Wall Street Meets Crowdfunding with Startup Stock Exchange

Startup Stock Exchange CEO Ian Haet discusses the stock market concept as applied to crowdfunding and why his investment vehicle has taken off in LatAm.

The Startup Stock Exchange (SSX) struck a cord with the Latin American startup community from the get-go. Just two weeks after its launch, the platform garnered nearly 100 applications – nearly a quarter of which came from LatAm.

What’s the draw? SSX CEO Ian Haet gave us his take:

SSX has engaged with the Latin American entrepreneur community, giving them access to global investors and the possibility of raising the investment capital needed by offering ownership shares on a securities exchange while allowing LatAm investors to access investment options from all over the world.

Applying stock market methodologies to the crowdfunding concept, the Startup Stock Exchange has emerged as a promising alternative for early-stage companies in need of funding. It works with local incubators and accelerators to broadcast its message as a unique and effective investment vehicle, Haet having spent time with local entrepreneurs through Wayra chapters in Venezuela, Argentina, Colombia and Chile and also participating in events sponsored by Start-Up Chile and Endeavor.

[youtube]https://www.youtube.com/watch?v=KAqLhTGkFpE#t=0[/youtube]

To date, three startups have had initial public offerings on the SSX, two of which are directly tied to Latin America. Its flagship startup is LATAM Incubated One BV, an investment vehicle created for graduates of Latin American startup programs like NXTP Labs, 21212, Wayra and 500 Startups to get funding. And on February 21st, Vonus was officially listed on the SSX as well. Out of Mexico, Vonus provides cloud-based solutions for small businesses, such as inventory tracking, point of sale and analytics. New listings from the region are expected in the coming weeks and months.

We recently chatted with Haet to learn more about the Startup Stock Exchange proposal, his take on crowdfunding, and the platform’s reach in LatAm.

Emily Stewart: A lot of startups go the crowdfunding route not only to get money but also, and sometimes more importantly, to get attention. How do you compete on that front?

ianhaetIan Haet: The Startup Stock Exchange combines the social basis of crowdfunding with the benefits of a regulated securities exchange. This means that all companies listed via SSX get the attention a company running a crowdfunding campaign does but in a wider extent. To start, all listed companies get immediate exposure to a pool of global investors from over 100 countries and an international group of SSX Advisors from different places around the world, all with high net worth contacts. With crowdfunding, a successful campaign implies a lot of preparation, ongoing marketing efforts and is directly associated to having a preexisting large network.  On SSX, all investors and advisors are informed about the initial public offering by newsletter updates and SSX online community alerts. Additionally, non-registered investors have access to basic information on our website about all our listings and even companies being considered for listing. This gives better exposure to the crowd than having to spend a lot of time pitching your campaign, starting with your personal contacts, to create momentum and reach the front pages of a crowdfunding platform.

An additional important benefit of listing on the SSX is the ongoing access to mentoring and advice from a team of startup experts that can guide the venture throughout the whole process of creation, development and expansion, which, after funding, are the most important requirements of early-stage companies.

ES: With this system, what happens if a startup takes off? What if it’s acquired or has a stock market IPO? What about if it shuts down?

IH: One of the highlights of the Startup Stock Exchange is the existence of a regulated market, a securities exchange, in which the transaction of the stocks takes place. This is particularly important because it brings liquidity to the investment; this means that any investor can exit the investment when they want, by selling the shares to other investors. With SSX, companies do not need liquidity events like buy-outs or IPOs, because they are already offering their shares through an exchange. However, if the company decides to move to a larger exchange, like NASDAQ, they are delisted from the DCSX and then listed on the chosen exchange. The shareholders will remain shareholders, and the shares will be traded on a different exchange and be held in custody with a different custodian. If the company is acquired, the shareholders will be bought out as well and receive their cash and the purchasing company will get the totality of the shares. While the startup is listed via the SSX, shareholders have the right to participate in their profit and loss, meaning that if it takes off they will enjoy dividends and possibly a rise in the price of the share on the market. If it shuts down, companies are not bound to return the funding capital to investors. It is part of the risk shared when investing.

ES: What sorts of startups are applying most to the platform?

IH: SSX has received over 400 applications from 80 countries across 24 different business sectors. All different sorts of startups are applying to list via SSX. Investors on SSX are looking for all kinds of investments, and so we are seeking startups of all different kinds. We have a large focus on Latin America right now given the growth of its entrepreneurial ecosystem. The listing applicants range from product companies to technology to tourism-related companies. There are thousands of great initiatives and companies in Latin America, but their access to capital is severely limited compared with the access to funding capital companies in more developed countries have. SSX is working to solve that issue.

ES: The crowdfunding model, at least in Latin America, hasn’t exactly proven to work yet. What’s your take?

IH: Crowdfunding in Latin America hasn’t yet reached the popularity it has in other regions. One of the reasons might be the lack of platforms that allow Latin American entrepreneurs and investors to access this type of funding and/or investments. Kickstarter, for instance, only allows projects from the U.S., U.K., Canada, Australia and New Zealand. It is possible to run a campaign creating an alliance with a resident of one of these countries, but it involves greater efforts than the ones proposed by crowdfunding. Most equity-based portals are also available to a limited group of companies and investors, like EarlyShares and Seedrs.