The Startup Stock Exchange (SSX) was created by co-founders Ian Haet and Brian Niessen in 2011 to connect promising start-up companies directly with international investors. There is no minimum investment required and investors have 24/7 access to their trading accounts through an online brokerage system, permitting complete freedom over the buying and selling of shares. When shares are sold on the exchange, SSX takes a 1.5 percent commission on each trade.
For start-ups, the platform provides the opportunity to raise capital with all the benefits of crowdfunding but without the security risks and public exposure, and with considerably lower costs than other methods. When a start-up applies to be listed on SSX, it is put through a rigorous due diligence vetting procedure and, as a publicly listed company, issues regular reports to investors. From application to eventual registration on
SSX the fee for a start-up is fixed at $5,525, regardless of the amount of capital they plan to raise; they retain complete control over the capital after funding is raised. Companies from all business sectors can apply.
A support network of global advisors provides SSX with up-to-date information on local markets and the exchange’s board of experts offers continuous oversight and mentoring for companies. SSX operates through the Dutch Caribbean Securities Exchange (DCSX) in Curaçao. The DCSX is an international exchange for the listing and trading of domestic and international securities, similar to the NYSE or London Exchange. Curaçao is a constituent of the Kingdom of the Netherlands and abides by Dutch and European laws.
Since opening, the exchange has attracted investors from over 100 different countries and has three companies publicly trading: Aurantium Capital Ltd., a portfolio of 14 Latin American startup companies managed by Cygnus Capital; iRocket B.V., an investment vehicle for Rocket.la, a Latin American personal financial management website; and ColInnovation Investments SAS, a portfolio of Columbian startups.
Ian Haet, Co-Founder and CEO of the Startup Stock Exchange, responded to questions from The Worldfolio about this unique new bourse, the vetting process for companies which want to be listed on SSX and the expectations for its growth.
SSX seems a natural evolution from the crowdfunding phenomenon. What was your experience of seeking funding for your previous enterprises and how did that lead to the crea-tion of SSX?
SSX is a creation based on the experience of my business partner and I as entrepreneurs. We started a business together in Costa Rica and we had a very difficult experience in finding expansion capital from seed investors. First, because Costa Rica had a very limited supply of angel investors and second, because the traditional process of fundraising was incredibly time-consuming and closed to entrepreneurs without the right connections. This experience and others in the Caribbean led us to say “there has to be a better way.” This led to the Startup Stock Exchange. SSX is based on bringing both the investor and entrepreneur together in a transparent, liquid and regu-lated marketplace.
How many companies are currently involved in the application process and how many are currently trading publicly? Are you on course for the 15 to 20 firms you’ve predicted would be up and running by the end of 2015?
We have evaluated over 850 companies from 96 countries for listing. As of today we have three companies trading representing approximately US$1.5 million. We are working every day to find the very best companies to bring to the market for our clients. We are solidly on track to bring the 15 to 20 companies we predicted by the end of 2015.
How does SSX’s vetting procedure work? What do you look for in a company applying to go public on your platform? What’s the reasoning behind the $3 million maximum investment?
We put every company through a six step due diligence process. That infor-mation is compiled into a public offering prospectus and then approved by the DCSX regulators. We are seeking a company that is sustainable and compliant.
It does not mean the investment is not risky or even it’s a company that I personally would invest in, as we have investors seeking different types of companies with different risk profiles and through SSX they have the capability to invest as much or as little as they wish. Our job is to ensure the company is qualified to list and that the process is transparent and simple for the company and investor.
We are focused on the funding gap that exists between $100,000 and $3 million. Before $100,000 you have friends and family and over $3 million you have larger venture capital or even other marketplaces. The funding gap is so large and such a problem globally that it makes sense for us to focus on this level alone. Also, given the importance of regulating the marketplace, we feel that we can be more focused and diligent by focusing on a specific size.
You’ve spoken previously about SSX’s responsibility in terms of investors potentially being linked to illegal activity. How do you safeguard against such eventualities? Does SSX accepting Bitcoin, for example, make the process easier or more problematic?
We take the responsibility of preventing illegal activity such as money laundering very seriously. We have documented processes and procedures approved by the regulators that we follow for every new and existing client. This includes receiving government identification from them, checking they are not politically exposed individuals and checking them against international databases. I can be held personally liable if my company doesn’t follow the correct procedures when dealing with clients and their funds.
We have multiple layers of checks in place to prevent illegal activity. We have integrated with a number of payment processors that allow individuals to deposit U.S. dollars in their trading account. This includes one that allows an individual to sell Bitcoins for dollars and those dollars are deposited with SSX. By working with these processors we had an additional layer of due diligence and safeguards to the funding process.
When do you envisage receiving approval from the US Securities and Exchange Commission to accept applications from US investors, and how will that change the focus of SSX?
We expect to enter the U.S. by January 2016. We will enter the U.S. market by becoming a registered broker-dealer or working with one. I don’t envision it changing the focus of SSX since the process for SSX investors and companies will be the same. That is why we have waited to enter the U.S. market, we want-ed to ensure we could enter with publicly traded shares. We could have entered earlier by acting like “Angel List” which connects entrepreneurs and investors but doesn’t provide a liquid marketplace for trading the shares after investing.
Most of the major start-up ecosystems are in the US but there are plenty emerging scattered around the globe, in Europe, the Far East, Latin America, India, Australia… with an estimated 3 billion internet users worldwide, the possibilities for SSX appear limitless.
The market is very large. The U.S. has been the focus of many but we believe the global market holds the greatest potential. The available investment capital outside of the US is tremendous and it has not flowed in early stage businesses because of a lack of transparency and structure. These are both problems SSX solves. We source the deal, conduct the due diligence, structure them and then provide the investors a liquid market to control the buying and selling of their shares. The World Bank projects that by 2015 the global “crowdfunding” invest-ment market will be $93 billion.
According to Bloomberg, one of Uber’s major investors, Google, is preparing to go into direct competition. Twitter first round angel investor Greg Kidd has invested in SSX... Do you foresee similar ventures to SSX springing up in the future?
I think the market is very large, so other ventures can spring up, but SSX has spent over three years working on its processes and procedures and technical systems to ensure a solid marketplace for both investors and entrepreneurs. The work that was required to create a regulated marketplace that allows public trading of startup shares was tremendous. So I believe other ventures that want to work in this same space will be partners of SSX rather than competitors.
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