Hong Kong is a global financial center with a small but growing startup industry. Unfortunately, founders often have a hard time getting the attention of investors, who prefer to invest in equities or real estate. A site called Bigcolors, which launched at the beginning of December, wants to help connect angel investors and startups by offering a crowdfunding platform with a twist. If a startup meets its goal before its eight-week funding period is up, investors can then trade shares in the company even before it officially launches, which lets them enjoy more liquidity. Bigcolors recently expanded to Singapore and plans to roll out in more Asian countries before heading to other emerging markets around the world.
Bigcolors CEO James Giancotti was an early investor in Makible, the Hong Kong-based 3D printer maker, as well as Taxiwise and Perceptar. Before co-founding Bigcolors, Giancotti worked as an investment banker at Goldman Sachs and JP Morgan.
Giancotti created Bigcolors to help solve challenges faced by the early-stage startups and their supporters in Hong Kong.
“As an angel investor, even though I have found success in a number of my startups, I cannot get liquidity for many years,” he told me. “Asset value is great, but liquidity on those assets is much better.”
After a startup undergoes due-diligence screening and is approved by Bigcolors’ team, it can potentially raise $100,000 from investors in exchange for a 20% stake in the company. Founders also have the option of raising $25,000 or $50,000 instead, giving investors a 5% or 10% stake, respectively. Since the site’s launch, more than 900 investors have signed up and 109 startups have applied, with 12 opening for funding (Giancotti says that in the next few weeks that number will double as more startups pass the due-diligence process). One startup has been successfully funded so far, the dating app KissHugs. KissHugs received $25,000 from three investors and is now offering 5% equity.
Other sites that either offer crowdfunding for startups or connect founders with potential early-stage investors include Fund2.me, AngelList and Startup Stock Exchange (SSX). Bigcolors differentiates by allowing investors to trade equity in fully-funded startups as if they were already listed on a stock exchange.
“The trading is unique in Bigcolors and not offered on any other platform. We are concentrating on pre-seed/pre-company stage,” Giancotti says. “Other platforms like AngelList do not do crowdfunding and SSX is focused on companies with at least a one-year proven record to list on their exchange.”
To begin, all startups on the platform are given the same valuation of $500,000. Giancotti says Bigcolors arrived at that amount because all companies seeking funding on the site have several things in common, including no revenue, no assets and no traction so far.
“It’s hard to justify millions of dollars value on a startup that hasn’t proven anything. $500,000 is a fair value for companies that only have a team and an idea. It’s on par with many accelerators around the world,” he explains.
The potential to trade options in startups may also encourage investors who want more liquidity.
“One of the biggest frustrations of angel investors is that they can’t get liquidity for at least 24 to 48 months after their investment. Many angel investors in Asia are cautious of investing if they cannot see a return soon,” says Giancotti. “The trading allows investors upside in a company if they wish to see liquidity sooner.”
For investors, Bigcolors is an alternative to investing in the stock market or real estate. To minimize risk, Bigcolors vets startups before they can list on the platform. It looks for teams that have a product or service with a clear strategy for gaining traction and monetization; a 12- to 24-month goal for building their business and product; and founders who have cleared Know Your Customer (KYC) certification, though Giancotti adds that investors are also encouraged to complete their own due-diligence before investing in a startup.
For startups, he adds that Bigcolors can give them an opportunity to see if their idea resonates with potential investors and users:
“There is no cost for a startup that doesn’t get funding. The positive in this is that it allows the team to rethink their idea and pivot in order to attract investors.”
Bigcolors is currently planning to expand into other countries where startups face the same problems securing early-stage investment. It launched in Singapore at the end of December 2013 and is headed to Thailand this month. The site also plans to roll out in Taiwan, Indonesia, Vietnam, Japan, China, India, New Zealand and Australia in the first half of this year. After that, Bigcolors hopes to expand into emerging markets outside of Asia.
In addition to Giancotti, Bigcolors founding team also includes CTO Ben Chan, who formerly worked at Electronic Data Systems (EDS) and Capgemini Consulting and COO Jackie Lam, a former senior manager at Allianz Global Investors and Accenture, who is now responsible for Bigcolors’ due-diligence screening of startups and investors.