There is no question that technology is continuously revolutionizing the way we do things. From payments to transportation old incumbent players are feeling the pressure from new market entrants. That was the trend Kelvin Lee, co-founder and CEO of Fundnel was starting to see when he was part of J.P. Morgan’s investment banking team. Working on Cheetah Mobile’s US$168 million IPO back in 2014 Lee had an enlightening conversation with Cheetah Mobile’s CEO Sheng Fu about the capital raising methodology of investment banks. It was out dated and would be soon replaced by technology platforms such as Kickstarter.

 

The idea of a savvy alternative financing technology platform resonated with Lee and prompted him to set up Fundnel back in 2015. For Lee Fundnel would act as a bridge between professional institutional investors and unlisted companies in the growth or pre-IPO stage that might be uncomfortable about exposing their financial data publically. “Why go public when you can stay private whilst continuing to raise the capital you need and expand your company regionally,” highlights Lee. In the last few years Fundnel has helped raise funds for 15 private companies totalling US$49 million. Currently Fundnel has around 5000 investors on its platform ranging from family offices to private equity firms.

 

In 2016 alone the company analyzed 700 company investment opportunities. According to Lee around 70% of these opportunities will not get through the initial quantitative screening tool, which Fundnel calls the “Fundnel Factor”. The Fundnel Factor looks at a wide range of data points of a company such as competitive margins, revenue growth and management experience. “The remaining 30% that pass our filtering process go through a more granular evaluation where we send out a team to do more due diligence. Only the top 10% of applicants have their details syndicated to our investor network.” says Lee. “Once a deal has been syndicated, we don’t make a call on whether this company is a good or bad investment; the investor himself decides if he sees value in the business or not.”

However, every new idea faces some challenges. In the case of Lee and Fundnel it was first ensuring that the company’s concept was in line with financial regulations. As a result Fundnel was part of the Monetary Authority of Singapore’s (MAS) public consultation on a fintech regulatory sandbox. “The first year of operations for Fundnel was centered around working with regulators to build trust and comfort, whilst working within the boundaries of defined frameworks. recalls Lee. “To help in this process, we relied on what we had learned in the US in terms of regulatory compliance.”

Just last November, Fundnel cleared a major milestone when it received a provisional Capital Markets Services (CMS) license from the MAS. Under the scheme with the MAS, Fundnel was able to openly market itself as an equity crowdfunding service. “With the CMS license, we are able to operate with more freedom within Singapore. It also provides our investor network with confidence all our activities are regulated, and abide by the comprehensive MAS code of conduct,” says Lee.

 

Education of Fundnel’s technology solution towards market incumbents was also another important factor to address when Lee was initially setting up Fundnel. While technology platforms such as P2P lending have likewise given additional financial flexibility to private companies, Lee stresses that Fundnel is different. “We are not focused on lending. Most of our deals are equity or equity-linked type structures. The use of proceeds is not used for working capital only, but we are more used for expansionary growth,” stresses Lee. “You wouldn’t see institutional investors on a P2P platform.”

 

When it comes to the future, Lee like the private companies he interacts with has an eye on regional growth. Aside from Singapore, Fundnel also has a presence in Malaysia, Indonesia and India. Moreover, Lee and his team will be looking to enhance their current platform and hopefully make the deal screening process semi-automated. The dream vision for Fundnel would be to create a transparent private secondary exchange as an alternative to the traditional public route.

 

“We spend 80% of our time growing the core deal making system that we have already built and put in place, whilst around 20% of our time is focused on experimenting. This involves deliberately blurring the lines of public and private securities, by replicating the familiarity of public market products and activities in private market equivalents.” shares Lee.