Set up in Estonia in 2013, Funderbeam is the brainchild of former Nasdaq Tallinn Stock Exchange chief executive Kaidi Ruusalepp.
The platform enables growth companies to raise equity, convertible and loan finance in either public or private funding rounds. A syndication model allows for investments as low as €200, but fundraising firms have to find a lead investor to anchor the issue.
Where Funderbeam differs from other early-stage funding platforms is that it provides secondary market liquidity. Investors can offer their holdings for sale via the platform’s auction-style marketplace.
“This is our main value proposition,” says Ruusalepp. “You should be able to exit early-stage investments when you want, not when the company is doing an IPO in 14 years’ time.”
Funderbeam hosted its first four fundraisings in early 2016. Since then, it has helped more than 40 companies to raise finance. Initially, the standard issue size was €100,000-€150,000 but firms are now raising up to €2 million.
Recent issuers include a Danish horse-sharing platform and a quest room online booking firm from the UK, as well as a Norwegian bike manufacturer and an Icelandic producer of cheese snacks.
The platform has also hosted a clutch of fundraisings from Croatia through a joint venture with the Zagreb Stock Exchange (ZSE).
Funderbeam SEE, which was set up in October 2016, is 20% owned by ZSE. The tie-up was brokered by the EBRD, which owns a 5.2% stake in ZSE. Funderbeam co-founder Urmas Peiker also worked at the EBRD in the 2000s.
The bank is using the project to pilot a new approach to local capital markets development that re-imagines stock exchanges as “company financing hubs” that can offer firms access to equity at all stages of development.
Under this model, crowdfunding platforms such as Funderbeam would provide debt and equity early-stage financing. More mature companies would be able to access funding through over-the-counter (OTC) or private company markets, SME growth markets and main markets, all within the stock exchange framework.
“One of the key constraints for the growth and competitiveness of companies in transition countries, especially SMEs, is inadequate access to long-term financing on competitive terms,” says Hannes Takacs, associate director, local currency and capital markets development at the EBRD.
“Exchanges which have a multi-level equity market structure in place, covering issuers of various sizes and at different development stages, will be well-positioned to offer access to capital market financing to a wider range of companies. It will also allow firms to graduate from one market segment to another.”
We can call ourselves a greenhouse for stock exchanges
– Kaidi Ruusalepp, Funderbeam
Ivana Gazic, chief executive of ZSE, says this was the main attraction of the Funderbeam tie-up for the exchange. “We had been looking for a long time at a way to create a pipeline of new issuers,” she says.
Funderbeam SEE provides a “training ground” for companies to learn how to talk to investors, she adds. Firms raising funds on the platform get advice from ZSE on marketing and presentation, and have to provide quarterly updates to investors.
Preparing companies for listing is also part of Funderbeam’s business model. “We can call ourselves a greenhouse for stock exchanges,” says Ruusalepp.
The first fundraising on Funderbeam SEE was by Include, a Croatian manufacturer of “smart street benches” that provide internet access and mobile phone charging using solar power.
The company initially raised €465,000 through the platform. “For me, Funderbeam was a miracle at that point,” says founder Ivan Mrvos. “We were still a small company with only 15 staff so our only option was venture capital funding, which would have been difficult and we would probably have had to give away a lot of equity.
“Instead, we were able to attract a lot of small local investors who liked our story, as well as experienced lead investors who could help us with our business.”
Include now employs 50 staff and sell its products to 47 countries worldwide. The firm raised another €1.5 million in a second funding round on Funderbeam this year. “We really hope that in two or three years they will be mature enough to come to ZSE’s main exchange,” says Gazic.
Mrvos is more cautious. “An IPO could be an option but maybe six or seven years from now,” he says. “To be listed you need 200 or 300 staff and revenues of €20-30 million, so it’s not something we’d be looking at soon.”
Meanwhile, Funderbeam SEE is looking to expand beyond Croatia. The platform already covers Slovenia through ZSE’s ownership of the Ljubljana Stock Exchange – but take-up there has been slower. “It’s a more mature market,” says Gazic. “They have been in the European Union longer and the local venture capital community is stronger.”
She has higher hopes of North Macedonia, where Funderbeam SEE signed a cooperation agreement with the local stock exchange in May. “They are just looking to start negotiations with the EU and have a big need for funding for start-ups and SMEs,” she says.
The Serbian market is off-limits due to local restrictions on investment in foreign companies but Ruusalepp is keen to explore opportunities in Bulgaria and Romania. “These are very interesting markets for us because we can find hidden future stars and bring them to international investors,” she says.
Funderbeam has also been expanding outside SEE. The firm is now headquartered and regulated in London and has offices in Copenhagen and Singapore, where it has applied for a funding and trading licence. “At the moment we work based on exemptions to EU regulations,” says Ruusalepp. “To have proper liquidity we need the tools to run a full trading platform.”