The newly- crowned best fintech company in Europe, Funderbeam, is setting its sights on Asia.
The newly-crowned best fintech company in Europe is setting its sights on Asia while aiming to change how investment in startups works on a global scale.
Back in 2013, co-founders Kaidi Ruusalepp, Villu Arak and Urmas Peiker started flirting with the idea of developing a trading game, intended for young adults who could make all the investment mistakes on a virtual stock market. Instead of getting burned on the main markets. They decided to name their company Funderbeam.
During this period Ms Ruusalepp, who had previously served as the CEO of Nasdaq OMX Tallinn, and Mr Peiker, the former Head of Compliance at LHV Bank, also started witnessing how small and medium size enterprises in Europe were struggling to fund their growth and how their access to capital was limited, particularly crossborder.
“Urmas suggested: ‘What if instead of a game, we create something real?’ None of us had any previous experience being a startup founder, but we thought that if we create something innovative, then hopefully the startups would follow and be the first ones to adopt it. And why can’t we analyse startups, create indices and build a community around it?”
After initial research, it became evident for the whole team that there would be no game – the goal now would be to create a truly cross-border startup stock exchange, comprising of three pillars: allowing investors to research, invest in, and trade growth investments.
“In today’s primary market, IPOs are aimed at exiting private investments, not at investing in growth. The Private Equity and venture capital industry is more powerful than ever — they can spend billions on funding growth companies. The problem is, micro investors don’t have access to those nicely growing private deals. Besides this, angels are getting more and more influential, as they are becoming stronger both in numbers, experience and individual capital. This means that the professional angels have a bigger and bigger say, but their money is stuck for years waiting for the company to be sold or go public,” says Ms Ruusalepp.
She says that there’s too much focus put on IPOs and inflated valuations, and not enough focus on making companies that are growing and becoming steadily more valuable.
“If you can sell your part of a company based on performance, you have the incentive to find companies aimed at sustainable growth, and maybe get early access to the next generation of high growth startups,” Ms Ruusalepp adds.
Having the long-term strategy locked down, the team started executing and were able to launch Funderbeam Data, a global data-intelligence subscription service on startups and investors, in 2013.
With the first pillar in place, Funderbeam started looking around for likeminded investors to help fund their overarching vision for building the baby of Bloomberg (data), Angellist (funding) and Nasdaq (trading), utilising next-gen technology, only to be met with disbelief and suggestions to focus on a single aspect of their plan.
Despite some initial hurdles that all startups face, the team used seed
investment from Jaan Tallinn, a cofounder of Skype, to gain traction for the data product, and start building the investing and trading platform. The team secured a USD 2.6 million funding round in 2016, headed by legendary venture capital investor Tim Draper, Thomson Reuters, and IQ capital. This helped to launch Funderbeam Markets, the final two pieces of the vision – the world’s first primary and secondary market platform for funding and trading in growth-stage startups, all of it running on blockchain technology.
“Several companies have actually tried to combine these elements before, for example Seedrs has an opportunity to trade once a month, where they are open for one week. However, the price is fixed by the platform, and only people who already have shares can trade. At Funderbeam, trading is open 24/7, and the price is set by the investors buying and selling investments freely from each other” says Björn Lapakko, Head of Community.
With Funderbeam Markets, investors can register in minutes and start trading as soon as they have verified their identify according to international KYC and AML standards. For startups wanting to raise equity on the platform, the process is equally straightforward.
“The evaluation process consists of our business analysts doing the initial vetting, taking into consideration the market, the traction, existing customer base, and obviously the team. Then we merge the data with our internal database. From that point onwards, the considerations are: how much equity are they offering, how much they plan to raise and whether or not there is a lead investor, willing to lead the round,” says David Musu, Syndicates Manager.
According to Mr Musu, a reasonable turnaround from a startup applying to raise funds to launching a campaign on Funderbeam is a month, but adds that the process could theoretically be cut to a mere week. The usual culprit in potentially dragging the process out is whether the startup has all the information with sources backing them up ready to go, as well as the video introduction for the campaign.
The success of Funderbeam can largely be attributed to the team’s vast expertise in investment and regulatory compliance, and last year this culminated in a joint venture with Zagreb Stock Exchange, with the common goal defined as creating, promoting, and developing early stage investments in the region of Southeast Europe.
“Fintech is the most regulated industry out there and our message to the regulators is that we’re here to work with them directly, acting as a partner rather than a challenger in figuring out how to do business in their region while remaining compliant. With Zagreb Stock Exchange, they found value in us in covering the pre-IPO market – all the companies needing to raise funds that are not necessarily ready for public offering just yet,” Mr Lapakko says.
Hard work brings with it recognition and in September 2017, Funderbeam found themselves in the international limelight, by winning the Best European Alternative Finance Company and the Best European FinTech Company awards at the prestigious European Fintech Awards in Brussels.
“We went into it hoping to win the
alternative finance category, but based on the competition at the event, we didn’t realistically think we would have a shot at the overall title. It was extremely surprising and really humbling, and it bring lots of energy to the team in our efforts to push forward,” Mr Lapakko adds.
This year, the main focus is strengthening the foothold in Europe via the offices in London and Tallinn, as well as making the first push towards Asia Pacific.
In March 2017, Funderbeam announced the Japanese investor and incubator, Mistletoe, was set to invest EUR 2 million in the company and act as its strategic partner in Asia. Funderbeam is now actively pursuing licences for actively marketing and selling its services in the region, and is having good discussions with regulators in Singapore.
“The response from Asia has been really good so far. We’ve had several delegations from Japan visiting our offices in Tallinn and we just recently returned from co-hosting an event on blockchain technology and smart nations in Singapore. People seem to be keen on helping us move forward and putting us in touch with the major regulatory bodies. Obviously, Mistletoe has been a great help in that regard,” Mr Lapakko says.
Aside from the regulatory compliance, one of the major challenges for Funderbeam in scaling up its platform is to cover the entire investor market, ranging from micro-investors to institutional ones, in the hopes that the latter will bring their deal flows over to the platform, further enhancing access to A-grade startups. The second is to have a consistent and varied mix of growth companies from different regions of the world.
“Our story is—like most companies with bold visions—a long and winding one. We are now at the most exciting and challenging time of all; we have the platform, we have the team, we have great investors and we have an amazing community to build on. Now, we are ready to take on the world,” Ms Ruusalepp says.
Above left: The Funderbeam team with President of Estonia, H.E. Kersti Kaljulaid. Above: From the Funderbeam presentation in Singapore