SINGAPORE (Aug 2): A day after FundedHere launched FundedX, a secondary broker platform for Southeast Asia startups and private companies, the Singapore-based crowdfunding platform had to come out and publicly clarify that the newly-launched platform is not a "private stock exchange" as claimed by certain media outlets.

See: FundedX, the secondary broker platform for Southeast Asia startups and private companies, launched

In a statement issued to the press on Thursday, FundedHere said: "The Monetary Authority of Singapore (MAS) has brought to our attention that the articles published by the press, containing the words 'private stock exchange' and 'bourse', may cause the markets to have a misconception that FundedX is a market operator and therefore has a licence as either an approved exchange, a Registered Market Operator (RMO) or an Exempt Market Operator (EMO).

"FundedHere wishes to clarify that the platform is merely one where buyers and sellers can register their interests to buy or sell a particular company stock at the pre-determined price set by FundedX."

In particular, FundedHere noted that buyers and sellers will not be able to negotiate on the share price of the company. "This means that there is not a process of price discovery and formation on the FundedX platform.”

Traditionally, when the owners of a private company wanted to sell, they either sold the whole company to a rich buyer or they went public in an Initial Public Offering and allowed anybody to buy the stock.

The great thing about a public stock exchange is that an investor should be able to buy a stock and share in its risks and rewards -- whether he wants to invest $1,000 or $100,000 -- albeit under the watchful eyes of regulators.

Investors buy and sell stocks by predicting whether their prices will go up or down, and try to make some money in the process. The “price discovery mechanism” which is absent from FundedX accounts for the rise and fall of stock prices based on investor demand.

While secondary-market speculation on private-company share prices was once rare, the emergence of tech start-ups and unicorns means this type of early-stage investment is much more common today.

From the perspective of an investor, if you want to join the game of buying low and selling high, your ability to buy low is greater if you are among the select few able to buy shares when the company is still private and success is far from certain.

This is why more ultra-high net-worth investors are getting in on the private-market speculation game. Even though they know they are not going to be protected in the same way they would be in the public markets, they can see enormous potential profits there.

Case in point is Josh Kushner, the lesser known younger brother of Jared, the son-in-law of US President Donald Trump, who hit the headlines for his investment in GitHub Inc, a platform which enables developers can host and review code, manage projects, and build software alongside million of other developers.

Back in 2015, Josh had invested US$150 million ($205 million) for a 10% stake in GitHub via his technology investment firm Thrive Capital. While US$30 million of Josh’s money was a direct investment into GitHub, the remaining stake worth US$120 million was pieced together by buying up shares from early company employees, giving him a stake of just under 10%.

Last month, GitHub was acquired by Microsoft Corp for US$7.5 billion, which means Josh will get a handsome US$750 million payout when the deal closes.

However, not all early-stage investors have a happy ending to tell. In the story “The rise and fall of Elizabeth Holmes and Theranos” which appeared in Issue No. 835 of The Edge Singapore, columnist Assif Shameen wrote about how wealthy early investors ended up losing most if not all of their money after being conned by founder Holmes.

Among them were Oracle’s founder Larry Ellison and prominent venture capitalist Tim Draper. Another early investor was billionaire media tycoon Rupert Murdoch, who invested US$5.8 million in February 2005 and more later.

At its height, Murdoch’s total investment in Theranos was worth over US$125 million. He was not alone staring at big losses. Mexican billionaire Carlos Slim, the world’s fourth-richest person, lost US$30 million; the Walton family, heirs of Walmart founder Sam Walton, lost US$150 million; the family of billionaire education secretary Betsy DeVos lost US$100 million.

Still, one Theranos is unlikely to stop other wealthy individuals from trying to move their stock-speculation practice to private markets where deals are often not transacted at arm's length and valuations remain airy at best.


Update: At 8.18pm on Thursday, FundedHere announced it is retracting its earlier clarification as it has discovered that it is factually incorrect to state that the business model that FundedX intends to engage in is licensed under FundedHere’s capital markets services license.

"FundedX will be required to be an approved exchange or a recognised market operator in order to do so. FundedX will refrain from operating until it has received the relevant authorisation to do so," it says.