Interviewed By Emmanuel Daniel
Romesh Jayawickrama, the founder of Aurigin, formerly known as BankerBay, shares how the platform manages to connect deals and capital investors globally. He also talks about his role as a deal maker as well as the company’s business model, how it started and how it plans to grow through partnerships.
Aurigin is a deal origination platform that reinvents investment banking. It operates on a global system with deal flow and clients around the world. The platform facilitates and supports information flow and maximises opportunities for deals to close. With most companies having limited human bandwidth, Romesh Jayawickrama, Aurigin’s founder, discusses how the platform steps in to help handle the scalable sides of businesses.
Emmanuel Daniel (ED): I am speaking here today with Romesh Jayawickrama, the founder of Aurigin. How big is Aurigin now? What's the database size? How many deals have you done?
Romesh Jayawickrama (RJ): Just to give you a little bit of perspective, we're a deal origination platform that connects qualified corporate seekers of capital with institutional providers of capital around the world, wherever they may be. We're like a sophisticated matchmaking service for mid-market companies around the world looking for capital. And we match them with institutional providers of capital: private equity companies, buyout funds, strategic investors and inquirers.
In the context of that, we operate on a completely global system, so we have deal flow and clients in 145 countries around the world. We cover all the sectors, all the major 24 industrial sectors, over 200 subsectors and over 200 more value chains within those subsectors, so we are very much sector agnostic. To give you a little bit of perspective of how large we've become over the years, if you were to plug in to Aurigin today, you would have access to over 6,200 live mid-market deals, investible deals around the world. That’s about $250 billion of investment opportunities.
ED: What does Aurigin do that a traditional investment banker making his rounds around his own regions, whether it's industry or a geography region, does not do? What are you able to capture?
RJ: It's about efficiency and scalability. I come from a traditional investment banking background and what we used to do as senior investment banker, we would do all the various tasks of deal origination and all the data mining through relationship building and eventually passing it to the execution team. What we do is we allow technology to handle as much of the heavy lifting as possible. We leave the high-cost human capital element of the process to humans and do all the rest ourselves. We have a network of over 32,000 institutional members around the world, so our ability is to source a deal in a specific region, sector or subsector and distribute that deal and give it exposure to all the relevant institutional capitals around the world is significantly better than any individual banker or bank.
ED: Are you an originator or a dealmaker? Where in the deal flow do you play?
RJ: A little bit of everything, but primarily we're an originator. The two sides of the business, we're originating deals and curating those deals to make sure they're of institutional quality. Every single deal that comes to our platform, we vet on the merits of that deal to make sure that it is of institutional quality or not. That's a very valuable function.
ED: You said 32,000 members, (are they from the) buy side or sell side institutions?
RJ: Both. Roughly speaking, we keep a 2:1 ratio of sell side to buy side, just because that really works on an optimal basis of matching deals. Because the buy side wants continuous deal flow, and the sell side sometimes is a single seller or sometimes they're advisers and market investment banks who continuously want help with the deals they already have to distribute them around the world.
ED: Also, the 32,000 (members), are they trying you out or are they full-paying members?
RJ: It's a combination of everything, really, and it's been an uphill struggle. The first couple of years were very difficult trying to convince the very archaic, traditional and conservative business that things are changing, and we need to change with that and to trust technology. But, essentially, these are all active members, and we get around 500 to 1,000 new members joining the platform every month.
ED: How much of the work is back office or how much of the back office is manual? How much of the curating process as you say requires manual intervention to make sure that the quality is there, the matching is proper and all that?
RJ: Roughly, we keep about a 20:80 or 80:20 ratio. Eighty percent of all of our activities need to be handled by technology, and that's sort of the golden rule. If it involves more than that, rather, if the human element involves more than 20%, then we have to re-tweak how our process and protocol work. But we like to keep an 80/20 split and similarly that 80% is continuously moving up the value chain, leaving the 20% of human capital deployed in a manner that also moves up the value chain.
For example, in the curation process two, three years ago, elements of that were primarily handled by our team of analysts, and now 100% are handled by our technology. But we still use them because they're also moving up that value chain in terms of their involvement in the process.
ED: Where do you make your money from? Is it in the list that you create? Or is it in curating? Or is it in completing the deal?
RJ: Currently, we are a Statistical Analysis System (SAS) model, so it's based on subscriptions only. Like a Bloomberg screen or a Thomson Reuters’ or one of these data packages that the industry is very used to and data sources where you charge on a monthly basis and you have an annual subscription. That's the model we use. Now we've gotten to a stage where we have that large, that quite literally hundreds of deals are closing every year. And we're moving to a model where we can start charging success fees, so that's the direction that we're taking.
ED: What percentage of your members depend more on you now than they did before?
RJ: I would say all of our members depend more on us now than they did before. Whether they depend on us more than they depend on their traditional process is another thing, and that varies a lot depending on where they are, the size of the companies. Generally, we found that most companies have limited human bandwidth. As soon as they start trusting that we can handle a lot of the scalable sides of the business that would normally take a person hundreds of hours to complete, once that trust is built through credibility, process, understanding us, understanding what we do and seeing the results, then the reliance tends to increase and increase. But, as I mentioned, this is a 200-year-old industry that hasn’t change one iota until fairly recently, so it's not going to change overnight.
ED: In that 200-year-old industry, there will be players who will look at your model and say, "No, no. You're only as good as your relationships. You're only as good as your ability to match properly", or something like that, like, "A dirty list doesn't count". What are the criticisms against this model from the traditionalists?
RJ: In the first two years, the biggest pushback that we got, the biggest defense was, "This is a people business. It's about relationships. It's about who you know”, which was correct. Fundamentally, that's the way the industry had worked for several centuries. But that created a significant amount of opaqueness, and because it was reliant on human capital since 2008, so much of that human capital has left the industry. That's left a significant gap in the industry that hasn't been replaced by other human capital, so definitely needs to be replaced by something. That’s where we really step in and replace a lot of that gap to create a bridge.
ED: There was an intermission phase where the huge institutional players were replaced by the boutique houses. Of your 32,000 members, how many of those are boutique houses, one-man show that would otherwise not be able to scale and a platform like yours makes a difference?
RJ: I would say there's a very small percentage of one-man, two-man type shows. But small boutiques where there are three or four bankers, like you say, who have left some Wall Street banks, fragmented away, and decided that they have the relationships, they can do what they were doing before. Compensation has changed over the years, and 46% of our client base can be classified as advisory groups all the way up to the mid-market investment banks. Within that, there's quite a large diversification of size of the company. But, generally speaking, most of our clients are actually quite senior investment bankers. If they're still in the industry and work for a boutique, they have split away and they work with a few of their previous partners, they actually need us the most. Because if there are only four people in their department, instead of 500, as many of these guys work for, and I certainly did as well, that means that their capacity's highly limited, so they have to make sure they are highly focused about where they use their time. And we do a lot of the rest. So it's quite varied. As long as you participate in the mid-market deal making space, whether you're on the sell side or the buy side, we are relevant to you.
ED: When you take the list on both sides, matching them is one part of it. The other part would be that the final linkage, the final closing of the deal is dependent on a number of factors: liquidity, deal type, maybe stuff like that. Do you curate that end of it in order to make sure that you've got a successful deal?
RJ: Currently, at least, we don't go all the way to that sort of marriage at the end because for mergers and acquisitions (M&A) and private equity, it's often a nine-month process. On average, in fact, if a deal closes, it takes about nine months to do, six months if you're lucky, 12 months if it takes a little bit longer, with the vast majority of these types of deals actually failing in the traditional world as well as the digital world. So what we do is we try and facilitate and support that information flow and that process as much as possible and maximise the opportunities for any deal to close.
If I give you an example that if there's a small company in Mexico that's looking for $20 million of growth capital, traditionally, that company would perhaps be exposed to maybe a maximum of two or three funds if they're lucky and they know the right people to go to and the right bankers who might be able to help them. Now, our vision, and we're increasingly achieving that, is such that that Mexican company is introduced to every institutional fund in the world and strategically, could have interest in that deal. So, that by itself, optimises the ability and the propensity for that deal to close. Now if it doesn't close because of the fundamentals of that particular company, that's fine. But what we don't want to happen is, or to propagate any further, is for a deal not closing because the individuals behind the deal just don't know the right people.
ED: There was a time when there was a publication that sounded like what you do, IFR, International Financing Review, and they would go to print every Friday with all the deal sides and all the different types of deals. It was a telephone directory sort of a publication. What's different today is that you put that online, what used to exist as a sort of a nice-to-know list. Is it time sensitive, what you do?
RJ: We're not a listing site. The way we don't work is by you coming to the site and putting a couple of keywords in or using some kind of filter, sorting our deal flow or our buy sides and outputting a huge list of funds or deals that may be vaguely relevant according to one or two of those parameters. There are plenty of other people or companies that have platforms that have that approach.
Our approach is highly, highly specific. We actually algorithmically match the characteristics of every deal with the investment characteristics of thousands of funds and thousands of institutional investors, including corporate strategic investors around the world. We algorithmically match those characteristics together, outputting a scorecard between 0% and 100% in terms of correlation match. An 85% and above correlation match is considered a high correlation match, and those are the ones that move forward. That happens once a deal and the members are all approved on the platform. Once that happens, it really happens in milliseconds, so millions of permutations are output in milliseconds and you get your matching results. It's sort of a big laundry list of potential suitors.
ED: Tell us a story of one deal where this electronic matching worked beautifully that may not have been able to be replicated in a manual environment.
RJ: I'll give you the example of a company that's quite relevant to Singapore, Veolia, the waste management company. You see the wagons and the various depots all around the city of Singapore and all around the world. Massive company, $25 billion of revenue, if not more. It's a Fortune 500 company. We were working with their M&A department to help them find M&A opportunities in the mid-market around the world. They were initially a little bit reluctant, as most people were. Eventually, they trusted us enough to give us a shot. Within five days, we gave them three matches with companies, one in Latin America, one in Europe, and one, I believe, possibly in Asia if not elsewhere. And they ended up buying one of those companies, the one in Europe, which they didn't know about the company. The seller didn't know that Veolia was a potential buyer. We put them together, and within four or five months, that company was bought. And that was within five days of using us.
ED: The mandates that you get, how many of them are unique to yourselves? Or is it an open mandate?
RJ: It's generally an open mandate. We don't feel we've gotten to the stage where we need to necessarily shut down other processes. This is something that we initially said, "You carry on your traditional path, and we'll enhance that by expanding your distribution if that's relevant, or helping you with further deal origination". We don't demand that anyone stops using any other source. We just want to prove that we are better than traditional means and otherwise.
ED: Who owns Aurigin?
RJ: I'm the founder, so I still have the largest stake in the company, and there's a fairly significant list of ex-bankers and professionals within the industry.
A look at the platform’s funding story
ED: Where are you in the funding phase, the funding story?
RJ: We are a young company, so we are always in the path of funding. We're part of the cycle, so either the start, the middle or the end. We're considering the next stage of funding. We feel that a strategic investor is probably the best fit for what we're trying to achieve. So we are starting to consider what type of strategic investors could be the right ones for us. And we get quite a lot of inbound requests now, too, to ask specifically, “Would we consider a strategic investor?” The world's quite big. We have to be careful about who we work with because these will be partners.
ED: (Give us) an idea of the kind of parties you're talking to. Are they sovereign funds? Are they funds? Are they private equity?
RJ: It's a mix, actually, including agencies within the impact space, which we can talk about. But everything from these large agencies who are working in impact investment – and they're having huge amounts of difficulty trying to source enough deals for impact investing – all the way through to mid-market investment banks, who now realise they really can't expand without using technology. They need to have a platform and we are the biggest guys around. I believe we have the best credibility in the market, and they're starting to come to us to say, "Would you consider some kind of partnership?”
ED: Impact investment is an area where it's a little opaque. There's not enough deal flow or even matching ability on a global basis. Is that why you play in the impact investment space?
RJ: Without wishing to be too cliché, the entire industry of deal making has been very, very opaque, and we would like to shine some light in that and create some transparency and visibility in the entire industry. That applies to investment banking, whether it's large-scale or the mid-market, small-cap stuff, and impact investing, as well. But the difficulty is not just opaqueness. A lot of impact investment by nature is trying to help communities, whether they're large communities or big communities, and often they're quite isolated.
We are a completely global platform. We got a very, very large network that we use to source information and source deals. So our ability to extract good quality impact deals from parts of Africa, from parts of Asia, even Europe and Western Europe, plenty of impact-type deals there, is much greater.
ED: Have you actually closed an impact investment deal?
RJ: We just started on this effort. We, in fact, just launched the most basic first version of our vertical, which uses the United Nations 17 Sustainable Development Goals (SDGs) to really profile every company that comes our way. We actually already have over 900 impact deals on the platform that constitute one or more of the UN 17 SDGs. But it's in the early stages, literally within the first couple of months.
ED: What's the entry barrier to a business like this, and where does it play in the evolution of investment banking? Given that investment bankers have, for a very long time, imagined that they're quite cloistered. They don't have to worry too much about technology and stuff. Where do you play now and what is the holy grail? What is the end that someone who's building this would like to finally achieve? Then you can say that the industry's actually made that whole transition.
RJ: All of these is a process. But if I look at the holy grail of this, investment banking overall has gotten away with creating opaqueness everywhere. By making sure that you keep your relationships close, you don't share anything and you trade them from one company to one bank to another bank, and creating a massive asymmetry in information based on your ability to hold these relationships tight. Now, in this day and age, that's not really acceptable anymore. Maybe it's never been acceptable, but investment banking has gotten away with it for a very long time.
I feel it's our job to really recreate a balance and to create symmetry in terms of information flow, such that deals and businesses move forward on the basis of information and informed decisions based on that data, as opposed to the business model of opaqueness. That's really what were challenging overall. The holy grail to this is that we want to grow into various different areas of investment banking, using a truly digital, efficient, accurate and scalable model driven by technology. That's not to say we're trying to replace thousands of bankers. That's not at all what we're doing. We're just trying to use human capital intelligently, particularly the high-cost human capital needs to be used for high value tasks and nothing else.
ED: The information brokers, like Bloomberg and Reuters, they've come a long way. They're less commercial papers. This is almost like a very easy entry to yet another so-called asset class or an asset type that they could easily build a list. Now, what is it that you've done that Bloomberg and Reuters couldn't have done?
RJ: Maybe they all could have done what we've done in some way and in some manner. Bloomberg, in fact, were trying to launch a private equity platform within their greater sort of machinery and infrastructure, and I think they did launch it but it didn’t' really catch on. The problem with these massive companies is that it takes a lot of dedication to do something small well and make it a lot bigger and a lot more successful. They're already so large that it's very difficult for people who have a passion, with that large infrastructure, to get the backing they need to really drive something forward. So there're some legacy issues involved in that. Bloomberg's a massive organisation. They're doing exceptionally well. I've read the book “Bloomberg by Bloomberg”. Michael Bloomberg's story is really quite incredible, and I draw a lot of inspiration from that. But within this context, what we're doing is highly dedicated to one very narrow area of banking, and they're already so wide that it's very difficult to get the attention within the organisation that they need. Having said that, we didn't want to talk to Bloomberg ventures, since we don't want to give them too many ideas before we got to a state when we're actually pretty large ourselves.
ED: Is it in the quality of the listing itself or is it the curating that takes place, the algorithm after that?
RJ: It's both, I would say. But being a traditional ex-banker, you're as good as your last deal. If we're a deal platform, the only way we garner credibility is by making sure that we have a sustainable, high-quality deal flow. We put a huge amount of effort into making sure that is something that we can sustain and is increasingly getting better. We're not complacent about the need to continuously improve the protocol to make sure that's a very robust outcome. That's on one side in terms of the quality. And then, in terms of the matching, most funds don't want to get more deal flow. What they want is to know that the deal flow from this source is a) high quality and b) very, very relevant for their particular fund or that particular fund manager who runs a particular fund. It's a combination of both. But it really starts with quality for us.
ED: Where are you taking this now? Are you past the proof-of-concept phase?
RJ: We're definitely past the proof of concept. In fact, over the last few weeks, I'm getting a lot of inbound requests for interviews because they're recognising deal origination platforms as actually being a sector, which for me, is fantastic because there are just a few companies trying to do a lot of work and push water uphill in this space. Now we're being recognised as an industrial sector or subsector, which is a huge thing to be recognised as. That, by itself, gives a lot of validation about what we're doing, how we're doing it and why we're doing it.
ED: What needs to happen on the investor front for you?
RJ: Thus far, we haven't taken any truly institutional money. We haven't taken any venture capital (VC) money at all. It's been a little bit of self-funding at the start, but then we brought in a number of seed investors over several small rounds. We were very cautious about who we allowed to be part of our community. It's very difficult to get rid of investors if you've picked the wrong people. If you hire someone who's a bad fit, as unpleasant as it is, you can’t fire them. We are shareholders. It's a very different thing. We’re very careful about making sure that people who are investing in the platform a) truly understand what we're doing, but b) don’t just bring finances to the platform. It's not about just bringing money. It's about what else can you bring? Because at some stage, I'm going to knock on your door and I'm going to need your expertise, which is why we've been very careful each step of the way. We've made sure that we get the right set of expertise for the next chapter of our growth.
So again, that's where we are now. We feel that the next chapter of our growth – because we got to the stage where we are the largest deal platform in the world, that being we weren't the first to market at all and there being similar types of deal platforms around, some of them launched five, six years ahead of us – we want to be recognised as the best, the highest quality and the biggest. Now we've achieved all of those. Now we really need to grow through partnership and we need more help with that. We're being very specific about the type of investor and strategic investor that we wish to work with.
ED: How many (deals) have you closed, or the value of the deals that sit on the platform, the value of the deals closed?
RJ: We get about anywhere between 500 and 700 new deals submitted to the platform every month. About 70% of them end up being approved, which is a very stable 70% month to month. It's stabilised for the last year and a half at about that level. That's about $30 billion of new deal flow every single month. As I’ve mentioned, if you were to plug in to Aurigin right now, there would be over 6,00 live deals, over $250 billion of live investable deals ready for investment and curated already. All the documentations are available. Generally, we track the number of deals that close. Over the last few years, we know that about 9.4% of our approved deals end up closing, which is a relatively strong number.
ED: Romesh Jayawickrama, thank you very much for coming here and for describing to us this new platform that seems to be revolutionising investment banking. Would you call it digital investment banking or something like that?
RJ: It's on the road to digital investment banking.
ED: Thank you.
RJ: Thank you.
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