Estonia’s Funderbeam is building a blockchain-based “stock exchange” for startups

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Headed up by Kaidi Ruusalepp, who was previously CEO of the Nasdaq Tallinn stock exchange, Estonia’s Funderbeam is on a mission to build what she calls a “funding and trading engine for growth companies”.

Providing tools to research, fund and trade in private companies, the bigger vision is to build something akin to a “stock exchange” for startups based on blockchain technology. To make that vision a reality, Funderbeam has raised $2.6 million in further funding.

Leaning the round is Draper Associates, Thomson Reuters, and IQ Capital, with participation from an array of previous Funderbeam backers, such as 3TS Capital Partners. Notable other investors include Skype co-founder Jaan Tallinn, and David Braben, the CEO and Founder of Frontier Developments.

“There’s too much complexity in the pre-IPO/private market. Companies used to go to exchanges for growth financing, but looking at the startup funding trends, like Uber raising €3.5 billion in just one round, plus the cost structure of getting listed and being listed, it does not make sense anymore,” Ruusalepp tells me.

“Today growth companies look to the stock markets only as a serious option for exits. On top, early-stage and growth funding has grown to unimagined heights, but it is one of the most illiquid assets classes. Once you’re in, you hardly get out”.

This of course is where Funderbeam comes in. The platform is part research tool — the first part of the problem the startup set out to solve when it launched in 2013 — and part investment platform, providing a way for startups to raise funding and for investors to invest in burgeoning and potentially high growth companies.

But to truly solve the liquidity problem, there needs to be a transparent and trustworthy platform for secondary trading, and one that can work across borders. And this is where Funderbeam’s nascent trading feature comes into play. It lets shareholders sell their stake in a startup, either one that was originally funded via the platform or potentially any that they have permission to trade.

“Using blockchain technology we aim to show the stock markets how technology can turn the sector around. For the first time ever, early stage investors can choose both how much to invest, and how long to keep the investment,” explains Ruusalepp. “Or to put it in a fruitier way,” she says, “imagine if Bloomberg, Angellist and Nasdaq had a baby”.

Blockchain technology, argues Ruusalepp, provides the transparency needed to help address trust issues inherent with any trading system and that digital technology trumps paper records that still hamper stock exchanges and databases of company ownership.

“There is a coming shift in trust [that is seeing] customers start trusting technology instead of people and institutions,” she says. “As the internet is for exchanging data and information, blockchain is being placed one level higher – it is used to exchange values. It’s like a global public notary registering and keeping an eye on all global transactions on assets”.

That “fundamental vision and usage opportunity” for blockchain is something Funderbeam and its investors are embracing. “We decided to test it, to be the first one who has built a securities trading platform on the blockchain,” adds Ruusalepp.