This Funding Platform that Works like a Stock Exchange Has Appetite for both Tech Startups & SMEs
The platform is not an another stock exchange but the trading do take place. Also, there's no need anymore for a company to file an IPO to raise funds on this trading platform. A company — whether it is technology-driven, or a small-and medium-sized enterprise (SME); and no matter which stage of funding it has raised, or is bootstrapped — needs is a scalable business model driving revenue and customer tractions, and thus needs more funds for growth.
Built on a blockchain technology, the Estonia-headquartered funding and trading platform for private companies, Funderbeam, has adopted a few elements of "stock exchanges' and devised a complete new business model of stock markets and investments — removing the third-party market interpreters, such as brokers. Who would have better devised this business model than Kaidi Ruusalepp, who led Nasdaq Tallinn Stock Exchange for 11 years as the CEO.
Entrepreneur Asia Pacific editor Ritu Marya met Ruusalepp during the two-day event, Techsauce Global Summit, held recently in Thailand. Ruusalepp has opened up about her plans to make Singapore as the next base of Funderbeam to connect to investors, startups and SMEs from the Asian nation. The platform is currently up and running in 10 countries including Estonia, Scandinavia, UK, and in the southern part of Europe.
"Now we are in the final process to obtain a trading license in Singapore... to start serving the Asian market. We may become the first private exchange that serves both Europe and Asia," Ruusalepp said.
Funderbeam was launched in 2013 by Ruusalepp, along with co-founder Urmas Peiker whose contribution to the company is also well-known. In 2015, the co-founders launched a blockchain-driven platform, touted as the first to facilitate equity trading. Just last month, it raised US$4.5 million Series A funding led by UK-based Accelerated Digital Ventures (ADV), with participation from new and existing investors. The co-founders plan to utilise the funds to bridge the gap in venture and SME capital markets in Asia.
The platform currently has a portfolio of 37 European tech startups and SMEs raising funds from more than 10,000 verified investors from across 121 countries. This has seen €250,000 worth of shares trading on the Funderbeam's trading marketplace, according to Ruusalepp.
Appetite for all Tech Startups and SMEs
Funderbeam is currently getting close to 100 applications from tech startups and SMEs every month. Of which, only few are selected after evaluation. Upon selection, a funding campaign is then launched in the platform's blockchain-driven marketplace, while providing investments opportunity for investors. It has lead investors, existing and new investors, betting on the companies equity — and follows a similar structure of raising various rounds of funding.
Companies looking to raise funds provide details such as introduction of their business, problem it is trying to solve, solution it has devised, current market standing of the sector it represents; company's traction, capital, team, competition, and risk.
"Once the investment is made, we collect funds, sign the shareholders agreement; the company then issues notes on company shares; we then issue investment notes to our investors — and the trading starts," Ruusalepp said.
Companies can also choose investors from whom it wants the investments, therefore to retain control of the capitalisation table, such as ownership, equity dilution. For investors, the co-founder says it provides all the information needed to make the investment decision.
It has to mandatorily report on all important developments in their business affairs, such as changes in the management team, along with quarterly and monthly financial results — all of which are recorded on the platform's open and distributer ledger.
Investors, on the other hand, are given full access to the trading history of the company, along with investments they have made, and the value of its investment. While the platform allows investors to invest at any point of time, they can even opt to exit at their convenience. Ruusalepp cited an example, saying;
For instance, say an investor puts €1,000 Euro in a company. In few years, the value of the investment reaches €3,000 — but the investor decides to exit. The platform then takes the order, and when another buyer invests the money is transferred to their trading account.
Investors can also ask questions directly to the company on the platform.
"When an investor is asking a question, every other stakeholder on the platforms would be reading it, along with the response of the company. They all learn from each other," Ruusalepp said.
Moreover, investors can trade in their own time, without requiring an interpreter. Funderbeam's dashboard, or user interface (UI), itself provides every relevant information to make an investment decision.
Ruusalepp said: "It (Funderbeam) is like a stock exchange except there are no brokers in between. When investors are on-boarded on the platform, he/she will have access to all the investments and trading opportunities. It's more like a disintermediated marketplace," Ruusalepp said.
Just recently, an ice cream brand raised €400,000 on Funderbeam. Ruusalepp said the cimpany is a consumer brand and an SME loved very much in Estonia. Similarly, another company which brings horses into the sharing economy has put up a fresh campaign on the platform.
"It's not only the tech companies investors support, but they also want to support some stable SME companies. The new generation of investors really care where they invest; they care if the company has values; can the company create a social impact, an environment-friendly solutions. It is not only about pure financial returns," Ruusalepp said.
According to Ruusalepp, there are companies on the platform who have raised funds for the early-stage, and some companies who are raising a Series C funding. On the contrary, if the platform finds any suspicious element, or if a qualified sources inform on such activities, it immediately suspends trading for a while, until the issue is resolved.
Trading is widely referred to public exchanges, and there are a lot of regulations, and a lot of intermediaries too. Funderbeam on-boards only the private limited companies, with potential for growth, and are making an impact in their respective sectors.
The co-founders had to face many legal hurdles while setting up Funderbeam; dealing with investors' investing habits was another.
"We had to be tactful of legal aspects because investing in shares or equity is quite difficult," Ruusalepp said. "We had to introduce a summary plan description (SPD) structures, which is like an investment vehicle... investors hold shares in companies, which is considered as a security," she added.
When Ruusalepp joined Nasdaq stock exchange, her work largely included dealing with security investments and trading. She recalls those times as Estonia witnessing a boom in the use of technology in trading, with new access to the capital, and a massive growth of private capital.
"There I understood that trading is like a DJ in the room, the one playing a good sound and rocking the stage," Ruusalepp said.
Speaking on the emerging investments trends on its platform, Ruusalepp said, "What we see in the marketplace is that investors come with the investment opportunities, and this is where we have the main revenue source, but trading is the reason why they invest through our platform, as they know they can exit anytime they want."