Coming off a weekend of geo-political chaos with the Russian and Ukrainian tragedy, it was easy enough to miss the not-so-extraordinary, run-of-the-mill financial news that got turned-out on Monday. Nonetheless, one of the more interesting news stories came from a CNBC article which shed light on a new, stealth, fintech division of JPMorgan. Apparently, JPMorgan has been building this division in response to what it perceives to be, and I think correctly, the continuing growth opportunity in the private markets. In particular, the opportunity to connect private funding sources with pre-IPO startups – albeit through some form of digital, automated investment banking platform.
The thinking behind the move, per the reporting, is logical enough. The pandemic catalyzed the evolution of business automation and digitalization, and this, in turn, has driven private capital to the explosion of startups which have been building and innovating on the cutting-edge of this global transformation. The evidence of this is manifest in the extraordinary amount of money being raised in the venture capital community, which I discussed a few weeks back in a blog post here, and the sheer number of “unicorns” that exist at the beginning of 2022 – deemed to be over 1,000 by Brian Lee at CB Insights.
The new ”fintech” division…
The new division doesn’t have a formal name yet, but the CNBC report says that it’s known internally at JPMorgan as “Project Bloom”. As it pertains to how this new platform will work, or the application of which technologies will be used, there’s little information. But in terms of the specific goals of the new division, the article says that Project Bloom will be “a digital network for JPMorgan clients that will match start-ups with investors, helping them in fundraising rounds…Other planned-for services include helping companies sell shares in tender offers or providing loans on private stakes, offering a digital interface for secondary trading of private company stock, and helping venture capital firms raise new funds.”
Ostensibly, JPMorgan’s Project Bloom is seeking to automate a marketplace for JPMorgan clients to invest in private startups. Client profiles appear to include family offices, venture capital firms, hedge funds, and institutional investors. Why Project Bloom is characterized as a “fintech” concern is unclear, other than its ties to JPMorgan. But what is perfectly clear is that JPMorgan intends to use the new platform for investment banking fee generation, to enhance traditional investment banking capital raising and private placement activity.
The functionality of Project Bloom that purportedly aims to automate the trading and exchange of privately held, pre-IPO shares suggests Project Bloom is a strategic move to fend-off existing online brokerage platforms which have garnered a lot of attention recently, especially in the past two pandemic years. Perhaps the most notable firms in this cohort are EquityZen and Forge Global, both designed to create liquidity for privately held companies and their employees by managing a secondary market for exchanging privately held shares with institutional investors looking for exposure to the same.
In truth, Project Bloom seems to be the natural evolution of JPMorgan’s Private Markets Trading Desk which it stood-up in September of 2020 for the same reasons, but with the addition of capital raising services, and a change in form factor to a digital interface and automated user experience.
Investment banking take…
JPMorgan’s Project Bloom isn’t entirely new, nor innovative. As I referenced above, there are existing platforms that provide digital access to secondary-market trading of privately held shares. Jamie Dimon is simply bringing scale to the offering, in an effort to stamp-out the competition.
And Dimon’s effort to do so is 100% consistent with the very aggressive posture he’s taken toward JPMorgan’s need to accelerate its digital transformation, and its need to defend itself from the ever-increasing encroachment of fintechs seeking to pick-off more and more banking roles with newer technology and better customer experiences. It wasn’t too long ago, January in fact, when Dimon surprised analysts with the announcement that the bank would be dedicating a massive $12B to technology spend for 2022.
Whether or not Project Bloom maturates into a viable digital platform to supplant traditional investment banking services geared to raising capital for private companies remains to be seen. It makes sense conceptually, but it’s unclear how much the investment banking process can be automated.
For private funds, especially venture capital firms, Project Bloom may create a barrier to accessing new and exciting opportunities, unless, of course, they first become JPMorgan banking clients.
But the success of Project Bloom won’t hinge on venture capital participation, at least not directly.
There’s a maxim in investment banking that stipulates he/she/it who controls the deal flow controls the market.
As such, in so far as JPMorgan, through its new digital investment banking platform, can attract and control investable opportunities, at least from JPMorgan’s and the startup’s perspectives, getting a robust marketplace of institutional investors won’t be a problem.