Reimagining Finance with Kaidi Ruusalepp
Although there is $1.3tn invested in startups globally since 2016, that money is locked for years. Funderbeam is on a mission to shake up traditional models of equity funding for founders, employees and investors.
To start, please tell us a bit more about Funderbeam! What’s the story behind the company, what do you do and what is your vision?
The global trading and funding platform was born out of my professional past as the CEO of Nasdaq Tallinn stock exchange and the CEO of Central Securities Depository. I saw the true power of technology that can enable running marketplaces across borders and the need for liquidity in private companies.
Funderbeam enables companies to raise funds and investors to invest with liquidity, also to list existing shares, employee shares and investments of private companies. The market cap of Funderbeam marketplace companies is €800m (companies traded on the marketplace) and Funderbeam was awarded as the Best European Fintech startup in 2017.
You’re changing the liquidity market for startups. Where would you position Funderbeam in the landscape of startup financing?
There’s $1.3tn invested in private companies (mainly in startups) in 2016–2020. All of this capital is provided by private investors. So the question arises — not all of the startups go public and where do early investors, founders and employees get their exit? This is what Funderbeam is doing — building a proper global marketplace for private companies. We enable listing private investments, incl employee shares and additionally help companies to raise funding.
Can you tell us about the main challenges you’ve faced in building secondary trading for startup companies and investors?
Two main challenges. One is global regulation. The financial sector is the most regulated industry in the world. By now even more than drug development. So to offer a global marketplace that serves companies and investors all around the world we first had to “hack” regulation. This doesn’t mean cutting the corners but finding the best jurisdiction and legal structures for our services.
The second challenge is being a true pioneer in building a “stock exchange” for startup companies. Most VCs told us early years — who would want to trade startup companies. We proved them to be wrong! But it was a tough journey to get to where we are today.
We spoke about challenges, but what are the opportunities? Where do you think the secondaries of the private market are heading?
Our marketplace activity is growing rapidly. Companies not only want to raise funds but also list their shares. So our trading volume is growing as well. We are the only marketplace that can serve both Europe, including the UK and regions in Asia. This is something unique. Funding platforms, including crowdfunding platforms all search for the secondary market. We have it. So Funderbeam is aiming to become the global marketplace for private companies and serve founders for controlling their liquidity and funding.
Can you tell us about your own fundraising journey? What kind of instruments did you use along the way to finance Funderbeam and is Funderbeam trading on your own marketplace?
We have a nice saying that when you run a restaurant, you should have the best dinners in your own place. So we have successfully combined angel, VC and platform fundings. Funderbeam has just finalised the first closing of our €5m funding round and it was oversubscribed on our own marketplace in hours. It saved a lot of time and hassle from pitching to tens of VC’s. We had a lead investor, Tim Draper, and the rest came from our marketplace.
You’re also a pioneer in supporting innovation in alternative financing. A great example is the fundraising of Unconventional Ventures on your platform. Are you planning to venture out into this direction and becoming an alternative ‘Angellist’ for syndicates globally?
Overall we believe that venture funding will be liberalised and opened for a broader audience. You can also read about Passion Capital and Seedrs. So opening venture investments to sophisticated retail investors or regular retail investors is an overall trend. Unconventional Ventures is leading this trend on our marketplace, but we already see more to follow. Our flow on the platform is so smooth and automated that opening syndicated funding, incl for the funds, is what we can also call Platform as a Service.
Why do you find it important to offer an alternative to stock exchanges and traditional ways of trading private companies?
For early investors and also founders the liquidity option is mainly secondaries in combination with later stage funding rounds. But the majority will discount up to -30%. And I would ask — what’s wrong with me as a founder that I have to sell some of my shares with a discount? And why do early VC’s have to sell with discount? Open marketplaces provide more fair pricing.
The second reason is the over-regulated stock exchanges. Who of private companies and startups would list early years when they have to face all this cost and regulation for liquidity?
Funderbeam is running a founder-driven marketplace and has introduced a fine balance between companies and investors — starting from information disclosure to an easy to understand user interface to active trading.
If there was one thing you can change about the founder's journey, what would it be?
Funderbeam was born to build a marketplace for private companies. We designed everything from the point of trading companies, not funding or data analytics. But as an Estonian, we don’t talk about the beautiful future — we talk about what we have. So we have been talking about data and funding, because this is what we have built first. It took a lot of energy to get back on track and get the story right — we are no crowdfunding nor data platform, we are a global marketplace for private companies. So never stop talking about the vision!
What is the most valuable piece of advice you received?
Don’t dilute to mistakes. Raise as little as you need to achieve the goals because too much funding is the main cause for mistakes and thus one of your lines in the cap table will be occupied by mistakes.
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