May 17, 2019

AI Can Democratize Private Investment: a CATA Op-Ed by Keren Moynihan & Luke Moynihan at Boss Insights

 AI Can Democratize Private Investment

For most Canadians, investing in private companies hardly ever even hits their radar. One explanation is the dearth of available information on the companies— private companies don’t have to disclose financial performance like public companies do. That means that it’s harder for isolated individuals to make informed investment decisions.

What most people aren’t aware of, though, is that the majority of Canadians are legally barred from investing in private companies, by legislation called National Instrument 106-45 —Prospectus Exemption. The document states that in order to be an “accredited investor”, an individual must earn a yearly income of $200,000, own financial assets worth at least $1 million, or own total assets of at least $5,000,000. Anyone who doesn’t meet one of these thresholds is disallowed from investing in private companies.

Governments make laws like these with the intention of protecting citizens. They have a point.  As companies get smaller, there’s less liquidity, meaning the investor has less ability to buy and sell their position in the company.  Also, the company itself is typically more risky that an established business. The government wants to ensure that an average citizen has the financial education or company-specific information necessary to make an informed investment decision. The law also assumes that those who qualify to be accredited investors have proven an ability to make good financial decisions, and that even if their investment fails, the maintain financial stability.

In practice, the law creates a two-tiered system of financial freedom, where those who meet the financial requirements can profit off early-stage companies, and those who don’t can’t. There is, however, a way to address the government concerns while allowing more people to invest in innovative companies.  

If greater transparency could be achieved in private companies, it would become possible to evaluate and rank the companies and offer this information to the general public.  The other way to control the risk would be to provide the average investor with the ability to invest up to a specific percentage of their disposable income, in order to mitigate the risk, without shutting out the general public.  

There’s demand to invest coming from retail investors: Crowdfunding is a $5 billion industry in Canada, and enabling them to invest directly can only grow the pipeline of funding. One great example of this is Rosalind Lockyer’s micro lending circles in Northern Ontario that led to her winning the ‘Influential Women of Northern Ontario – Public Sector Award’.

By reducing the risk associated with each investment, artificial intelligence and data science can make private investment more accessible to a wider range of investors. Rather than excluding retail investors, implementing new technology to address the valid risk concerns creates a more inclusive environment that will address the flow of funds issue that exists in Canada.

Keren Moynihan is Co-founder and CEO of Boss Insights, an AI company that predicts private company performance in real time. With a diverse background as a commercial banker, wealth manager and founder of a triple bottom line startup, Keren is a regular speaker and mentor and has been featured at Dx3, TechTO, Canadian Women Chamber of Commerce and My EntreLife. She is an advocate for data privacy, creating AI that unites rather than divides society and collaborative approaches to democratizing access to capital.

Luke Moynihan, a software engineer for over 20 years, is Boss Insights’ innovator and technical co-founder. He currently manages a team of software engineers and developers at Boss Insights.

Luke discovered the idea for Boss Insights when he solved shipment issues for Amazon, saving the company millions of dollars. He used the same technical scalability expertise at and DealFind and continues to focus on where the AI and Big Data industry will go next.

Karen Moynihan and Luke Moyniham are both CATA Innovation Advocates.

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