Pisces: FCA’s private stock market will worsen FOMO investing
The FCA’s new private stock market Pisces comes into force today, but Carrie Osmon warns the framework risks fanning the flames of FOMO investing
Today, the regulations governing the Private Intermittent Securities and Capital Exchange System – or Pisces to use its snappier title – come into force. The idea is that in the future there will be regulated markets that allow companies to unlock liquidity without having to go through the process of an IPO. So far so good. But while the initiative seems great on the surface, there’s a real risk of these markets exacerbating a trend for FOMO (fear of missing out) investing that has been escalating over recent years.
As humans, we’re all guilty of acting on FOMO one way or another and investors are no exception. Wework famously became a unicorn only three years into operations, with its valuation mounting to a $47bn peak in 2019. Just four years later, the business filed for bankruptcy. Arguably, with company losses climbing into the billions prior to its Series H funding round, the writing should have been firmly on the wall – yet that didn’t stop the money flowing in from the likes of Softbank and Saudi Arabia’s sovereign wealth fund.
More recently, generative AI has seen business leaders and investors alike racing to keep up with competitors to take advantage of the latest, flashiest technology. The recent Builder.ai disaster is a prime example of the risks of such.
With investment from Microsoft and Qatar’s sovereign wealth fund among others, Builder.ai quickly became a unicorn. Yet less than a decade since its inception, the UK business has now appointed administrators amid reports that its sales figures were grossly inflated and its technology misrepresented, with much of its touted AI-powered functionality secretly being enabled by an army of human workers.
FOMO investment decisions carry a real risk of leading to huge losses and are largely made when investors lack the time or expertise to carry out the right level of product and business due diligence.
Why Pisces could be risky
That brings us back to Pisces. Via Pisces markets, shareholders will be able to sell shares without a business being required to submit the same level of detailed information that would be expected if they were to IPO. Shares will then be auctioned off to qualified investors over a pre-designated period of time – so whoever bids highest, wins.
Anyone who’s ever got into an Ebay auction standoff will understand the risk here. Add a lack of scrutiny to a time pressured deal, throw in a boat load of tech hype, and the results are potentially disastrous.
In terms of company valuation, the risk is two-fold: either it could be unjustly inflated, leading to potential investor losses down the line, or it could be undervalued – great news for the investor, but not so much for the current business owner. Determining value and price is not easy and requires in-depth sector specialism. It’s unrealistic to expect this level of expertise from companies and employees without significant investment experience.
The impact doesn’t stop there. Inflated valuations threaten to influence further deals across the industry. As investors increasingly jump on the trend bandwagon – a bandwagon made greater by company shares priced above their true value – sectors are pushed further into bubble territory.
So, what’s the answer? The Pisces framework certainly doesn’t have to be scrapped. But in the current, stagnant UK economy, we need braver solutions to drive liquidity and stimulate growth that go beyond limited pools. Now is the time for radical thinking to effect real change.
Carrie Osman is founder and CEO of Cruxy