I have a dream…
That everybody can buy and sell shares of startups at any time and any place.
In a post last month, I described what this would look like…
Exchanges will soon be faster… as well as better at moving large amounts of money and matching sellers with buyers. Instant information on a company – even a small far-off one, in Nepal, say – won’t be a problem. Instant access will be available to everybody on the cloud.
I called it the “holy grail”… a liquid market of private startup companies where billions of people around the world buy and sell shares.
And I said that by 2025 we “should be knocking on the door.”
That’s nine years away, not far off considering how creaky equity investing is and how illiquid startup investing is.
If anything, I thought I was being optimistic.
And it’s true that I was way off. But not in the way you think.
It could happen much sooner than 2025.
The technology is becoming available much faster than I thought.
Take OneChronos. I’ve mentioned this interesting startup before. It graduated from Y Combinator this past summer. It uses sophisticated techniques, including algorithmic game theory, machine learning and cryptography, to match buyers and sellers.
And it wants to level the playing field by eliminating the need to race over a network to get into a trade microseconds early.
Both its founders – Stephen Johnson and Kelly Littlepage – were trained in computer science. I wish them the best of luck.
The Technology Behind Bitcoin
But there’s another technology that may hold the key to overhauling today’s exchanges.
It’s “blockchain” tech – the same accounting system that powers bitcoin.
Blockchain’s decentralized ledger system has the ability to transform the underpinnings of exchanges, performing cross-border equity trades at lightning speeds while providing unmatched security.
(If you’re interested in learning more about how it works, I suggest you read this article to quickly get up to speed.)
A number of startups are now using the blockchain for payment processing and money transfers. Circle Internet Financial is just one example out of many.
And not long ago, the Nasdaq started experimenting with blockchain technology to automate trading of private shares.
But an unknown startup from Estonia may be beating it to the punch. It’s called Funderbeam and it’s headed by Kaidi Ruusalepp. She was previously CEO of the Nasdaq Tallinn stock exchange.
Using blockchain technology, it provides a transparent and trustworthy platform for secondary trading – letting shareholders sell their stakes in a startup.
And – true to my vision of an exchange that can provide “instant information on a company” – Funderbeam’s platform is also part research tool.
Aside from the Nasdaq’s cautious flirtation with blockchain technology, Funderbeam is the first company (as far as I know) to build a securities trading platform on the blockchain.
Ruusalepp says, “Imagine if Bloomberg, AngelList and Nasdaq had a baby.”
But it won’t be easy.
Confidential information is a problem of access, not technology. And the rules of almost every country, including the U.S., need to change to allow a global and frictionless cross-border exchange of securities to take place.
Blockchain technology has a plethora of applications. But we’re at the very beginning of a long runway here. Even the blockchain’s most proven and well-known application – bitcoin – has had setbacks and delays in being adopted.
Funderbeam’s vision is incredibly ambitious. It won’t happen overnight.
But the technology no longer seems to be the main obstacle. Rather – and this is no outrageous prediction by any means – it will be the governments of the world that fear the free flow of money and equity across borders.
But one step at a time. That’s another subject altogether.
Invest early and well,
Founder, Early Investing