Kelvin Lee is the co-founder and CEO of Fundnel Limited, Singapore-based collaborative private investment platform for accredited investors.
FTA: Hi Kelvin, can you share with us about your background prior to Fundnel?
Before Fundnel, I was with the Capital Markets (IPOs, equity placements) team at J.P. Morgan covering clients in North and Southeast Asia and raising over US$20bn+ for clients to date.
I left J.P. Morgan together with two of my co-founders in October 2014 and we started Fundnel in May 2015. Following our official launch in January 2016, our small team has grown to a 20 strong crew (including our interns and tech developers).
FTA: Why did you decide on building a private investing platform, and why Fundnel?
During my time at JP Morgan, I spearheaded a number of IPOs. One of the more memorable IPOs that I did was for a standout Hong Kong-based technology company based out of China that was on the road with us for an NYSE IPO. I remember it was a Sunday afternoon and I was helping out the management teams with roadshow rehearsals.
I could vividly recall the frustrations the CEO had whilst I was helping him brush up on his responses to investors and the press. In a candid moment later in the day, he told me that the way investment banks like ours were going about raising funds for companies was outdated and we would eventually be replaced by technology-powered funding platforms such as Indiegogo and Kickstarter. I agreed.
That fateful Sunday afternoon planted a seed of an idea in my head and would prove to be the catalyst that pushed me to find out more about how alternative platforms such as OurCrowd, CircleUp and local platform Moolahsense are transforming the face of the finance industry.
A recent article titled “The Reckoning” by William Cohan in the February 2016 issue of Fortune magazine highlights the same concerns we had back then.
In his article, Cohan suggests that the process of IPOs in the recent years have been increasingly skewed to better benefit Wall Street underwriters and their favoured clients – venture capital and buyout firms, as well as the big institutional buyers of IPOs. Institutions have been doing this at the expense of individual and retail investors, who have been convinced by the media into thinking that they are getting their hands on the stocks of the “Next Big Thing” at IPO.
The once clear and transparent processes and mechanisms of capital raising and subsequent “price discovery” on the stock markets, is now a tool heavily controlled by investment banks and early-stage investors trying to achieve a dream valuation and stock price on their investments.
In fact, a report shared by VC firm Andreessen Horowitz in June 2015 reveals that a recent majority of tech-IPOs have yet to yield any returns for investors.
On the other end of the spectrum, I’ve also begun to notice a trend amongst peers who graduated during the global financial crisis in 2008: a growing cohort who are less invested (and interested) in the stock markets than one would typically expect of business and finance graduates.
My suspicions were confirmed when I read a research report by Goldman Sachs in March 2015 that identified a shift in the psychographics of global consumer behaviour amongst millennials who are increasingly un-interested in making investments in traditional stocks and shares while proportionately becoming more interested in the viability of alternative funding and investment platforms.
The correlation of the above pieces of data with my personal experiences with companies and investors navigating the IPO process made me realise there was a significant opportunity to use technology to simplify the process of fundraising for everyone.
FTA: Can you share with us more about the model of Fundnel and how did you set it up to be different from other platforms?
In investment banking, we often theorised about how to make the process of capital raising and investing more efficient with analysis, interaction and effective deal syndication. With Fundnel, we finally have the ability using data, technology and design to simplify the way we invest.
Bringing together a diverse team of individuals with backgrounds in private equity, marketing, entrepreneurship and design, we have branched out into five key markets with offices in Singapore, Malaysia, Indonesia, Hong Kong and a partner office in India.
FTA: Why we are different from other platforms?
We are creating a new online finance eco-system with the aim of modernising the fundraising/investment process for the new open access economy we live in today.
Access to Quality Investors + Tools and Analytics = Fundraising results
Since our inception, Fundnel has helped investors to source and invest in 10 deals worth over US$8mm.
To complete those 10 deals though, we had to not only rely on human analysis from our investments team but also, harness technology to screen over 400 deal opportunities and to help leverage on our network of over 2,000 individual investors that we could effectively target using our data analytics software. It is a long process but we are confident that this will improve as we continue to learn.
FTA: How has the response been so far for Fundnel, or investment fundraising in Asia in general? Do you see an upwards trend and greater adoption going forward?
Israeli crowdfunding platform OurCrowd is one of the earlier fundraising platforms that we looked at when we started. A year ago, we wouldn’t have thought that UOB would be interested in coming into our space, but a considerable investment by the bank into OurCrowd a few weeks ago proved us wrong.
In February 2016, Australian specialist bank Investec invested into Equitise (a crowdfunding platform based in New Zealand) to fund their expansion into Singapore.
Although there is a growing trend of alternative platforms offering investments in private equity-type deals, we need to see a lot more government support, at least in Singapore, in addition to clarity with regards to regulations in order to become more mainstream.
So while we’re eventually aiming to introduce private equity investments as a new asset class for the broader public, right now we are restricted by regulations whereby we can offer it to just accredited and professional investors as the government intends to protect the broader public from the higher uncertainty risks that exist in private equity-type investments.
FTA: We understand that there are still rules and regulations surrounding this space, especially in Asia, how is Fundnel coping with these obstacles so far?
We are always testing the market to gauge investor receptivity. We made a conscious decision to set up physical offices and build teams in five countries (Singapore, Malaysia, Indonesia, Hong Kong and India) because a regional presence enables us to better source for deals as well as having an ear to the ground to better understand investor behaviour and preferences. Even though limitations persist in Singapore and Malaysia, they are already slightly ahead in terms of liberalising the private investment market.
In Singapore, we are currently in the process of running a deal for a local company named hawker.today that aims to deliver local hawker fare to your doorstep. The deal’s unique feature is a revenue-sharing structure that is accessible from a $250 ticket size. This deal was structured with a retail investor interests in mind instead of accredited investors. Deals like this give us the opportunity to better understand public sentiment revolving around such investment opportunities and gauge their receptiveness of investing online.
This deal structure was conceptualised and deployed over a year ago in Hong Kong with an F&B project as a testbed that eventually went on to raise US$1m through 23 individual investors. The underlying basis of the revenue-share deal structure was to facilitate win-win collaboration opportunities between a company and prospective investors. Through this model, investors understand that the more they contribute to help in the development of a business, the more they will receive in returns – this is the very essence of a revenue-share arrangement.
Education is another big item on our agenda. The business of crowd-based investing is still very much at a nascent stage even in markets as developed as Singapore and Malaysia. To overcome this hurdle, we recently launched an initiative to help the wider market learn more about the concept of crowdfunding and its application for both investors and business owners in modern-day fundraising. The campaign was a resounding success, with a large portion of new user sign-ups attributed to the initiative. What has been rather encouraging is the fact that many of our new users have also subscribed to our editorial content to learn more about the industry and what it holds for everyone. Fundnel is fully committed to fulfilling our mission to elevate and educate the market in the near term.
FTA: What are your upcoming plans for Fundnel this year and the next 3 years?
In the shorter term, we will continue to learn from ongoing market feedback and tweak our platform to continue to offer curated deals to our network of accredited investors.
In the longer term, we feel that there is going to be a real opportunity to open up private investments to the broader market, depending on progress of local regulations to:
- Offer curated co-investment opportunities (e.g. Invest with Tencent) with private equity and financial institutions to the general public as a new accessible asset class,
- Provide a private secondary trading platform where investors can trade shares in private (pre-IPO) companies like Spotify, Uber, Airbnb etc.
For now, our focus remains on building up our technology, growing our deal offerings for our stable of investors and providing these investors with tools to assist them in their due-diligence and investment activities.
FTA: What is your proudest achievement through Fundnel so far?
What continues to drive me in the morning and late at night is essentially the fact that we have been able to recruit one of the best teams for this company. I am amazed by the sheer quality of talent we have to drive us forward; our guys gave up jobs in places like venture firms, investment banks and consultancy firms to join us on our journey. The thing is, no one has prior experience working on a platform like Fundnel before and, as a result, we venture into murky waters every day. Despite this, they gave up those stable careers to side with us and this says plenty about their commitment and belief.
No one knows if we will succeed or how long the market will take to realise the potential of this form of investing, but I am always very happy that these guys chose to be on our side. So whenever someone asks me about what I am personally most proud of, I will always say that I am most proud of my team.
A close second to that would be the advisors that have stepped up to lend us their expertise and experience. One of our advisors is Jason Best, co-author of the CrowdFund Investment Framework which was deployed by outgoing US President Obama in the Jobs Act to make crowd-based investing legal in the US. We are humbled to have him on board as our exclusive advisor in Asia. As he travels around the world looking at different platforms, he is able to help us and give us insights and advice.
FTA: Finally, do you have any tips to get our Fintech Asia readers started on a platform like yours?
It is not hard to be a part of Fundnel. We are giving out free magazines to help educate the public: fundnel.com/education-fta
We are trying to distribute this out to people to educate and entice them to learn more about financing and what we do.
Our end goal is to help crowdfunding gain traction among the general population. As more companies get funded, they have the ability to hire and generate more jobs for people. This acts like a multiplier effect and, in some sense, we believe that we are trying to progressively build nations through our platform.