Funding: the advantages of selling shares for start ups

The process of financing a start-up can be time-consuming, difficult and expensive. Companies outside the traditional money centres of Silicon Valley, New York or London lack access to networking opportunities and capital, meaning many bright, new businesses are overlooked.  Similarly, the opportunity to invest in early stage businesses is open to only the most wealthy.

Methods like crowdfunding, offer an alternative. Crowdfunding allows ventures to raise cash from a large group of investors who may or may not see a return on their investment. But what no alternative method offers is liquidity. Liquidity is flexibility - the ability to buy and sell shares when you want, in the amount that you want. In other words, the ability to cash out your investment whenever you choose to do so.

For centuries, businesses have used stock exchanges to provide liquidity. It’s a system that works well for both companies and investors. However, the majority of the world’s stock exchanges aren’t designed for the millions of start-ups and fast-growth SMEs, as they require substantial outgoings for consultancy and impose extremely rigid regulations that start-ups can’t match.

This is something that the Startup Stock Exchange, which is the first funding platform of its kind, seeks to address. By building an online trading platform designed specifically for small businesses, we could dispense with a lot of the costly requirements of listing, making the advantages of control, flexibility and liquidity that stock exchanges offer for startups and the people looking to invest in them. In fact, the cost of listing via SSX is half that charged for listing on some crowdfunding sites and a third of the cost generally involved in working with outside, private investors.

As with crowdfunding, SMEs and start-ups listing can raise funding from anyone, in any amount. However, unlike crowdfunding, listing provides a liquid and transparent marketplace. Investors buy publicly traded shares in the companies, with the capability of selling them at any point in the stock exchange. Also unlike crowdfunding, there is no time limit or deadline for raising capital.

Before any companies can list, they need to complete applications and undergo rigorous due diligence. This ensures that investing remains as risk-free as possible, encouraging potential investors who are keen to invest in exciting early stage businesses but who are put off by the lack of transparency and due diligence crowdfunding provides. The companies abide by clear rules and regulations modelled on the Alternative Investment Market and Alternext, providing Investors transparency and strong governance that is not available through crowdfunding.  This effort must only be made once to reach a vast pool of investors and so is significantly less than the time and effort that would be required when approaching multiple angel investors separately. 

To make themselves ‘listable’, startups should provide a thorough and considered business plan, because investors will be looking for assurance that their investment will be safe and profitable in the future. They should also provide detailed forecasts for growth in the coming years and the return that can be expected. With SSX, companies are guided through this process with consultancy, online tutorials and resources provided by SSX.

It is hoped that start-ups listing in the early-stages of their business will eventually graduate to traditional, established exchanges, once they have grown. SSX is plugging a gap in the market by providing stock exchange benefits to promising and ambitious businesses, for whom these opportunities were previously unreachable.  Learn more at www.Startup.SX
