Equidam is one of the most interesting crowdfunding companies in Europe. Rather than providing yet another platform, they provide a portal to ease the online interaction between entrepreneurs and investors and offset the information asymmetry. Their main focus is on financial data and valuation, aspects that really matter when it comes to equity crowdfunding . Their valuation reports help companies looking for investors to make a fair offer, help investors in their decision making, but more importantly makes the equity crowdfunding industry more reliable and mature. We interviewed the two founders of Equidam, Daniel Faloppa and Gianluca Valentini, about their plans.
You are both from Italy but founded your company here in Rotterdam. How did you end up here?
We both have a background in economics and finance, and came to Rotterdam to do a Master in Finance and Investments. Even though we knew each other from the bachelor, this is where we got really to know each other and work alongside throughout the master. Once done with the studies, we decided to do something together to help entrepreneurs with finance.
When and how did you start?
We founded a blog about finance for entrepreneurs. Originally it was called financialkickoff.com, and the articles are still available on http://equidam.com/blog . We started in august 2012 in order to get an understanding of our target market, entrepreneurs looking for finance.
How did you get the idea for Equidam?
We met Robin Slakhorst, one of the founders of Symbid. Symbid is one of the biggest crowdfunding platforms in Europe. It is primarily focused on equity crowdfunding: crowdfunding campaigns where people who invest money get a share of future earnings in return. Within equity crowdfunding, valuation is a big problem. It is hard for all parties to estimate the future earnings and therefore to determine what share an investor should get. As a result, you often see crazy valuations, in which the value of the company is overestimated.
With our financial background, we could create an algorithm for estimating the right valuation. In order to test the algorithm, we used also data from Symbid.
Can you describe your product? What exactly do you provide?
With our website, entrepreneurs can create a valuation report. Shown to the right you see for example a report we did for symbid project and startup Linguistadores. This report uses five different methods to estimate the value of a company, two based on a qualitative method of analysis and three on financial models. By using this hybrid approach, we are able to cover companies from seed to expansion stage and come up with a range estimate for the company. The entrepreneur can use this as guidance for determining how many shares to give to the investors when designing the crowdfunding campaign. SellanApp, one of the companies we made a report for, did exactly that: they used Equidam to create a valuation report, and chose a valuation within the range given by Equidam. They provided the valuation report to potential investors. This way the crowdfunders see that based on the assumptions made, the SellAnApp proposition had a fair valuation.
How many companies used Equidam?
In only a few months, we registered more than 250 users and generated about 60 valuation reports. The platform Symbid has made a valuation report mandatory for all new offerings, so anyone looking to invest on Symbid will come across our product.
How did your company develop in the past year?
After the initial product design and launch, we learned a lot about our market and could make many improvements. For instance in January we redesigned our algorithm, because the outcomes of the initial algorithm were biased compared to the expert opinions. We also learned that design is important: our reports have to be easy to read otherwise they will not be used. In March we started building our platform by focusing on creating a functional layout. We also redesigned our reports. Our first report contained a lot of information and suited valuation experts well, but was hard to read for novice crowdfunding investors. Our reports are meant to help those novice investors with valuation, so we simplified the reports and gave them a pyramid structure: easy to understand summary to begin with, and more details in the back of the report. Finally we simplified the process of creating a report: you can now make a valuation report in 25 minutes.
A lot of these changes happened after Principe Management, in the person of its founder and Managing Director Don Ginsel, joined our company as a financial director and shareholder. He has an investment background and could give us a lot of feedback on our product.
How did you fund Equidam?
Our company was started with an initial seed round led by Symbid and Principe Management. This gave us an initial budget to fund our activities. Recently, we concluded a second seed funding via a crowdfunding campaign on Symbid, for about € 60.000. The campaign was the quickest ever registered on Symbid and was closed in 9 days. We combined online and offline activity in order to be as quick as possible. Ultimately our efforts paid off.
Your service plays an important role between three parties: investors, companies and crowdfunding platforms. Who do you see as your real customer?
Our business model is based on the establishment of partnerships with crowdfunding platforms. We have several degrees of interaction of our system, among which an API solution and a customized PaaS (platform as a service). On the other hand, the company being valued still is the final user, but not necessarily the customer. We provide a valuation tool but we need the data of the company to get to a value estimation. So we help the entrepreneur, by creating a report based on her data, in the communication with investors and in crowdfunding campaigns.
The quality of your product relies on the quality of your data. How much data do you currently have, and how many companies did you value?
Our databases contain data from thousands of companies, from all over the world. We get data from all propositions on Symbid, but we also use industry and country specific data from many other sources. Whenever we come across relevant data for equity valuation, we store it.
What is your view on crowdfunding as an industry? Will it stay?
Crowdfunding is still in its growth phase, and we believe it will stay in the news for at least 5-8 years. As an example, look at the recent investment by Google Ventures in crowdfunding platform CircleUp for $7.5Mln. The big question of course is which platforms will have the most volume at the end of the 5-8 year period. Like other industries, the platform with the most activity will be the most attractive portal for all new visitors so only a few big players will remain.
With our finance backgrounds, we know a lot about the value of diversification for professional money managers. If enough money managers decide that it makes sense to invest 2-4% of their portfolio in crowdfunding in order to diversify, there will be a huge equity crowdfunding market.
And what is your vision on Equidam? Where will you be in five years?
We see ourselves as a software company, that provides valuation tools to all parties that need these tools. Currently our focus is only on equity crowdfunding, but we have many opportunities to move into new markets, such as valuation for venture capital deals, or valuation models to be used in an accounting context. So currently we are a crowdfunding company, but that might change. We are also a software company, and also a big data company: we validate our models with real world data.
Speaking of validation, could your models be wrong? And would you be liable if that happens?
Our models can be used to compare the valuation of a specific company against similar deals in the market. It is always possible that the entire market is ‘wrong’ and in that case our model is of course also ‘wrong’. It is also possible that an entrepreneur enters exaggerated data into our model, and in that case our estimate would also be exaggerated. This is why we explicitly state that we provide a tool, that must be used correctly in order to get reliable results.
What is your view on the Rotterdam startup scene, as compared to Amsterdam?
The Rotterdam startup scene is growing rapidly. There are many interesting startups in Rotterdam, including Symbid, InvesteerLokaal, Linguistadores, Housinganywhere or timeforwood. In autumn, we are relocating our company to the Marconi tower, where the Startup Campus by the Erasmus Center for Entrepreneurship is located and where the new Rotterdam Hub will probably be.
image credit erasmus bridge: Julien Mohr