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.

Norway-Asia Business Review - - Contents - HENRI VIIRALT

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

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