Funderbeam is an equity crowdfunding platform with a unique secondary market that is growing its presence in the UK in 2022. In this Funderbeam review, we’ll lift the lid and reveal everything you’ll want to know about this new entrant and compare it to existing crowdfunding websites.
In our review of Funderbeam, we’ll explain the features, risks, charges and differentiating factors that make Funderbeam stand out from other UK competitors.
Investment risk warning: Investing in small, private companies is a high-risk activity. Start-up or small businesses have a higher risk of failure, which may result in a total loss of capital. Private market investments may be illiquid.
The suitable time horizon for a private markets investment is 7+ years. Investors generally limit their private markets asset allocation to a small percentage of their overall investment portfolio and diversify their investments across many opportunities whenever practical to reduce risk.
Financial advice disclaimer: Financial advice should be sought before investing in complex financial instruments such as private market investments. This Funderbeam review is a piece of journalism explaining the features, background and risks of Funderbeam as a marketplace and company. It is not a solicitation or promotion of any financial instruments, nor it is a replacement for financial advice.
Retail investor access: Some of the investment opportunities described in this article may be restricted to sophisticated investors or high net worth individuals.
Highlights of Funderbeam review: at a glance
- Regulated trading platform for private market investments
- Opportunities available for retail investors
- 70+ companies successfully funded
- Buoyant secondary market in private shareholdings
- Clear fees for investors – lowest amongst comparable platforms
What does Funderbeam offer?
Funderbeam is a platform that brings together companies raising fresh equity capital and investors who want to participate in the potential growth of such companies.
Funderbeam, like other crowdfunding platforms, allows retail investors to access opportunities that were historically restricted to high net worth or sophisticated investors only.
Companies are attracted to the platform as they can raise equity finance in an efficient manner through a single point of contact.
Investors enjoy the ability to browse many investment opportunities across Europe and diversify themselves across multiple investments. They can create a portfolio of private market investments in a matter of clicks after they have performed due diligence and have read and understood the investment agreement.
A key feature of Funderbeam is their regulated exchange for private companies known as The Marketplace.
The Marketplace is a core part of the Funderbeam offering. It allows investors to trade their shares freely with one another at a price of their choosing. This adds some possible liquidity to a previously illiquid investment class, potentially improving the risk-reward relationships of such investments.
Funderbeam is regulated in the UK by the Financial Conduct Authority and by other authorities in other jurisdictions. We cover this in more detail later in the article.
How do private market investments differ from public investments?
Private market investments include the ownership of shares, bonds or debt of a private company. Companies raising on Funderbeam typically offer shares or convertible notes to investors.
These investments are not easily traded as they are not quoted on a public exchange such as the London Stock Exchange. They do not have a live ‘market price’ and you cannot be certain that you will be able to sell your investments if you need to sell within a specific timeframe.
Investors in private equity will typically hope to exit their investment in two ways:
- The company is acquired by another company (all shareholders agree to sell their shares to the acquirer)
- The company floats on the stock exchange in an Initial Public Offering (IPO), at which point existing investors will have the opportunity to sell their shares either during or after the point of listing
The absence of a public market to sell private market securities is one of the reasons that makes them higher risk investments compared to a simple index fund. You may be trapped within an investment with declining prospects without the ability to exit. Equally, you may be unable to take profits on a successful investment at a time that is convenient for you.
How does Funderbeam make private market investing more liquid?
This is where the Funderbeam platform changes the equation.
The Marketplace is a secondary market that allows users to trade their shares acquired through fundraisings on the platform.
This brings potential benefits for those on each side of the equation:
- Existing investors may have the opportunity to exit their investment at a more convenient time frame than the growth route of the company will allow
- New investors have vastly more choice on the platform because they can choose between fresh fundraising opportunities and shares from previous funding rounds on Funderbream
- Companies retain an active and engaged investor base who believe in the growth of the company. Investors who no longer believe in the equity story can exit, and new investors who see further growth can buy-in
Who can use Funderbeam?
Funderbeam provides investment opportunities to different classes of investors in the UK and worldwide.*
- Retail investors
- Sophisticated investors (see our definition)
- High net worth investors (£100k+ income, £250k of assets)
- Professional investors (such as pension funds, fund managers)
A short questionnaire you will complete while registering for the platform will sort you into the appropriate client category. The range of investments you will be offered will vary depending on your status.
*US residents and passport holders generally cannot access the services.
How does Funderbeam work?
Any investment you make through Funderbeam could take different legal forms depending on where the company is incorporated, the investment opportunity, and whether you meet the definition of a sophisticated investor:
- Nominee structure – shares or convertible debt instruments in the fundraising company are held in custody for you by a Funderbeam nominee. Read more about nominee holdings below.
- Loan Note Structure – you subscribe for a debt security in a special purpose vehicle company, which uses the funds to subscribe for the shares which are issued by the fundraiser. The special purpose vehicle you hold shares in will pay a return based upon the proceeds of the underlying investment.
- Direct investment structure – the simplest legal form, where you will become a registered shareholder of the financial instruments being issued.
- Other investment structure – which may include funds or collective investment undertakings.
What are nominee accounts and are they safe?
When investors subscribe to a share offering on Funderbeam, any financial instruments issued will be held by Funderbeam (or subsidiary) in a nominee account on your behalf.
The Funderbeam nominee will be recorded as the registered shareholder, but you are the beneficial owner, which means any financial benefits of the share will accrue to you.
If this is the first time you have heard of a nominee account, this may sound like an unusual system.
In fact, it is the default legal arrangement between brokers and clients across the wealth management industry. You will find that all of the best UK stockbrokers hold shares on behalf of their clients in this fashion.
Funderbeam’s terms of service state that any assets held in this fashion are held in accordance with CASS rules. CASS rules are issued by the UK regulator in the FCA Handbook. These instruct financial institutions on the special precautions to be taken when holding client assets. Funderbeam’s systems and processes for holding assets and money on behalf of clients are subject to an annual external audit, to ensure they continue to meet the FCA’s standards.
A nominee account is usually held in a subsidiary company, allowing the assets to be clearly segregated from Funderbeam’s own business assets. The appointed nominee could alternatively be a third party, such as a dedicated custodian or depositary (usually the subsidiary of a bank); however, Funderbeam itself undertakes all of its custody in house.
Why does Funderbeam use nominee accounts rather than registering users as the owner of shares?
The advantage of nominee accounts is that they facilitate swift and cost-effective transactions.
A company raising finance on Funderbeam only has to legally issue the new shares to one entity (Funderbeam) who will allocate the pool of assets to users internally. This simplifies the company’s cap table and regulatory reporting. Investors can rely on Funderbeam to safeguard their investment, and they don’t need to handle paper share certificates.
The nominee account setup is also pivotal in allowing The Marketplace to function.
When users trade financial instruments between themselves, Funderbeam only has to note the change in beneficial owner in its internal records. As Funderbeam still holds the same shares before or after the sale, it doesn’t have to change the registered owner or notify the company of a change in shareholder. In some cases, changes in shareholder may not be permitted by company rules (except subject to a vote), so in such cases, nominee accounts facilitate the free trade of shares which would otherwise be restricted.
In some cases, investors may have the option to pay an additional fee to move their investment from the nominee account structure into their own name. A charge of €750 applies for this service where applicable.
Overview of The Marketplace
The Marketplace is a slick interface that offers 73 different financial instruments for trading (at the time of writing). The full market is easy to review at a glance using the trading screen:
Companies can be sorted by instrument type, market cap, sector and daily change in share price.
When an investment is selected, the individual investment screen provides full visibility over active buy and sell orders at each price point.
Each individual order is listed in the buy & sell list. We reviewed ten investments and found that the typical bid/offer spread ranged dramatically. The widest spread between buy and sell price we observed was 27%, whereas the tightest spread was 1.7% (shown below).
We weren’t expecting to see bid/offer spreads as tight as the FTSE 100 (0.2% is common), but 1.7% was very encouraging, and shows the quality of pricing available if investors are selective.
The overall price performance of a representative basket of securities listed on The Marketplace is measured by the Funderbeam Index. The index is a communication tool and cannot be invested in directly.
The performance of the Funderbeam index is shown below as at 22 January 2022. Past performance is not a reliable indicator of future returns.
With so much variety on offer, we can easily picture the average investor using both the primary and secondary markets to build their private equity portfolio.
The risks of a secondary marketplace
Any secondary market for financial instruments carries risks. You should be aware of these before you invest so that any investment is made with your eyes wide open to most possibilities.
Here is a summary of what could go wrong:
Funderbeam as a company could cease to trade. In such an eventuality, your investments held by Funderbeam, in theory, should remain secure (due to CASS rules, segregation of client assets and other regulatory requirements). While the investments will be transferred to another custodian, it is highly likely that the functionality of The Marketplace would immediately cease. This would effectively lock all investors into their existing holdings until a traditional exit opportunity presented itself.
During a period of panic or a downturn in the value of listed instruments, liquidity may dry up in The Marketplace as investors queue up to sell their shares to raise cash while at the same time there may be no buyers for the assets. This can result in liquidity disappearing until confidence returns and normal trading resumes.
This underlines the point that the existence of a secondary market does not guarantee liquidity. Even mature public stock exchanges can suffer liquidity issues during economic or financial turmoil. These factors are more pronounced on private exchanges where the number of participants is lower and the investments themselves are typically riskier and harder to value.
A smaller exchange will not necessarily have any participants fulfilling a ‘market maker’ role (i.e. someone who agrees to provide a buy and sell offer at all times to facilitate liquidity). Where the number of active traders is low, no trade may be possible at any price owing to a lack of buy orders on the other side of the order book, and there being no trader online who is willing to accept your sell order.
The Funderbeam website has an extensive risk disclosure statement which we consider to be essential reading before making any investment.
Fees & charges
The following fees and charges for investors were up to date at the time of writing but are subject to change, therefore always verify fees on the website before making an investment. Some fees may vary according to the terms of each investment opportunity.
Initial selling fee – 3%. Funderbeam may charge 3% on the value of a sellside trade the first time you sell assets on the Marketplace. NB this isn’t always charged so be sure to check before trading.
Carry fee – 3%. Funderbeam may retain ‘carry’ (which you can understand as a ‘share of profit’) on an investment in an exit scenario. This practically means it may take a cut of the realised profit on any investment before distributing the profits to investors. See below for a comparison of this charge to other platforms. NB not every investment on the platform has carry attached, so be sure to check the terms carefully before trading.
Marketplace trading fee – 0.5%. Funderbeam currently charges a 0.5% trading fee for sellers only, for all trades executed on the Marketplace
The terms (including fees) of each investment may differ according to the legal form of the transaction and the existence of lead investors. Therefore the investment arrangement document specific to each opportunity is the only accurate reference for the fees you will pay.
Managing your Funderbeam account
UK investors can deposit funds into their accounts through a bank transfer or debit card. As the UK is now outside the European Economic Area, card payments may be subject to a 3% service fee, making direct bank transfers the preferred method.
Cash can be converted from the domestic currency to other currencies as needed to participate in fundraisings denominated in other currencies such as Euros.
The minimum investment size for a primary fundraising round varies between €250 and €1,000 depending on the preference of the fundraiser. When trading on the secondary market, no minimum threshold applies.
What Funderbeam is not
Funderbeam is not a financial adviser. Any financial promotion featured on the site is not a personal recommendation to invest. Opportunities aren’t tailored for your personal financial circumstances. The Funderbeam Terms of Service reiterates that any promotion on the site is not a “representation that any financial instrument is appropriate for you.”
Therefore you should consider finding an independent financial adviser who will be able to provide impartial advice on an investment before you invest.
Funderbeam is not a traditional stockbroker. It does not provide access to the public stock markets. Funderbeam investors are limited to trading the financial instruments offered by companies who choose Funderbeam as their route-to-market to obtain finance. The CEO has set out a vision of also becoming the go-to market for the trading of other private company equities (which were originally issued elsewhere).
About Funderbeam (the company)
Funderbeam was founded in 2013 in Estonia (a member of the European Union since 2004).
Initially, the platform featured Estonian investment opportunities for European investors but this later expanded to investment offerings from the rest of the EU, including Scandinavia and now includes the UK and Singapore.
Funderbeam is itself a private company. It was founded by CEO Kaidi Ruusalepp (previously CEO – NASDAQ Tallinn Stock Exchange).
True to form, Funderbeam is owned by a consortium of venture capital investors. Funderbeam’s Crunchbase profile lists angel investor Tim Draper and venture capital firm ADV as lead investors, among others. The latest funding round in March 2021 saw it raise €4m to develop its marketplace and support its next period of growth. It had previously raised €4.5m in 2019, €2.6m in 2016, €960k in 2015 and was launched with €1.2m of capital.
How is Funderbeam regulated?
Depending on your country of residence, you’ll invest via one of three counterparties when using the platform:
- Funderbeam Markets Limited is authorised by the Financial Conduct Authority in the UK (FRN 794918) – for clients in the UK and the rest of the world not covered below.
- Funderbeam Markets AS is authorised and regulated by the Estonian Financial Supervision Authority – for clients in the EEA.
- Funderbeam Markets Pte Ltd is licensed as a Recognised Market Operator and as a Capital Markets Services entity by the Monetary Authority of Singapore – for clients in Singapore.
As a financial services firm, Funderbeam’s compliance duties include the requirement to perform KYC (Know Your Customer) checks on all investors so that it can report on the beneficial owners of investments on the platform, if necessary, for anti-money laundering purposes and other regulatory purposes.
How does Funderbeam compare to other equity crowdfunding platforms?
Similar UK equity crowdfunding services include:
- Angels Den
- Syndicate Room
Let us review how Funderbeam compares to these platforms in terms of investment choice, investment structure, fees and liquidity.
To give an idea of the range of investment choices available on each platform, we’ve recorded the number of separate offerings available for investment at the day of writing this review.
- Seedrs – 13 live pitches, and 584 companies on the secondary market
- Funderbeam – 6 live pitches, and 73 companies on the secondary market
- Crowdcube – 16 live pitches, no secondary market
- Angels Den – 9 live pitches, no secondary market
- Syndicate Room – 1 managed fund with a minimum of 50 investee companies
- Funderbeam – Equity (including EIS), convertible, loan notes (equity-like)
- Seedrs – Equity (including EIS), convertible, fund (uncommon)
- Angels Den – Direct equity (Potentially qualifying for EIS tax relief)
- Crowdcube – Equity (EIS)
- Syndicate Room – Single fund which qualifies for EIS tax relief
We were impressed by the range of investment options, both by sector, instrument type and business size. The most similar platform to Funderbeam is Seedrs, which has a larger number of companies on the secondary market, although Seedrs is not a licensed exchange, and is rather a straight peer to peer marketplace where buyers and sellers communicate their wish to trade. Interestingly, in 2021 Seedrs have announced they traded £6m of shares, compared to €15.9m on Funderbeam, which suggests there is considerably more liquidity on the Funderbeam Marketplace, given the fewer number of companies.
Initial investment fee
The initial investment fee may be the first explicit charge you pay as an investor, and therefore it’s one of the first points of comparison when looking at the costs of investing with different crowdfunding platforms.
All fees were up-to-date at the time of writing but may be subject to change. We have simplified some of the fees T&Cs for the sake of brevity therefore we invite you to perform your own research.
- Funderbeam 0%
- Angels Den 0%* (direct investment – the platform does not manage investments or facilitate resale of shares)
- Seedrs 1% primary offering / 1.5% secondary market
- Crowdcube 1.5% primary offering
- Syndicate Room 6.5% + VAT**
*Angels Den charges fees to the fundraising company rather than individual investors. Therefore, while no fees are directly paid by the investor, fees are paid in the background which may be factored into the price of shares offered to investors. Investments made through Angels are direct investments into companies and Angels Den has no further participation in the process, including the management or exit of investments.
**Syndicate Room initial fee of 6.5% plus VAT comprises a 2% initial fee & 3 years of management charges paid upfront.
Carry fee (performance fee)
The carry fee is a private equity term for a performance fee earned by the fund or facilitator of an investment. A carry fee could be simply deducted from any eventual payout seen from the sale of an investment, or it could be delivered to the provider in the form of ‘carry shares’ being awarded to the provider during the fundraising process.
- Angels Den 0%*
- Funderbeam 3%
- Seedrs 7.5%
- Crowdcube 5%
- Syndicate Room 10%**
*As above, Angels Den has no participation in the investment process after the initial fundraising therefore performance fees are arguably not applicable.
**Syndicate Room 10% carry is charged only on total profits above a 110% hurdle. This means the first 10% of return is not subject to a performance fee.
Overall, how does Funderbeam stack up against rivals?
Investment opportunities listed on Funderbeam are often exclusive, and therefore it makes sense to register with Funderbeam and consider diversifying across their opportunities even if you’re already happy with your current provider.
In a high-risk industry, it pays to diversify across platforms as well as individual companies. This is similar to the practice of sophisticated investors investing in several of the best Venture Capital Trusts or Enterprise Investment Schemes rather than place all their eggs in one basket. Investing in British and European opportunities on Funderbeam could provide additional geographical diversity to your portfolio, as many of the opportunities on other platforms tend to be US-centric.
Comparing Funderbeam against other UK crowdfunding platforms; the fees appear very competitive. Funderbeam has lower initial investment fees (0%) and carry fees (3%) compared its peers.
Conclusion: Funderbeam deserves your consideration
Funderbeam is a relatively established digital marketplace, which hopes to become the hub of trading in a variety of private market investments with the aid of proprietary tech.
The private markets have long been out-of-reach of retail investors. It is hoped that platforms such as Funderbeam will help open the doors to this exciting (and potentially lucrative) asset class.
When we compare the fees of Funderbeam to its main UK rival Seedrs, we note that the £ cost of initial investment and performance fees should be lower than Seedrs in the event that investments grow in value and are sold at a profit.
Funderbeam’s leading secondary market will provide some alternative exit options for investors, but this offer of liquidity comes with no guarantee. The success of The Marketplace will be directly tied to the success of the company in attracting new investors, the solvency of the company, and of course, the desirability of the underlying investments.
As we explained clearly at the outset, private markets are a high-risk asset class and you should consider obtaining financial advice before making an investment on a crowdfunding website. Angel investors who make deals to invest in small businesses on a regular basis are typically high net worth individuals, and any single investment is usually only a small fraction of their investable capital. This way, the investor can enjoy the process of investing but also accept heavy losses in the event that their investments are not successful.
We will continue to track the progress of Funderbeam and regularly update this review as they hit new growth milestones or roll out new features on the platform which we think would interest our readers.