CROWDFUNDING platform FundedHere has launched FundedX, a private stock exchange in Singapore to facilitate the trading of shares of high-growth startups and privately held companies in South-east Asia.
Observers said FundedX could invigorate Singapore's private market and boost liquidity for ex-employees and early investors who hold shares in private companies, but that its challenges include ensuring liquidity on its platform, and upholding employee motivation and investor confidence in the companies whose shares can now be traded.
FundedHere, which has raised over S$10 million for companies since its 2016 launch, describes FundedX as a first for Singapore and the region, and which it hopes will create a secondary market that provides "much needed liquidity" for shareholders of privately held companies in the region.
Daniel Lin, co-founder of FundedHere, said at the FundedX launch on Tuesday: "In the private market, there is a lot of fear that if you own shares of private companies, you cannot sell those unless through a trade sale or initial public offering (IPO). Liquidity is therefore a problem.
"And people always want out. FundedX is a centralised exchange that enables people to sell their shares, and promotes more occasions for companies to provide more exit options."
He said for a start, FundedX will target startups with a minimum valuation of S$30 million, because they attract the "right" amount of interest and number of investors. He named ride-hailing service Grab, and online fashion store Love Bonito as being among the more than 20 such startups in Singapore.
Liquidity is a key concern for FundedX, Mr Lin acknowledged.
"We hope to improve liquidity for the platform by winning over the companies first. Technically, the platform doesn't need them, but it's better to have the companies on board so they would be more inclined to provide information and in a timely manner, which will encourage investor confidence and greater transactions."
He said FundedX is a complementary extension of FundedHere's crowdfunding offering, which will support "yet another key stage of the funding cycle for emerging companies".
FundedHere has a capital markets services licence in Singapore, which it said would extend to its running of FundedX; the private stock exchange plans to expand to Malaysia and Indonesia in the next 12 to 18 months.
Reuben Lai, senior managing director of Grab Financial Group, said FundedX has not only enabled the buying and selling of shares in private companies, but has also overcome the "logistical challenges" of dealing with the many shareholders and investors of a private company.
Chua Boon Ping, chief of SPH Ventures, the investment arm of Singapore Press Holdings, noted that startups may not pay their staff as well, but may offer them share options.
FundedX is thus a "wonderful concept", he said, in that it will benefit ex-employees or early investors of private companies, who will now have an avenue to liquidate their shares when they need the cash to "get married or buy a house".
However, he said FundedX can compromise employee motivation and investor confidence. "With a platform like FundedX, startup employees that hold shares in the company can already become millionaires by selling their shares on the platform, even without a trade sale or IPO of the company. Will they still be around for the long term, or continue to put in hard work for the company?"
Mr Lin replied that FundedX caters more to ex-employees, given that current employees can sell their shares - or a limited amount of them - only with the approval of their employers.
In Singapore, a similar platform to FundedX is 1exchange (1X), which facilitates the trading of private securities and is backed by Singapore Exchange (SGX) and investment syndication platform CapBridge.
Mr Lin said the main differences are that 1X targets late-stage startups or pre-IPO companies and charges a listing fee, while FundedX targets high-growth startups and charges only a transaction fee.
CapBridge chief Johnson Chen said on secondary broker platforms like FundedX, the securities sold will likely retain "existing complex shareholding rights and obligations". Incoming investors who inherit these rights and obligations will be left with an illiquid asset, which they will have to hold and wait for an exit, he told The Business Times. "Hence, each transaction is ad-hoc and no continuous trading takes place. This makes FundedX not quite a private exchange, but more a matching platform.
"On 1X, simplified tradable securities are listed on our exchange and investors can freely trade in and out, therefore allowing ongoing liquidity and price transparency."
Asked about FundedX's launch on Tuesday, SGX declined comment; the Monetary Authority of Singapore did not offer a comment by this newspaper's print deadline.