We are starting to see the seeds of equity crowdfunding platforms planted regionally as the next frontier for crowdfunding (equity) begins to sweep the globe. These platforms are merging local and regional deal flow with experienced teams, cutting edge technology and capital. In this Rabbit Report we explore one platform out of Asia that is generating traction and making a name for itself.
Company: Fundnel (www.fundnel.com)
Sector: Platforms and Secondary Markets
Since its inception in 2015, Fundnel’s curated investment platform has facilitated the successful funding of 10 deals, raising a total of US$8m for clients. The team brings top-tier finance industry experience in both investor engagement and in deal sourcing, packaging and execution. They are based in a market that has just approved its first accredited investor platform but have plans for rapid expansion across the region. Their successful initial traction has led to pipeline partnerships and media exposure.
What problem is Fundnel solving?
The economic story for SMEs in Asia is very similar to every other region: SMEs account for over 90% of all registered enterprises. They contribute more than 50% of the economic output and 70% of the employment. Despite meaningful measures to support their growth, many young companies and medium-sized businesses (with sound financials) are crippled by the lack of access to capital and knowledge on how to raise it. On the other side of the investment equation, investor access to deal flow is severely restricted due to lack of access and adequate information required to make an informed investment decision. Fundnel aims to address this funding, knowledge and deal flow gap for both entrepreneurs and investors.
Why is this product necessary?
Capital in the Asian markets is fragmented but available where investors have both experience and transparency. Fundnel brings education to the markets, from deal structures to landscape analysis and due diligence to provide transparency and understanding of all businesses listed on its platform. Fundnel states that “these measures are put in place to increase the rate of success by helping to decrease friction created by knowledge gaps.” Fundnel then uses its technology to aggregate the fragmented pockets of capital in Asia and invest in “real” businesses. They claim to bring “structure to the process that provides everyone with access to investment opportunities.”
How does it work?
Fundnel states that “it conducts qualitative and quantitative assessments of all investment opportunities before listing them to ensure the legitimacy of the company as an investment opportunity.” They use a process they call the Fundnel Factor which is “a consolidated approach that integrates legal and financial due diligence with strategy and traction assessments.” This includes a process that “stress tests potential applications (on a no-name/no bias basis) with potential anchor investors to test for market receptivity.”
At present, Fundnel offers a variety of funding mechanisms to support capital formation of businesses at different points in the growth cycle. These include: equity (through mandatory convertibles), bond, convertible notes and an innovative revenue sharing structure that allows a business to leverage multiple crowd-based investors by sharing a portion of its topline revenue.
Who are the founders?
Fundnel is founded by Sam Ng (CEO), Kelvin Lee (CEO) and Chua Khai Lin (CFO), three former leading investment bankers with J.P. Morgan with an aggregate of 17 years of experience in investment banking. The broader Fundnel team consists of a mix of finance professionals, data analysts and creative designers that are focused on making their investments more efficient, transparent and easier to understand.
What can you tell us about early traction/user experience?
After a successful beta test in October 2015, Fundnel officially opened its doors to businesses and investors in January 2016. Since then, the company has helped 10 companies raise funds across Asia. They have registered over 1,000 users on its platform, of which three quarters are “Registered Investors” (aka Accredited or Sophisticated). Fundnel states that “its deal pipeline currently consists of 110 companies.” They claim that “only a small percent will succeed in making it onto the platform.” Fundnel has received valuable media coverage on Channel News Asia, The Straits Times, Yahoo, E27, Deal Street Asia, Next Insight, Crowdfund Insider and Deal Room. Additionally, Fundnel has developed a pipeline of partners in this fast-growing ecosystem, including Ambrasia Group, Anthill Ventures, Retro Spot, IncuVest, Coffee Ventures, KPMG, Malaysian Global Innovation & Creativity Centre (MaGIC), Marvelstone, Start Global Ventures, RHTLaw and Taylor Wessing.
What are the risks?
While the early pipeline interest is encouraging, the larger challenge is finding and engaging quality investors to make investments in these opportunities. Recent news about default cases in the Chinese P2P lending sector may impact the confidence of potential investor interest in making unsecured investments. Fundnel’s efforts in building transparency, diligence and 3rd party validation/partnerships are helpful, but may not be sufficient to overcome skeptics in the broader markets.
The Monetary Authority of Singapore (MAS) currently limits the participation in crowdfunding to Institutional and Accredited Investors. While there have been public discussions of the opportunities for crowdfunding in Singapore, Fundnel is working in tandem with the MAS to review certain financial requirements to facilitate the nascent industry of crowdfunding whilst safeguarding investors’ interests.
From a US-based perspective, the bias is “launch in one market, build a strong foundation there, and only then, do you expand to a second market.” However, in Southeast Asia, the mantra is multi-market launch from Day 1. This adds to the level of complexity in managing regulatory risk, business risk, operational risk, etc. It remains to be seen how Fundnel manages these risks.
What is Our Perspective?
We are bullish on crowd-based finance in South East Asia. The team is a balance of finance and technology professionals that have driven early and meaningful success. Many times we see teams that are either “tech-focused” OR “finance-focused” with one group underestimating the other when creating a successful, balanced, securities-based crowdfunding platform. Fundnel’s team is aggressive in both how they view expansion across markets/jurisdictions as well as new client acquisition. They are making bold moves in partnerships and marketing. We strongly believe in standardization of data and process and Fundnel will need to fully use these skills in order to reach its goals across South East Asia. Their multi-financial product approach is unique and potentially valuable to the market as a one-stop-shop for both SMEs and startups in the region.