Case 69: Blockchain Can Create a Liquid Aftermarket for Start-up Investments

Alastair Brockbank, British Embassy Tallinn

The illiquidity of start-up investment is a common complaint from angel investors and founders alike. Backers typically need to part with at least €10,000, and must often wait 5 or more years to exit.

Funderbeam — a reputed business intelligence platform for investors — may well have found a solution to this problem: a block chain-based investment marketplace, to buy and sell coloured coin stakes in start-up syndicates.

Investors will soon be able to use Funderbeam’s online platform to create an investment syndicate for one or several start-ups. Investment can be in any configuration, and there is no limit to the size of a syndicate. A £100,000 stake could comprise one lead investor and 99 backers investing £1,000; a lead investor on £75,000 and five backers on £5,000; or any other combination. Similar to crowdfunding, this diminishes the threshold to invest in start-ups.

What differentiates Funderbeam from the crowdfunding alternatives is the issuance of ‘coloured coins’ representing syndicate members’ stakes, which can be instantly bought, sold, or traded with other investors. This enables more fluid management of investment portfolios, and expedites financing for start-ups. The Bitcoin block chain underpins the aftermarket, allowing for fast, effective and transparent asset ownership tracking.

Every syndicate is paired with a microfund. Once a syndicate is complete, and the start-up is funded, Funderbeam’s aftermarket uses coloured coins to give all members of a syndicate a digital representation of their share in that microfund, which is immediately tradable. Backers can thus sell their whole share, or a proportion of it, once they have made a decent return or want to cut their losses.

Flexibility for investors is not the only benefit the block chain solution affords. Kaidi Ruusalepp, CEO of Funderbeam, also points to the efficiencies that a distributed ledger offers through bypassing bureaucracy. “We don’t need a business registry, central depository, or another formal authority to confirm the integrity of a transaction,” he says. “With the block chain, every investment, every ownership change has a secure, distributed audit trail.” Jaan Tallinn, co-founder of Skype and an investor in Funderbeam, lauds the additional layer of security and verification it offers for online transactions. By being decentralised and unalterable, block chains can create more transparency in the equity market, without compromising anyone’s privacy. Funderbeam’s offering — providing flexibility, speed, security and transparency — shows how distributed ledgers can provide an alternative but wholly viable basis for small and medium-sized enterprise (SME) financing to expand in the 21st century.

Jaan Tallinn, co-founder of Skype and an investor in Funderbeam, lauds the additional layer of security and verification it offers for online transactions. By being decentralised and unalterable, block chains can create more transparency in the equity market, without compromising anyone’s privacy. Funderbeam’s offering — providing flexibility, speed, security and transparency — shows how distributed ledgers can provide an alternative but wholly viable basis for small and medium-sized enterprise (SME) financing to expand in the 21st century.

Funderbeam’s offering — providing flexibility, speed, security and transparency — shows how distributed ledgers can provide an alternative but wholly viable basis for small and medium-sized enterprise (SME) financing to expand in the 21st century.