It’s taken five years and overcoming plenty of roadblocks to get to this point but Nivaura is beginning to disrupt capital markets with a unique blend of services developed to address a sector of finance bogged down by complex processes, fragmented infrastructure and heavy regulation.
Cofounder Dr. Vic Arulchandran said Nivaura grew out of the founders’ own difficulties transferring transaction data between different systems and participants, in particular with the issuance of debt instruments in primary markets.
“In debt capital markets, debt is issued every single day by companies all over the world. There are thousands of debt issuances a year,” Dr. Arulchandran said.
Much of the related work needed to issue that debt is done manually, he explained. Data sent in emails might need to be entered into spreadsheets, for example. Transacting parties with their own unique systems struggle to connect the silos.
“Why can’t we create a startup concentrating on the automation of the issuance of debt securities,” Nivaura’s partners asked themselves.
While the team has indeed created such a system, their road to get there has been a tough one, and suggests why someone hasn’t done it before. Nivaura’s founding team participated in multiple accelerators and painstakingly worked on different aspects of the debt securities issuance system, developing many proofs of concept along the way. They bootstrapped and persisted, even when banks said they would indeed use such a system but said Nivaura was nonetheless crazy for trying to build it.
“We knew there would be a demand for this and we knew we could build it,” Dr. Arulchandran said. “That’s what really kept us going.”
Over time they began to hone in on a core product which would automate the various steps of the debt issuance process. They participated in the Financial Conduct Authority’s first regulatory sandbox, where they worked on the world’s first completely compliant bond that could be tokenized on a public Bitcoin blockchain.
“There’s been a lot of buzz around blockchain over the past few years but the real core of our product is the way we create the instruments,” Dr. Arulchandran said. “Instruments are created off the blockchain then data is pushed into existing infrastructure or the blockchain.”
Progress was coming, but so were additional challenges. Nivaura was approved to issue a bond but needed a bank to serve as the custodian. They all said no, so Nivaura became the custodian and soon after raised $20 million from a group including the London Stock Exchange, Linklaters, Santander InnoVentures, and law firm Allen & Overy. Linklaters’ and Allen & Overy’s participation was significant because in combination they own the legal documentation for most of the debt capital markets activity around the world.
Those funds allowed Nivaura to build out their team and refine the core product, which would automate the creation of debt instruments and foster seamless data flow. Key in the process if they were to automate instrument creation was the incorporation of seamless data flow.
“We would need to eradicate the manual key entry of data,” Dr. Arulchandran said.
The team began creating digital documents to be used in transactions, but which system would they use? Popular document creation systems suffered from little automation and no uniformity.
“The only real way for these documents to be digitized effectively is for lawyers to do the work themselves. But we shouldn’t expect lawyers to need to learn how to code,” Dr. Arulchandran said.
Nivaura’s solution was to create a new coding language. General Purpose Legal Markup includes a taxonomy of tags and a taxonomy of logic lawyers can implement themselves which can produce machine readable documents. Think of it as a set of digital, low-code building blocks lawyers can use to create what they need, with any liabilities managed by the firms creating the data.
“That’s the real crux of what we developed,” Dr. Arulchandran said. “We developed a dynamic platform which can dynamically create transaction workflows based on the legal documentation used to underpin the instruments eventually created.”
Blockchain technology will eventually have a role to play in capital markets technology, but not quite yet, Dr. Arulchandran suggested.
“The main reason blockchain has little traction in capital markets is there is low-hanging fruit and issues blockchain doesn’t solve. We have to solve the issue of primary issuance for example and streamline it so once it’s created what can do it with blockchain.
“The clearing and settlement then comes quicker and easier. The data goes straight into an infrastructure that isn’t owned by anybody, maybe, or owned by a consortium. Everybody can access it, there’s some transparency there.”
Down the road, Dr. Arulchandran envisions the full automation of the issuance of debt securities.
“Ultimately those data companies get the data from the legal documents or by buying the data from the market infrastructure of the banks,” he explained. “There’s a huge opportunity there for us once we’ve cracked this nut. There’s this massive opportunity in the secondary markets with data and automated administration of instruments like automated payments.”