Cutting through illiquidity

A zanbato is a very big curved sword. Legend says it was designed to cut down a horse and its rider and that it had to be held by two people. 

That sort of cutting power is exactly what Silicon Valley technology startup Zanbato needs if it hopes to realise its dream of disrupting infrastructure’s famous illiquidity with its online trading platform. 

For infrastructure practitioners of a certain generation on a first-name basis with the likes of Facebook and LinkedIn, the Zanbato model seems like such an obvious solution you have to wonder why no one thought of it before. 

Zanbato’s platform allows members to register for free, create a profile for their projects with all the relevant information (much like you would do on Facebook or LinkedIn), and start trading. The platform provides investors access to greenfield or brownfield deals, allows members to raise capital, syndicate it, or exit assets, among other things. 

In addition, sellers can get granular about who is allowed access to their project information and the system includes amnesties like a data room, where the relevant documentation can be posted ahead of due diligence. 

Zanbato’s proprietary algorithms cannily match buyers to sellers based on criteria like stated preferences or the similarity of a given project to an investor’s prior commitments. For a notoriously illiquid asset class, the idea of a fully functioning online marketplace intelligently connecting interested parties across the globe sounds very appealing. 

The scale of the opportunity is not to be underestimated. Zanbato co-chairman Ryan Orr believes “infrastructure finance is perhaps the largest private investment market in the world”. Bob Muh, chief executive of Sutter Securities, which will operate Zanbato, points out that “infrastructure finance is one of the few remaining asset classes that have not yet fully embraced modern internet technology”. 

Numbers ahead of the platform’s April 24 public debut are encouraging. After 18 months in private beta testing, Zanbato has accumulated 600 members – 400 of which are investment funds, developers and operators – and identified more than $24 billion in investment opportunities. 

Now comes the hard part, though: to help cut down infrastructure’s illiquidity, Zanbato will have to cut through the asset class’ atavistic ways. 

To put it politely, infrastructure is not the exactly at the forefront of disruptive new technologies. A recent report by consultancy McKinsey estimated that various inefficiencies were inflating the price of global infrastructure by 40 percent, or $1 trillion a year. The construction sector itself has posted no productivity gains for the past 20 years, for example. 

It is this slow-moving industry Zanbato hopes to disrupt with its technology. And it has to survive long enough to do it. 

So far, the platform has successfully raised funds from the industry, including some $3 million from investors like Canada’s Alberta Investment Management Corporation, to get going. But its future business model relies on fees charged on closed deals, so it will need volume to sustain itself. 

To become self-sustaining, it will have to overcome all the ingrained prejudices of traditional deal making; convince people to share sensitive data online; and show them that Zanbato is, if not better than other intermediaries, at least a useful, cost-effective complement to them. 

These are not small barriers to entry; but they certainly correlate with the size of the prize.