Recent years have seen the emergence of fractional investment as a game changer, enabling a wider audience to participate in the market for alternative investment assets. Fractionalisation allows investors to purchase a small share of an asset, be it property, stocks, or even collectables, thereby breaking down barriers and democratising the world of investment.However, for investment businesses building a new fractional investment platform is no easy feat, as founders must navigate several structural barriers to create a thriving ecosystem.

After a decade spent managing the regulatory and risk-management elements of launching these platforms, I can promise you (as complex as that appears), it’s the easy bit to get right. It’s the strategic commercial challenges which cause the most pain. Let’s break them down…

The Cold Start Problem.

Without a solid track record or sufficient liquidity, it’s challenging to attract users and establish the credibility necessary to convince retail investors they’re a safe bet.

To overcome this issue, platform builders must focus on creating a faultless and familiar user experience, offering educational resources to increase trust, an approachable corporate image, and exceptional, multi-channel customer support. By fostering a sense of credibility, reliability, and approachability, platforms can build up a reputation that draws in users, ultimately creating the liquidity and sense of momentum which will eventually become self-sustaining.

The Platform Problem.

Both sides of the platform, investors and assets, must be grown at a balanced pace. An imbalance can lead to a lack of investment opportunities or an excess of idle capital. A seeming loss of momentum is a surefire killer of investment platforms.

To counteract this, platforms can employ performance marketing strategies and (within the increasing number of regulatory constraints) preferential pricing, aimed at attracting early adopters on both sides of the platform. Additionally, they can leverage partnerships with established financial institutions or investment networks, which will not only help to maintain equilibrium in growth but further contribute to the platform’s credibility.

The Balance Sheet vs Time Lag Trade-Off.

Scaling from one’s own balance sheet can be capital-intensive and risky, while not being a cash buyer can hinder the platform’s ability to procure the best assets.If you can generate the momentum to stop this from mattering, well… great! Until then, platforms need to take a dual approach of flawless expectation management and appropriate financial engineering.

For the former, just be transparent and realistic, don’t over-promise and (I can’t stress this enough) keep communicating with investors and asset vendors. For the latter, there are a raft of potential solutions but making them work relies, again, on being realistic, and on putting appropriate backstops in place; if timeframes stretch out, any financing solution will either become unmanageably expensive or close out at the most inconvenient time.

Second-Mover Negative Selection.

New entrants almost always see the success of existing incumbents and underestimate both the quiet effort they initially put in to building their presence, and the benefits they enjoyed as early market-entrants. Challengers necessarily have to overcome a lack of track record and liquidity in a market which now has a ‘default choice’. Even with an incrementally better idea, team or offering, attracting quality investors and assets away from an established competitor will be far more difficult than is generally imagined.

New platforms have no choice but to trade on their unique features, competitive pricing, or a niche focus but make sure it’s something that actually matters to consumers. Huge amounts of time, expense and effort have been wasted on communicating irrelevant positioning.