that all the data would flow through your vendor’s platform and you’ll have little control over the process.

On the opposite end of the spectrum are approaches that allow you to have users provide information directly to your own platform and then you’d sync that information with your vendor through the API. Which approach you take will depend on what’s available to you and how much control and customization you require.

In closing…

Summing up what was surely one of my more technical blogs, you should give careful consideration to the above items. This wasn’t meant to be an exhaustive list, just a starting point to get you thinking about the questions you’ll want to ask vendors – whether those vendors are providing APIs, or providing the programming talent to put together the pieces for you.

In an upcoming blog, I plan to dig into some of the other technology aspects of online deal marketing.  Specifically, those related to marketing communications.  I’ll cover things like setting up your email distribution channel, leveraging email service providers, building and segmenting investor databases, and understanding marketing analytics within the context of online investing.  In the meantime, if you have questions, feel free to reach out to me (

Happy programming,