Growth companies have a predetermined development path to pass through, somewhere at the end lingers the illustrious ‘exit’ or IPO. As an early stage investor you may have to sit tight with your investment for a decade.
With Funderbeam, it’s a different reality. Essentially, the service the Estonian fintech startup provides is one many have probably asked themselves why it doesn’t exist: a stock-exchange for startups. That means a growth company’ funding doesn’t have to adhere to the usual structure of seed round investment, series A, series B, etc. – instead it can just fund however much it wants whenever it wants.
Sure we’ve heard of crowd-investing before. That is not really the same thing. Funderbeam uses blockchain technology to make the stakes investors put into a company tradeable, with anyone anywhere. Since the stock is tradeable, investors can cash out at any point by selling their stakes. In that sense it’s a lot more like a real stock-exchange than a crowd-investing platform.
How closely it will resemble an actual stock exchange will depend on how big Funderbeam can become. But supposing Funderbeam can grow enough to achieve a good level of liquidity in terms of trading volume that could have some very interesting implications for startup valuation and access to capital.
Here’s how it works:
Essentially, a crowd of investors invest jointly in a company through a syndicate. The syndicate has a liability to each investor proportional to the amount of money each individual investor put into the company. These liabilities are broken down into units and represented by tradeable tokens. Because of the power of blockchain it is possible to trade these tokens securely, keeping a verifiable tab on who owns what. It’s much like bitcoin, but with a separate digital currency for each round of investment made through Funderbeam.
Besides making the timing of startup funding a lot more flexible, it also opens up for anyone to take part in investing in startups – not just professional investors and VC’s. Another benefit is that it breaks down bureaucratic obstacles to investing in other countries.
Funderbeam’s fee? For investors its just 1% of any profit you make. That’s it. To fund your company it’s 3% of the funding amount plus a fee of €3,500. Currently, over €1 million has been raised on the platform. Here are the past and current campaigns.
Trading with startup-stock does of course pose some problems.
Even if Funderbeam is a ‘stock exchange’ for growth companies, the nature of startups implies some important differences.
As with all growth companies, valuation is very much a problem. “It’s not like you can do a Discounted Cash Flow-analysis,” an investment banker once commented after share price soared 100% the day after a startup’s IPO. Investing in growth companies implies huge unquantifiable risks. On the other hand a successful exit is likely to differ from an early valuation by an order of magnitude.
This trickiness is one reason one might want to leave startup investing to professional VCs and angel investors. But Funderbeam is a project to democratize the investing process. To prove the point, Funderbeam has recently crowd-funded itself to a value of €424,000 on its own platform – with investments from 28 different countries. So for anyone who believes in the idea, now you can trade with Funderbeam stock.
“I believe that anyone, provided the right tools and guidance, can benefit from investing in early stage companies. This is what we are creating, and it felt natural to let all our early adopters, partners and supporters join this journey,” explains Funderbeam’s founder and CEO, Kaidi Ruusalepp.
To mitigate the problem of valuation Funderbeam is making lots of data and analysis tools available to investors.
The platform is already leading to new investing concepts.
In a collaboration with Funderbeam, the accelerator Startup Wise Guys is currently pioneering startup acceleration by being the first accelerator to raise public funds for their 8th batch of startups – and the stakes in the fund will be tradeable on Funderbeam’s platform.
The campaign will be open for investing for another couple of days.
The concept means that for amateur investors who think investing in startups is too big of a step there is a compromise. With Startup Wise Guys campaign you can invest in a portfolio of startups curated by professionals from the startup accelerator.
“Basically, investing in an accelerator ‘batch’ means you make one investment in a portfolio of ten carefully selected international startups. We have shown good results with our last six batches with portfolio companies like Vitalfields, Leaf.fm, Investly and many more. This time we want to give access to this deal not just to the investors that have been with us for years, but to investors all over the world interested in supporting and investing in B2B companies,” says Herty Tammo, one of the lead angel investors at Startup Wise Guys.
To call investing in a portfolio of startups a proper hedge might be a bit of a stretch, but it does mean that amateur investors can take part in a type of investment normally only available to a closed group of angel investors.
Originally published on the 8th of December 2016
Source: Business Insider