Feature photo: https://www.tradewex.com/TradingPlatform
Probably the earliest of the large users of block chain technology in financial trading services space was NASDAQ. They have recently unveiled their private markets block chain project called LINQ. Australian and Toronto exchanges too are seriously exploring deploying this technology on their platforms.
As I interview startups from across the world, I am noticing that many of them are actively exploring technology that is more cyber secure. Block chain technology is an option that is gaining popularity in the financial services industry. It is difficult to hack into such platforms.
From the list of startups attending the Web Summit event at Lisbon in November 2016 I came across another startup using block chain technology. Funderbeam is Estonia based – a country that emerged from the ashes of the Soviet Union. It has built an innovative trading exchange platform exclusively for startup investing. The venture focuses on angel investing and startups.
Startup founders invest a lot of time and effort hunting for an investor willing to stake funds into their innovation. Talks by investors in most startup events are well attended. Event managers organize competitions for startups where founders present their innovations to a panel of investors. The winner walks away with a prized investment check. Startup investing is a hot market across the globe.
Funderbeam innovation is seeking to leverage the opportunities in the startup investment market. Over the last three years since its existence, the startup has focused on building a database of startups. Mad Emil Dalsgaard of Funderbeam told me that the venture has built a database of over 150,000 startups.
I took a quick look at the startups listed on the platform. It includes unicorns and early stage startups from Asia and rest of the world. The database has probably been built by scrapping data off the internet. Machine learning tools may have been used to mine and aggregate information on each startup.
The database is now available for use of investors. Investors include angel investing firms and individuals. It is a step up from crowd funding platforms. With this substantial database of startups, I would expect that the platform will attract angel and other investors as well as startups.
Today, Funderbeam focus is on its home market of Estonia and neighboring Finland. They probably want to test the platform, fine tune it and then actively look outside of the immediate geographic proximity.
The venture has put a chat window on their site. This simple innovation brings a human touch critical to successful deal making. While I was speaking to Dalsgaard, I could overhear chatter, that gave me a sense that the interaction team was busy addressing queries.
The startup database should be a major selling point for Funderbeam. Startup investing is a particularly risky business. Only a small percentage of startups finally succeed. Investors naturally are cautious and exercise substantial due diligence before they decide on initiating a dialog with a startup.
Machine learning and analytics tools can help build a shortlist of prospects to fit into a prospective investor’s investing profile. This will lead to substantial reduction in hunting and preliminary due diligence time. Decision making for investors will, to that extent, become more data driven and less gut feel based as is currently the case.
Funderbeam enables groups of investors form syndicates. The lead investor is designated as the head of the syndicate. All conversation between a startup and syndicate takes place with this individual. This should facilitate deal making for both investors and startups.
Perhaps the most interesting feature of the platform is its trading functionality. Angel investors seeking exit will now not have to wait for the launch of an IPO. They could just begin the process by trading startup scrips (tokens) on this platform and transfer their share to others who may be interested in the startup. Trading will help bring liquidity to startup up investing market giving a boost to investing.
The Funderbeam block chain secured trading platform enables trading of tokens. Buyers can buy available tokens of a startup at a market determined price. Tokens are block chain enabled. The currency rate of a token is determined by the market.
Trading on the Funderbeam platform is still in its infancy. I was told by Dalsgaard that 400 tokens have been traded on the platform by early September 2016. But the very fact that there are buyers and sellers of tokens from the few investments already made through Funderbeam is an indicator of the concept’s soundness.
Both for primary investment and for trading Funderbeam appear to have the fundamental building blocks in place. It intends, in due course, to expand into the UK, the current major financial services global market leader. Brexit, though is looming over Europe but that is a different debate in itself. The startup is exploring the US market too.
The real test for the startup will come when they will step out of the sheltered small home market of Estonia and Finland and enter the competitive landscape of the big boys in the UK and the US. Competition in the financial services industry is intense.
As it happens to the business world, the big fish in the industry wait for an idea to root, the concept adequately tested by the market before making their move. Funderbeam will have to learn to quickly scale up. Scaling up, though, is a completely different ball game. It will require building of the institution and business processes. I could not explore this aspect.
Probably it is too early to make a comment on the future of Funderbeam. It is still early days. Funderbeam does seem to have begun well. I would like to keep a track of this startup.
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