“Bilateral” deal flow
With the exception of public offerings of a few asset classes for mature companies, existing methods to reach deals are bound to bilateral deal flow: repetitive deal attempts take place with each new potential partner. The higher the degree of repetition, the costlier it is to scale up in deal search. This in turn exacerbates uncertainties and severely hinders optimization. As a result, “luck” plays an unnecessarily large role in determining success.
Imbalance in deal access
The marginal cost in scaling up deal search leads companies to accept “ok” deals rather than getting the best ones. Imbalances in these costs across geographies and industries magnify imbalances in resource allocation. Further, direct access to most asset classes has been poor for retail and corporate investors.
Poor access drives up imbalances in power in deal-making. Weaknesses such as inexperience for entrepreneurs, shortage of time for cash-strapped firms, and information asymmetry in general can be exploited. While at deal-making this is part of the “game”, during deal-execution poorly-structured deals can severely undermine value creation.