Swen Uusjärv, one of the founders of Investoriteliit, sees an opportunity for jumpstarting the alternative stock exchange by bringing together the various alternative financing mediums, including the secondary market for crowdfunded investments.
“There has been little activity on the alternative stock exchange, because there simply aren’t enough offers,” Uusjärv observes. “This is caused by the abundance of alternative offers, which reduces the appeal of strong contributions from or takeover and flotation by foreign investors.”
As an example, he noted that the loans offered by banks are relatively cheap and start-ups do not qualify for them. “Perhaps, instead of seeking foreign capital, we should be expanding the circle of Estonian investors and partners through the alternative stock exchange,” claims Uusjärv.
He considers investment in start-up companies an untapped opportunity. “The new revolutionary visions knocking at our door may not fit in our everyday reality today, but they are undeniably the future, as already proven by various crowdfunding ventures, some of which have raised hundreds of thousands within mere hours,” states Uusjärv. “Every entrepreneur knows that it is reasonable to invest in the future today. Those that lag behind are headed for stagnation.”
According to Uusjärv, each crowdfunding platform is trying to create its own solution and figure out how to make the funds liquid through the platform. Uusjärv suggested that once crowdfunding platforms have finished raising money, all of the investors could be listed on the alternative stock exchange. “As the shares are made tradable, this would in theory create liquidity on a larger market than an agreement between a few investors or portals,” he explains. “This would make investments more transparent and incentivise companies to act in a more goal-oriented manner. Meanwhile, the take-off towards success would be the responsibility of the crowdfunding portal and the listing company.”
Currently, private investors in Estonia are not very active, because investment opportunities are limited and the overregulation of financial instruments is stifling new funding. “The lack of opportunities and new ideas has led us to a point where there is too much money in deposits, which is eaten away by inflation due to low yields. Soon inflation may even exceed the interest rates of term deposits,” he notes.
According to a study by the Estonian Financial Supervision Authority (EFSA), in 2015, people still preferred to keep their money on their bank account rather than in a term deposit. This study also showed that 61% or EUR 5.7 billion of Estonians’ private assets were various types of deposits, and 30% or EUR 2.7 billion were mandatory pension fund assets. “Money held in deposits is, frankly, only useful to the banks, and the low interest rates show that even some of the banks are not interested in deposits,” claims Uusjärv. “At best, the money simply retains its value, but in most cases the depositor is just paying the owner of the virtual deposit box for stashing their cash.”
To sceptics who wish to store their money as safely as possible to avoid losing their assets at any cost, Uusjärv points out that excessively risky businesses are not admitted to the stock exchange anyway. “To be admitted, a company needs to fulfil the EFSA’s admission criteria. Those that qualify are the more viable businesses,” notes Uusjärv. “Thus, investing in companies listed on the alternative stock exchange is much more reasonable and carries lower risks, and if it could be done in collaboration with crowdfunding portals, it would ensure a secondary market and liquidity for the investments.”
According to Uusjärv, the main reason why companies have avoided the alternative stock exchange is that listing alone is not enough. “You also need investors to subscribe to you, and most investors currently on the exchange have a lower stress tolerance, are fragmented, and are looking for speculative gains, i.e. seek to earn short-term profits through closing positions, and are not interested in making long-term commitments to a company,” he observes. Uusjärv believes that the problem of finding new investors could be solved through crowdfunding investors. “This is the key that already offers effective systems which allow you to raise a million euros in a matter of days, as long as the goal is adequate and the investors believe in the objective and the people behind it,” he claims.
Source: Äripäev Alyona Stadnik, 31 May 2016, Photo: Andras Kralla