How to Make Funderbeam Better?
Things that can be improved on Funderbeam - from small investor's perspective
Intro
Over the last six months, we’ve raised several issues related to Funderbeam on Twitter. But the important tweets are quickly buried below the latest and greatest. The intention is to cover the most important issues here, in less ephemeral manner than is social media.
Knowing Your Rights
One of the issues that surfaced during Tanker buyout from marketplace is that by investing in Funderbeam instruments, the investors have really no idea what their rights are according to shareholders’ agreement.
In case of Tanker, share unit holders (but not loan note holders) were presented with the option to exercise their right of first refusal (the right to match buyer’s offer and get priority).
This specific right is NOT in the NIA (Nominee Investment Agreement) that is readily available in Funderbeam, but it comes from Shareholders’ Agreement (SHA). Yet, as an ordinary investor on Funderbeam, your information package doesn’t include SHA.
Another example of this is when Barking organized a vote for Funderbeam investors to waive their pro rata rights that the investors didn’t know they had (unless, of course, they specifically asked for and were given access to SHA).
Same goes for Ampler’s latest round - did the investors have pro rata rights there or not? We’d assume we didn’t, but there’s no easy way to check either. For the record - if it’s about Ampler continuity, then we’ll readily give up our pro rata rights. But that doesn’t mean we don’t want to know what the rights are. The discussion here is about the principles.
In the discussion that followed on Twitter, Olavi said that share unit holders have the right to request SHA - unless it’s considered confidential. We have not tested this right.
So there’re two sides with conflicting interests:
It’s understandable that the companies want to keep their SHAs confidential
It should also be understandable if current investors and potential buyers want to know their rights
Probably the compromise would be what was done with Tanker loan note issue: the rights are thoroughly described on the termsheet as pointed out by their lead investor Tauri Alas on the same Twitter thread1.
Sadly, none of the newer campaigns are that specific.
Our suggestion is to continue the approach where important points from SHA are covered on termsheet as was done in first Tanker campaign.
Listing the rights would also allow more meaningful distinction between different instruments of the same company.
At least in some cases, it is as important to know which rights the investors don’t have (i.e. pro rata right should always show up in the list - in some cases ticked and in some cases not).
It’s part of the wider issue of being somewhere between an entirely private company and trading on a public stock market. We believe companies trading on Funderbeam tend to think of themselves as private companies and, at the same time, investors project the public companies’ expectations to them. Funderbeam has said that they’re marketplace for private companies and we accept that. Yet it doesn’t mean some things cannot be improved.
Trading Suspension Policy
It all started when Ampler announced new round and Funderbeam suspended trading back on July 9th. Ampler was responsible for a quarter of all trading volume during H1 - yes, we calculated - the exact number is 24,98%.
This meant lost trading fee to Funderbeam, but also the market activity sort of died down. People’s money was stuck for months with little news, which in turn generated all kinds of rumors and doubts. To put this into context, several OMX Tallinn companies raised money during the same time all while being traded.
So no wonder that something had to be done.
First, Bikeep loan notes were opened for trading ahead of share units and the same was done with Upsteam. With Silen’s new campaign, Funderbeam took it to next level by suspending trading for announcements and then reopening it.
We generally welcome the idea and see very little meaning in those suspensions put into place to “protect” the investors. Seems to be completely arbitrary when stuff like this erases almost half of company’s value: https://www.funderbeam.com/company/grim/update/32767?postId=37432 (bear in mind it wasn’t even first posted in FB, not to mention trading suspension to let company explain and investors adapt).
On the other hand, one has to contemplate what would Ampler’s price have done between July 9th and the day when Hinrikus&Tamkivi led round was announced, especially at the moment when Ampler said that one potential lead investor withdrew their offer. But… But isn’t this what price discovery is all about? We’re in Funderbeam because of secondary market and price discovery, not because we want to be “protected” from it.
What we vehemently oppose is the non-existing new policy and any communications regarding it.
We argue for clear, communicated policy for future trading suspensions. As we’ve said, we don’t even care so much about what it is exactly, provided it’s communicated and followed.
If anybody asked our opinion, the policy would look something like this:
Suspend trading for 24h.
Announce new round and its terms.
Trading continues.
Suspend trading for 24h.
Announce exact dilution (please mention date and ‘Equity %’ change in message as average people don’t collect the historical data) when round is formalized.
Trading continues.
If anything else could have sudden, material effect on the value of investments, suspension for 24h is fine. Just please don’t do it like 5 times during campaigns otherwise this creates unpredictability by itself. Thank you!
Instrument Design
The story started when people mistakenly paid real stock price for subscription right instrument - on OMX Tallinn, not Funderbeam.
And then Swedbank felt that they didn’t explain the instrument properly and chose to cover the losses for people who mistakenly bought the subscription right instruments for stock price. Well, mistakes are different - there’re misclicks and other unintentional acts. And there’re mistakes you do when you’re not careful, you don’t do your homework good enough, you don’t care about the details, you do what everybody else is doing. The latter type have no place in investment world - expect to lose if you don’t understand what you’re doing.
Whether Swedbank’s actions are taking responsibility for the insufficient explanation (and earning credit at the regulator’s office) or simply a marketing campaign, remains unknown. We tend to think it’s the latter.
When trying to put this into Funderbeam context, there’re two cases:
Some things are complex enough that average people probably can’t and certainly don’t bother to calculate. For example:
- How big stake in the company do the instruments represent? Important when comparing different syndicates of the same company.
- How much is the dilution? Important during new rounds.Some things are “we don’t know that we don’t know type” - see the first chapter of this post.
As we said on Twitter - we don’t want any compensation, but we have some proposals:
We’d like the eliminate the type 2 unknowns - we’re fully capable of doing our homework provided that we have the necessary info. Without asking.
Whenever it’s possible to make things easier, they should be made. Why can’t the instrument multipliers be set in a way that different instruments represent the same stake in the company (that is, their price is directly comparable)?
Think about usability - some people are very particular about optimizing out a couple of clicks here and there. But this is not all there is to usability - usability is also about presenting complex concepts in easy, understandable ways.
One could buy and listen to music before Apple invented iTunes & iPods. One could buy and watch movies before Netflix. Yet both - very successfully, from both customer and company perspective - changed the way we do those things.
We want macOS-like graphical user interface to investments, not Linux command line - figuratively speaking. Even if select few are completely fine with the command line, it’s not what appeals to the masses.
Loan Note Naming
Oh no, not this again. We’ve long argued that the name “loan note” is a bad one because:
Just read the whole thread, it says it all, multiple times over, with and without using the f-word.
Multiple suggestions have been made regarding replacing the term ‘loan note’, including what we consider the best option so far - ‘SPV unit’. The other option is ‘tokenized loan contract’ or TLC - the one used by Change for their SPV-type instrument.
Our latest find though is that pretty much everywhere else the instrument is called “loan note”, but on trading screen, it’s just “Loan”. FFS.
So - even if the term ‘loan note’ isn’t going anywhere - can we at least get to the point where people, on the main trading screen, aren’t presented with the option to buy LOANS?
Conclusion
If, after reading all this, you feel that Funderbeam is a bad place to manage your investments, then - no, this is not the case. If we thought that way, we’d never ever spend the time and effort to write this stuff or cover the everyday happenings on Twitter. It’s good enough (and has been for years already), but there’re always room for improvement. And as this part is not covered in press releases, we’ll fill in the niche.
We also completely understand that, for now, Funderbeam prioritizes the stuff that brings new companies to the platform and the investors come when there’re good companies to invest into. But we hope we’ll get to the point when things are good enough to pay attention to the investors on the platform too. We’ll link to this article again then.
Housekeeping
If you don’t bother to follow our everyday ramblings on Twitter (https://twitter.com/NugisAino) where we also announce the new articles, you might want these longer articles delivered to your email:
And if you’re reading Nugis for the first time, you’re welcome to check out the other articles too.
According to our best understanding, the loan note owners actually don’t have these rights. During Tanker exit, loan note holders were not given the right of first refusal.
How to Make Funderbeam Better?
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