Crowdfunding platform FundedHere launches “private stock exchange” for startups

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Crowdfunding platform FundedHere has launched FundedX, a “private stock exchange” to facilitate the trading of shares of high-growth startups in Southeast Asia.

Through FundedX, startup shareholders such as employees and investors can liquidate their stocks, FundedHere said.

Here’s how it’s supposed to work: An interested buyer can submit an order request, and then the platform’s algorithm will match the buyer with a seller. FundedX will set companies’ share prices based on their last valuation. The companies will need to approve the terms before the transactions go through. Transactions will be completed in two weeks.

FundedHere has a capital markets service license from the Monetary Authority of Singapore, which it claimed permits it to deal with securities, run a private stock exchange, and issue shares.

The platform is targeting startups that are worth between US$22 million and US$37 million. These include personal finance portal MoneySmart and online grocery delivery service Honestbee, said Daniel Lin, FundedHere’s co-founder and executive director. Lin thinks there are around 20 startups falling within that valuation range in Singapore.

Such companies usually have some form of reporting or compliance process in place, and can provide financial information to buyers quite easily, explained Lin.

FundedHere said several investors as well as startups and their shareholders within Southeast Asia have expressed their interest to participate. The exchange plans to go live in Singapore in the next three months, and looks to expand to Malaysia and Indonesia in the next 12 to 18 months.

Will it inject liquidity into the market?

“Early investors take large risks in funding startups in the hope of making large gains when they exit their investment position. So they would want to liquidate at least a portion of their investment when the time is right,” said Walter Theseira, an economist at Singapore University of Social Sciences.

Jeffrey Chi, ambassador for Singapore Venture Capital & Private Equity Association, agrees. “The ability to give investors liquidity will make companies more attractive to investors. The branding associated with known startups are a magnet for liquidity.”

Founders, on the other hand, would typically want to hold on to a large portion of their equity, Theseira noted.

“Generally it would be viewed by the market as a poor signal if, say, the founder uses the private exchange to substantially reduce their position. What does that say about the prospects of the company?” he queried.

As much as the new exchange hopes to enhance liquidity in the private market, it is only the “hottest” startups that are likely to see trading activity, said Theseira. Lesser known ones will probably have a hard time finding a buyer.

“Because of the large number of startups out there and the relatively small number of accredited investors who are interested and able to invest, the market will most likely be quite illiquid, meaning it may take some time to enter or exit a position.”

Watch out for the risks