FundedHere to expand to growth markets of Indonesia & Malaysia, exploring Series A: Daniel Lin, FundedHere

Dr Jeremy Lim (L), Wong Li-Lin, Jamie Teo & Daniel Lin (R) .Credit: FundedHere

Daniel Lin, the Co-Founder and Executive Director of FundedHere, aims to build a robust crowd-funding ecosystem consisting of start-ups, professional investors, mentors and a MAS-regulated debt and equity crowd-funding platform.

With a background in corporate finance, Lin concurrently serves as the Executive Director of Singapore-listed company Viking Offshore & Marine Ltd and Managing Director of Viking’s wholly-owned subsidiary, Viking Asset Management, which acquires and charters offshore and onshore assets.

Previously, Lin has worked as the Special Assistant to the CEO in Singapore-listed company Advance SCT Limited, and has also been involved in institutional fund-raising from US and European investors.

In an interview with Venture Views, Lin discusses the performance and growth strategy of FundedHere, discusses Singapore’s startup scene and initial coin offers (ICOs), the listed company bond offerings through its partnership with tine Singapore bourse, as well as other developments in the crowdfunding space.

Edited excerpts

What’s the performance of FundedHere been, in terms of funding startups?

It’s difficult to calibrate because we are essentially investing in startups ventures, with our main aim being to explore funding good quality startups by linking them with investors. As at February 2018 we have funded 17 startups, we have raised a total of more than S$6.7 million and have ~100 investors who have put money with us.

I think given the runway and small team, for H1 2016 and most of 2017, it was about demonstrating the validity of this concept, that this model of raising money from private investors can work. I’m convinced that if we are able to take this model and scale it up, then we’ll be able to reap the economies of scale of this business.

How large is the investor pool that FundedHere has access to?

The investor pool is at ~1000 investors now. A challenge we had in the early part of growing the company was that we were only allowed to have accredited investors as part of our investor base; MAS had strict regulations we needed to comply with and it was only after some time that we were allowed to market to retail investors.

But even in the retail investor space, we’re only permitted to approach professional investors, so that mix has allowed us to actually onboard a lot more investors in the last few quarters and ramp up the number of professional investors on our platform.

How do you originate your deals, and are there plans to expand deal pipelines via partnerships with institutional venture capital (VC) firms in Singapore for instance?

The first step was to approach the university in Singapore to work with them; they each have various funding programmes and startup incubator programmes which aim to help entrepreneurs.

In those programmes, you’ll find that some of the better startups need to seek out external funding, so we have a relationship with those universities we’ve gone to and.

All the various people in the ecosystem are looking for the next winner — and we’ve partnered with these stakeholder already — so that is how we originate our deals, and this has helped with building our brand in the market. Apart from the partnerships, we have quite a lot of referrals, as well as entrepreneurs and investors who want to explore if we can be of value to them.

Does FundedHere specialise in any sectors in particular, or are you a platform that take a generalist approach to opportunities?

We are industry-agnostic, but after evaluating over 400 startup ventures, we’ve found that there is a bias towards technology. The reason why that is the case is because one of the criteria for investing and one of the things that investors are looking for is scalability. I think today if there isn’t a tech element to the company, then it’s very difficult to have a business case of scalability.

Singapore’s environment has emphasised startup ventures, perhaps excessively. Have the more traditional SMEs and middle market firms been neglected?

There’s enough room for everyone to manoeuvre. With regards to SME funding, the banks are probably in a better place to meet that need. Startup investment is more of an art than a science; a lot of these startups don’t have the sort of financial statements and documentation to defend themselves during an evaluation.

Most startup evaluation really comes from engaging with the entrepreneur engagement and their ability to execute. So you’ll find that when you look at various companies — whether they are startups, or SMEs, or even listed corporates — there are different institutions to meet their financing and other business needs. They’ve not been neglected, whereas startups have been, and whether the new wave if coming from crowdfunding or VCs, its a positive sign.

You have a constellation of crowdfinance platforms emerge within the region in the last few years, such as Crowdo and Lendo in Malaysia. while Singapore has Funding Societies, Fundnel — a private investment platform — as well as companies like MoolahSense and Capital Match. You’ve also got Funderbeam, a startup stock exchange from Estonia, expanding into Singapore to target the Asia Pacific & Japan (APJ) market. What’s the competitive edge of FundedHere?

With crowdfunding there are basically four different segments. You have the charitable side of it, so you have the likes of GIVE.asia, which essentially crowdfunds donations on behalf of people who are looking to raise money.

Then there is the reward-based crowdfunding. You have the product crowdfunding element with Kickstart and Indiegogo, where its rewards-based returns for the financial investment.

Then there are the tools which are more investment-related and target both debt and the equity. Most of the firms mentioned fall under the debt crowdfunding side. With debt crowdfunding, there’s sufficient data in the market to support the kind of returns you should be getting. So if crowdfunding platform or even any fund says that you should be getting 8%, you can very quickly verify if that’s the case or not.

We chose not to go into that space because there are people who can do it better than us. Our value proposition lies in the equity space, and that’s the fourth area of crowdfunding where we’re looking for investors who can take a long-term view. That’s the part which requires patience because for most fund managers and investors, it is always more attractive to find short-term/high return plays.

But if our approach takes 5–10 years, most people don’t have that patience. But there are some asset classes really outperform others in the long-term. So it was a strategic decision to move into the equity space.

Your point about FunderBeam is a interesting one; Europe and the US have plenty of private exchangers now and that actually provides some comfort and ability for investors to partially liquidate some of their more illiquid investments. They have an element where they’re playing with digital tokens as well — it’s not just buying and selling of shares but enabling liquidity by converting some stocks into digital tokens — so they have a different play on their business model .

With FundedHere, we’ve already supported 17 companies, and this number will grow in the coming years if we are able to develop something that gives our earlier investors a liquidity event.

What’s the opinion on initial coin offers (ICOs) — Singapore has emerged as the largest centre for ICOs in Asia — and your perspective on them? Will FundedHere integrate such technology offerings into their platform?

It’s too early to see how successful this is. Looking at traditional models with the IPOs, there is regulation that grants people a certain level of comfort. With the ICO, the value proposition is its decentralised nature and lack of a central body to regulate it. While this may be attractive to some, it’s not attractive to others.

In a highly regulated environment like Singapore, there’s a case to be made that some de-regulation is good, and I think ICOs may fit that space. There is still room for traditional IPOs where the sums are much larger and investors want to have the confidence that there’s regulations to keep promoters in check.

It’s good that there are all these alternative means of fundraising as it grants startup ventures additional avenues to raise money, whether its through digital coins or direct equity.

The challenge that the industry will have to face is whether they can actually make payments for goods and services with these tokens as they’re not widely accepted. So even if I have 100 coins of whatever firm, it may not be as liquid as it should be.

Has FundedHere partnered any institutional investors? In December 2017, Fundnel announced a partnership with asset management firm ThirdRock.

Not at this time. We started FundedHere with the intention of positioning ourselves at the point where it starts to become too difficult for individuals to invest.

There is a place for institutional investing and the venture capital funds do a great job when the amounts are beyond a scope of individual investors. BUt for smaller sums — we’re very focused on raising amounts between $300,000–$500,000 at FundedHere — we take the view that if we can take our investors and entrepreneurs through a very systematic process of investing, they would be able to raise or be able to part with capital, whether it’s $5000 or $100,000.

Going down the institutional route involves a very different strategy: VCs, institutional investors — whether it’s family offices or other stakeholders — take a more financial returns perspective to evaluating startups, and most startups are at an early stage where they cannot offer an assurance of such returns. Most of the investors we attract to our platform are individuals.

Lets discuss the distinction between professional and accredited investors. Can you highlight the key differences, and how FundedHere engages with millennial investors and the young generation?

To clarify, from a regulation standpoint, MAS [Monetary Authority of Singapore] classifies people as either retail or accredited investors. There’s no such terminology as a ‘professional investor’.

It’s something we coined to also give the regulator some comfort and reassurance that we’re not trying to sell a high-risk/high-return product to people who don’t understand it. And so, when we went to them, we said, “For professional investors, we’re looking at people who have a certain amount of spending power. And with high-risk, high-reward products, they have to accept that there is a chance that they may lose investment.”

I think that’s consistent with all types of high-risk, high-reward investment scenarios. So for professional investors, they should be earning at least S$100,000 and they need to clear a knowledge test that MAS has stipulated, so they have some relevant background in financial services. And if they don’t pass the suitability test, it also determines whether an investor has the risk appetite.

So after clearing these barriers, they can enter our platform. This grants us a nice balance where we’re able to reach out to our wider group. And now, with millennials entering the workforce and with 5–8 years in the working world, whether they’re lawyers or accountants, they would have some saving and may want to consider having a startup investment as part of their investment portfolio.

What’s your take on Southeast Asia’s regulatory landscape and the growth plans for the rest of Southeast Asia?

There are some countries that are more advanced and there are some that are not. I think as a whole, we are lagging a little behind our European counterparts and US counterparts.

Its consistent with the fact that a lot of the wealth was created just one generation ago and these investors are seeking high returns. When we go into the Europe and US side, you find that people understand wealth preservation, which translates to low-risk annual returns. I think the regulatory framework should always accommodate the shifting attitudes.

Stringent regulation in crucial in the early years because everybody’s money is hard-earned. But as we progress and mature as an economy, regulations will also change to accommodate shiftings in the economy, technology and attitudes.

That’s why they [MAS] had a regulatory sandbox for crowdfunding so that the regulators themselves also can take a look and see how it’s evolving, and to have policies that accommodate a new wave of crowdfunding.

In Malaysia, the Securities Commission have done a good job with the equity crowdfunding regime. In Singapore, it’s still dealing with securities. So there’s a framework that we all can work towards. At the heart of it, its about meeting the need to safeguard investors.

What’re the next steps for growing FundedHere, in terms of expansion plans for markets like Indonesia, Philippines, Thailand and Malaysia?

The next step is Indonesia and Malaysia. We take the view that sophisticated investor today will see Kuala Lumpur, Jakarta, Singapore as one larger city. That means if I need to conduct some due diligence on a company, it’s really just one flight away. And today you can make day trips to Indonesia and Malaysia.

These are compelling market environments and to invest in and learn about, and many people have enough touchpoints to make an assessment about investing, whether it’s calling a friend who lives in Jakarta or KL, or its through your professional work.

Entering Malaysia and Indonesia is a very natural progression and in terms of the regulations and the business ethos, our investment philosophy is similar. The next stage of growth — whether its the Philippines or Vietnam — will come with a different set of risks that our investor base, as it matures, will be better able to assess.

For FundedHere, what is the ultimate trajectory to an exit? Are you looking at an IPO down the line or are you looking to be bought out?

Being in financial services, we never want to confine ourselves to one fixed route. For FundedHere, I think there is a good 5-10 years to go before there is any sort of meaningful exit.

But that’s only because we’re quite early in the game and want to be able to pace the market in the region, where the investors grow with us. There is value in building the community through crowdfunding.

But infive years, I think FundedHere will be a very different story. If someone were to make an offer, it would have to be very compelling because I think even in five years time, there is still a lot more we can do to grow this company.

An IPO has its own pros and cons, and its an option we would take it if we are not able to raise money privately. But with the contemporary economy, which has seen the emergence of new mega-funds and the ability for big unicorns in the US to raise substantial funding without having to do an IPO, has made it a very viable option as well.

As a co-founder, its’ about being aware of all the options, and then weigh the pros and cons and make a call at that point in time.

Tentatively speaking, what’s the valuation of FundedHere?

It’s difficult to put a number, but we raised a seed round (S$1.3 million) at a valuation of approximately S$12 million in April 2016. So if we do raise the next round, it would certainly be larger than that.

Since the funding round closed, we have shown that there is a business model which can be harnessed and is scalable using technology. We’re exploring raising an additional round but do not have a definite time.

You’re the only crowdfunding platform that has a partnership with the Singapore Exchange (SGX) and have two cases of listed company bonds being offered through the platform. Can you discuss the dynamics of this partnership?

It comes down to certainty and protection. And clearly, SGX is the leader in this aspect, so any sort of investments in new public companies will go through SGX. They’ve already developed a very smart way of making sure that it’s efficient, safe, and builds investor trust.

A big part of what Singapore Inc is about is being a safe place to make investments, and stems from the fact that the SGX is doing a great job together with all the other parties.

We have a programme where its about helping some of these smaller listed companies, who are facing a lot of pressure to raise money for new businesses from the public markets.

There are a whole variety of reasons why it’s difficult, but partly its because, when the market opportunity is small, institutional investors don’t come in. And because sometimes the funds raised may be small — perhaps $1 million to $2 million — and it doesn’t make commercial sense for some of the traditional players in the market to help do the placements or raise money on their behalf.

So we’ve found that to be quite an opportunity, in terms of finding the right balance of being able to raise slightly larger amounts and facilitated the issue of two bonds; these listed firms raise capital from private investors who get a coupon and enjoy the certainty and a production as SGX can give.

Since H1 2017, the SGX has secured a listings’ partnership with NASDAQ and are implementing dual-class shares. What’s your take?

Variety is always better and while there’s many reasons why people would argue that dual-class shares are good, it favours entrepreneurs over investors. There are many reasons why it could work or otherwise. But as the level of sophistication grows in Singapore, having more such options is a positive development.

So it’s “buyers beware” now. If investors don’t like the fact that there are two types of shares, where it permits company founders greater voting rights, then they can choose not to invest And when there’s no demand for that, then the market will come to correct itself.

We’re in a rapidly moving economy and as we engage in innovation, we have to conduct it at a much more efficient speed as we iterate and reiterate. It presents more options for the investor population and its different segments.

Any perspective to offer regarding a private secondaries exchange in Singapore?

It’s a chicken and egg question. I suspect there’s huge demand for such a facility but, culturally speaking, we’re still in the process of learning to be more patient with our capital.

In practice, what that translates to is that many investors have put money into illiquid assets where they know it’s going to be 10 years to a return. But at the 5-year mark, they may want to exit and if you are able to provide some sort of liquidity, there’ll be investors who’ll take it as they want to realise the value of their investment.

However, there’s a lot of costs associated with launching and operating a private exchange; you’ve got to build a trading platform from scratch and need a new regulatory licence. FundedHere is well-placed to explore this as a viable business.

See:

ASEAN sees deficits in Series B financing and risk pricing : Kelvin Lee, Fundnel

Crypto-tokens & ICOs to be further integrated into financial ecosystem amid strengthening of PE/VC & securities market: Monetary Authority of Singapore

Exit events crucial for capital recycling in ASEAN venture ecosystem: Chris Tran