High-speed transactions that leveraged large amounts of information were vital to banks and financial institutions supporting the real estate bubble that preceded the 2008 crisis. Today, banks are still viewed with suspicion and, at the same time, themselves lack visibility to the quality of debt that they have issued. Trust is hard to come by from all quarters.
The solution, oftentimes (if not always), harnesses the same energies that created the problem: Namely, the explosion of information and transaction speed in finance suggests that new institutions, capable of processing this information in a manner that garners greater trust, are not only necessary, but possible.
This Business Insider article details some of the changes in finance that could be harbingers of more dramatic changes in the years ahead. One tidbit (in the context of start-ups):
Crowdfunding startups has long been a dream deferred. But it’s finally happening. Direct crowdfunding via equity financing is still a big no-no, because SEC rules make it difficult for non-accredited investors to invest in startups. But exciting things are going on.
One of the most exciting such examples is AngelList, a “Match.com for investors and startups” that lets startups vie for capital from angels and (increasingly) VC firms. AngelList has seen torrid growth on the back of rising early-stage valuations in Silicon Valley. And it has also been expanding horizontally and geographically.
There are non-tech companies listed on AngelList, along with companies from around the world. AngelList is not technically crowdfunding–it just makes it easier for startups to get accredited investors’ attention and get funding–but it is certainly an early step in that direction.
Start-ups, by their improvisational nature and limited funding options, are likely to continue to be innovators in this space. But look for changes in finance to be an instrumental part of our economic recovery across multiple sectors. I am not promising that this will happen soon but I am promising that major structural changes, such as the ones described in the Business Insider article, will be necessary for economic recovery in a global informational environment that has dramatically changed in the past decade.